News & Insights

Regulators Are Set To Increase Oversight Of Retail Investors’ Ability To Make Risky Options Bets

After a dramatic boom in options trading this past year, FINRA plans to increase rules governing these risky trades. FINRA plans to solicit opinions on options rules from the public in the coming weeks.

“We share the concerns raised by the SEC and others that retail investors may be opening accounts to trade options and other complex leveraged products without fully appreciating the risks involved,” FINRA Chief Executive Officer Robert Cook said in a congressional testimony earlier this year.

The current set of rules- which was written in 1980 and has not been updated since- according to FINRA, does not adequately regulate options trading in the modern age. In the past year options trading increased by 35% from the previous year. About a quarter of that activity is coming from retail traders, who have piled into risky option bets to garner big returns, especially since the “meme stock” craze kicked off nearly a year ago. 

The increased oversight will likely include an expansion of the approval process for individual accounts looking to buy and sell options contracts. This follows FINRA ordering its largest ever fine- $70 million- against the trading app Robinhood in June. Robinhood relied on algorithms to approve customers for options trading which failed to satisfy the due diligence requirements set out by FINRA and led to thousands of customers being wrongly approved for options trading.

We recommend our clients review your option account approval process as it appears this may become an examination priority for FINRA in 2022.