Regulators are taking steps to increase oversight of retail investors' ability to make risky options bets

Regulators are taking steps to increase oversight of retail investors' ability to make risky options bets
John W Banagan/Getty ImagesJohn W Banagan/Getty Images
  • FINRA will soon take the first steps to possibly enhance rules for risky options trading.
  • The industry regulator will post a request for comment in the coming weeks to get feedback on options rules.

Regulators are set to take early steps in beefing up rules for options trading, looking to better protect retail investors from placing big bets on the direction of a stock without fully understanding the risks involved.

FINRA, the Financial Industry Regulatory Authority, will post a request for comment on options trading in the coming weeks in the hopes of receiving feedback from the public, according to a FINRA spokesperson. The Wall Street Journal first reported the news.

"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.

Potential increased oversight could include expanding the approval process for individual accounts looking to buy and sell options contracts. The current set of rules was written in 1980 and has not been updated, the WSJ report said.

Options trading has boomed this year, according to data from the Options Clearing House that shows 39 million options contracts have been traded in 2021, a 35% increase from the year prior. About a quarter of that activity is coming from retail traders, who have piled into risky options bets to garner big returns, especially since the meme stock craze kicked off nearly a year ago.


In June, FINRA fined trading app Robinhood $70 million — its largest-ever fine — in part for giving thousands of customers the right to trade options when it wasn't appropriate for them to do so, the regulator said. In July, Cook warned brokerages of "targeted sweeps" to options account openings, and last month, FINRA issued a notice reminding brokerages of the extra requirements for approving options accounts.

Options trading is complex and requires making calculated bets on the timing of a move in a particular stock. The contract gives investors the right to buy or sell a stock or other asset within a specified timeframe without paying for it upfront.

"While some options strategies can help hedge an investor's portfolio against losses, other options strategies can be incredibly risky and expose an investor to sudden and severe losses," Caroline Crenshaw, a commissioner for the US Securities and Exchange Commission, said in September. "And of note to me, many inexperienced investors – perhaps not well-positioned to jeopardize their savings – began options trading earlier this year."