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FINRA Assumes Regulatory, Insider Trading Role for Options

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The Financial Industry Regulatory Authority has signed an agreement that will make it the primary regulator for the options industry. The self-regulator announced Monday that it has signed an agreement with the Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) to provide “market surveillance, financial surveillance, examinations, investigations, disciplinary services” and other regulatory services to the two exchanges starting Jan. 1, 2015.

FINRA also said it will thus be assuming responsibility for the Options Regulatory Surveillance Authority (ORSA) insider trading program, which the self-regulator said it would integrate with its own equity insider trading program, thus allowing FINRA to “conduct surveillance for all equities and options trading” in the U.S. 

As part of the agreement with CBOE and C2, FINRA said about 125 employees, “the vast majority,” of the exchanges’ Regulatory Services Division, ORSA, and Systems Development Department staffs who support options regulation “have accepted positions with FINRA.” 

FINRA Chairman and CEO Richard Ketchum said in a statement that the agreement with the two options exchanges will position it to “conduct cross-market surveillance on approximately 60% of the options market. FINRA looks forward to working with CBOE to detect and deter manipulative and abusive trading, and ensure the integrity of our markets.” FINRA said the agreement will also give it the ability to “detect cross-product (equity and options) manipulation.” 

ORSA was established in 2006 as part of the SEC-approved National Market System plan under which the then six options exchanges in the U.S. (now 11) would collaborate in insider trading surveillance and investigations.


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