U.S. SEC Options Market Structure Roundtable Contemplates Targeted Reforms to Modernize Options Markets

On April 16, 2026, the U.S. SEC convened an Options Market Structure Roundtable, bringing together regulators, exchanges, and market participants to evaluate the current state of the options market. The discussion highlighted a broad consensus that the options market has “never been better” for retail investors but identified areas for targeted regulatory action to enhance competition while addressing systemic risks and market fragmentation. Panelists emphasized that any future SEC action should be incremental and data-driven.

Market Structure and Competition: Rethinking Legacy Incentives

Panelists discussed competition in options markets and the role of specialist allocation rules, price improvement auctions, and trading floors.

• Specialist Allocation Rules. A central focus was the continued use of specialist allocation rules, such as the “five-lot rule,” which guarantee certain market makers a portion of order flow. Some panelists said that these guarantees distort competition by limiting access to order flow and entrenching incumbent firms, while others argued that such rules still serve an important purpose in less liquid options series.
• Price Improvement Auctions. Panelists widely agreed that retail price improvement auctions are critical mechanisms for achieving best execution. However, panelists noted that certain auto-match design features and exchange fee structures may disproportionately favor order initiators and discourage broader participation. Any changes to auction design would need to be implemented holistically across exchanges to enhance competition.
• Trading Floors. Although trading floors remain relevant for certain large or complex trades, several panelists questioned their broader value in a highly electronic market. Panelists also raised concerns that trading floors may facilitate internalization of order flow, reduce transparency, and result in less market exposure of options orders.

Retail Market Trends: Growth, Innovation, and Emerging Risks

Panelists expressed strong support for the current state of the retail options market, noting significant growth and improved access to trading tools.

• Payment for Order Flow (PFOF). Panelists expressed mixed views, with some emphasizing its role in improving execution quality and others raising concerns about transparency.
• Zero Days to Expiration Options. Panelists discussed the rapid growth of zero-days-to-expiration options among younger retail investors, noting that this trend has resulted in high trading frequency, increased account turnover, and forced liquidations.
• Investor Education and Technology. Panelists noted a shift toward digital and AI-driven tools for investor engagement. While these developments improve accessibility, they also raise questions about whether investors fully understand complex products.

Systemic Risk and Market Fragmentation: Concentration and Coordination Challenges

Panelists expressed concern about the increasing interconnectedness of the options market and resulting operational complexity.

• Risk of Interconnectedness. Panelists noted that increasing interconnectedness creates dependencies among exchanges, clearing firms, and market participants. Additional risks discussed include the concentration of clearing capacity, liquidity constraints imposed by regulatory capital requirements, and the absence of a coordinated crisis response framework.
• Market Fragmentation. Panelists noted that the proliferation of exchanges has increased connectivity costs, data and infrastructure burdens, and operational complexity. At the same time, panelists observed that the increasing number of strike prices and expirations has created inefficiencies, as many options series have little or no trading activity.

Looking Ahead

Should the SEC or exchanges elect to amend the rules governing the options markets, the panel emphasized that any changes pursued should be targeted, incremental reforms focused on

• recalibrating legacy specialist allocation rules by evaluating economic incentives created by the current structure
• enhancing competition in auction mechanisms to further improve the investor experience
• addressing market fragmentation by adjusting barriers to entry for establishing an exchange
• strengthening systemic resilience by addressing clearing concentration, capital constraints, and the lack of coordinated crisis response mechanisms
• improving transparency in retail trading practices, particularly regarding PFOF, and continuing to focus on investor education

Market participants should expect continued regulatory attention in these areas and consider how potential reforms may affect execution strategies, market structure, and future operations.

The SEC has encouraged market participants to submit comment letters to the roundtable to share their views.