U.S. options industry dodges a bullet with fiduciary rule

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The U.S. options trading industry and people hoping to include exchange-listed options individual retirement accounts were relieved on Wednesday to learn U.S. regulators had decided against prohibiting those financial instruments in IRAs.

The Obama Administration unveiled its final version of a retirement advice rule aimed at protecting retirement savers from brokers.

An early proposal would have stopped brokers and advisors from recommending certain investment products, including listed-options, which some consider riskier, for use in IRAs.

The rule, proposed in April 2015, has been amended to incorporate public feedback from consumer groups and stakeholders.

One particularly contentious aspect of the original proposal was that it omitted exchange-listed options from a list of exempt asset types that brokers could continue recommending for IRAs.

Options market participants had sought the inclusion of listed options, fearing the rule would effectively bar the use of options in IRAs, a growing segment of the industry.

About 2 to 3 percent of overall equity options trading volume occurs in retirement accounts, according to estimates by The TABB Group, a consultancy. Going by 2015 trading numbers this would work out to somewhere between 75 million to 110 million options contracts a year.

The final rule, however, does away with the limited asset list.

"We are gratified that the Department recognized that investors should not be limited in the types of assets, including listed options, that they can hold in their retirement accounts," said Joseph Corcoran, head of government relations at options clearinghouse OCC in Chicago.

Individual investors also expressed relief at the shape of the final rule.

"The options industry can continue to push retail investors' involvement in exchange-traded options but only if they are in the best interest of the individual retail investor," said Mike Schellinger, partner at MicroCapClub, a forum for investors in microcap companies in the United States and Canada.

"Had the fiduciary regulations been enacted as originally proposed, many IRA investors would have had to change brokers and/or lose access to broker advice," he said.

(Reporting by Saqib Iqbal Ahmed; Editing by David Gregorio)

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