Priority or Professional Customer Orders

In the 4th quarter of 2009, certain U.S. option exchanges (CBOE, ISE) implemented rules which serve to distinguish orders originating from a group of public customers deemed to be "Professional" (i.e., persons or entities having access to information and/or technology which enables them to trade in a manner as a broker dealer) as opposed to retail.  In accordance with these rules, any customer account which is not a broker dealer and which places more than 390 listed option orders (whether executed or not) on a daily average across all option exchanges in a given month for its own beneficial account(s) will be classified as Professional. Since the original implementation by CBOE and ISE, most other U.S. options exchanges have similarly implemented rules to distinguish orders as "Professional" in origin.

Orders submitted on behalf of Professional customers to these option exchanges will be treated the same as broker dealers for purposes of execution priority and will be subject to a per contract transaction fee ranging from rebates of ($0.65) to a charge of $1.12 (depending upon the class of options). 

Brokers are required to conduct a review on a calendar quarter basis to identify those customers who have exceeded the 390 order threshold for any month in that quarter and who are to be designated as Professional for the next calendar quarter. Note that for purposes of this rule, spread orders are considered a single order, rather than each leg of the spread as an individual order. Customers impacted by these rules will be notified by IB.  In addition, IB's Smart order router is designed to take these new exchange fees into consideration when making routing decisions.

For additional details, please see the following links:

ISE Regulatory Circular 2009-179

CBOE Regulatory Circular RG09-148