Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank, is a U.S. law enacted in July of 2010, the purpose of which is to prevent the recurrence of events which lead to the 2008 financial crisis. Its principal goals are to:

- Promote U.S. financial stability by improving accountability and transparency within the financial system;
- Protect taxpayers from future bailouts of institutions deemed “too big to fail”; and
- Protect consumers from financial services practices considered abusive.

For additional information, please review the following sections:
- Dodd-Frank reforms
- Dodd-Frank and your IB Account

Dodd-Frank Reforms
To accomplish its goals, Dodd-Frank proposed the following reforms:

- Enhanced oversight and supervision of financial institutions through the creation of Financial Stability Oversight Council
- Creation of a new agency responsible for implementing and enforcing compliance with consumer financial laws (Bureau of Consumer Financial Protection)
- Implementation of more stringent regulatory capital requirements
- Changes in the regulation of over the counter derivatives including restrictions upon access to Federal credit by swaps entities, establishment of regulatory oversight and mandatory trading and clearing requirements
- Enhanced regulation of credit rating agencies intended to eliminate exemptions from liability, enhance rating agency disclosure, establish prohibited activities and impose standards for independent Board governance
- Changes to corporate governance and executive compensation practices
- Incorporation of the Volcker Rule which imposes restrictions upon the speculative proprietary trading activities of banking entities
- Mandating studies intended to reform investor protection rules
- Changes to the securitization market including requirements that mortgage bankers retain a % of risky loans.

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Dodd-Frank and Your IB Account
Perhaps most visible to IB account holders of all the Dodd-Frank regulations are those relating to money transfers. Here, Section 1073 of the Act introduces consumer protections designed to increase transparency with respect to the costs, timing and the right to repudiate cross-border transactions.
For purpose of Section 1073, a cross-border transaction is defined as an electronic transfer of money from a consumer in the United States to a person or business in a foreign country. As IB LLC is a U.S. based broker, all its account holders regardless of whether they are domiciled in the U.S. or not, benefit from this protection and it covers withdrawals denominated in a currency other than the U.S. dollar as well as USD denominated withdrawals sent to a non-U.S. bank. Account holders submitting a withdrawal which is covered by this regulation will be provided with a disclosure after confirming the request within Account Management. This disclosure will include the following information:

- The name and address of the sender and recipient
- The amount to be deducted from the sender’s IB account
- The amount projected to be credited to the recipient’s bank account including an estimate of fees which the receiving bank's correspondent bank(s) may charge. Note that these correspondent bank fees are not set by nor is any part of them earned by IB.
- A disclaimer that additional fees and foreign taxes may apply.
- Notice of the sender’s right to cancel the transfer request for a full refund within 30 minutes of it being authorized.
- Regulatory contact information in the event of questions or complaints.

When estimating correspondent bank transfer fees, IB takes into consideration information collected from past customer transactions in addition to data made available by our agent banks. We encourage our customers to review and consider this information when making decisions regarding cross-border transactions.

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Account holders logging into their account via IBKR's Secure Login System are issued a security device, which provides an additional layer of protection to that afforded by the user name and password, and which is intended to prevent online hackers and other unauthorized individuals from accessing their account. While IBKR does not charge any fee for the use of the device, certain versions require that the account holder return the device upon account closing or incur a replacement fee.  Existing account holders are also subject to this replacement fee in the event their device is lost, stolen or damaged (note that there is no fee to replace a device returned as a result of battery failure). 

In addition, while IBKR does not assess a replacement fee unless a determination has been made that the device has been lost, stolen, damaged or not returned, a reserve equal to the fee will placed upon the account upon issuance of the device to secure its return.  This reserve will have no effect upon the equity of the account available for trading, but will act as limit to full withdrawals or transfers until such time the device is returned (i.e., cannot withdraw the reserve balance).

Outlined below are the replacement fee associated with each device.

For instructions regarding the return of security devices, please see KB975

¹ The Security Code Card is not required to be returned upon account closing and may be destroyed and discarded once remaining funds have been returned and the account has been fully closed. Access to Client Portal after closure for purposes of viewing and retrieving activity statements and tax documents is maintained using solely the existing user name and password combination. This type of two-factor security is no longer being issued.

Under Section 31 of the Securities Exchange Act of 1934, U.S. national securities exchanges are obligated to pay transaction fees to the SEC based on the volume of securities that are sold on their markets. Exchange rules require their broker-dealer members to pay a share of these fees who, in turn, pass the responsibility of paying the fees to their customers.

This fee is intended to allow the SEC to recover costs associated with its supervision and regulation of the U.S. securities markets and securities professionals. It applies to stocks, options and single stock futures (on a round turn basis); however, IB does not pass on the fee in the case of single stock futures trades.  Note that this fee is assessed only to the sale side of security transactions, thereby applying to the grantor of an option (fee based upon the option premium received at time of sale) and the exerciser of a put or call assignee (fee based upon option strike price).

For the fiscal year 2016 the fee was assessed at a rate of $0.0000218 per $1.00 of sales proceeds, however, the rate is subject to annual and,in some cases, mid-year adjustments should realized transaction volume generate fees sufficiently below or in excess of targeted funding levels.¹

Examples of the transactions impacted by this fee and sample calculations are outlined in the table below.

¹Information regarding current Section 31 fees may be found on the SEC's Frequently Requested Documents page located at: http://www.sec.gov/divisions/marketreg/mrfreqreq.shtml#feerate

U.S. option exchanges have rules that distinguish between orders originating from public customers (i.e., not broker-dealers) whose trading behavior is deemed to be “Professional” (i.e., persons or entities trading in a manner more akin to a market maker than to a typical customer) and those whose trading behavior is not.  In accordance with these rules, any customer that is not a broker-dealer and averages more than 390 option orders (for its own beneficial account(s)) per day in U.S.-listed options in at least one month of a calendar quarter will be classified as Professional.

Orders submitted on behalf of Professional customers are treated the same as those of broker-dealers for purposes of execution priority and fees. 

Brokers are required to conduct a review on at least a quarterly basis to identify those customers who have exceeded the 390 order threshold for any month in that quarter, and such customers will be designated as Professional as of the next calendar quarter.

Order Counting

The definition of an order for these purposes varies slightly across exchanges, and customers seeking specific options counting rules (especially in connection with the use of algorithmic order types that might result in placing orders on both sides of the market under certain circumstances) should review the relevant exchange rulebooks and guidance. However, for purposes of options order counting, an order is generally defined as:

• A single order;
• A complex order of 8 or fewer option legs;
• Each option leg of a complex order of 9 or more option legs; or
• A parent order, even if that order is broken into multiple child orders on the same side/series by a broker for execution or routing purposes (except in connection with orders pegged to the NBBO, as discussed below). 

A customer-initiated cancelation and replacement (by any method, including, for example, as a result of Scale orders) of a parent order counts as a new order(s) according to the logic above (e.g., a cancel/replace of a single-leg order counts as one new order, whereas a cancel/replace of a nine-option-leg order counts as nine new orders). 

Orders Pegged to the NBBO/BBO

Note that for customers who use options orders pegged to the NBBO or BBO (such as, for example, relative orders or Pegged Volatility orders, or other parent order types designed to move with the NBBO/BBO), each cancel/replace of a child order based on a change in the NBBO/BBO constitutes an additional new order. Customers resting pegged orders in IBUSOPT for participation in RFQ auctions should also be aware that a pegged order will be treated as canceled and replaced each time such order participates in an RFQ auction in IBKR’s system (whether or not such order becomes an initiating order in an on-exchange auction). 

Account Aggregation

In calculating order totals, brokers must aggregate the options orders of all beneficially-owned accounts of the customer. IBKR aggregates options orders from an individual’s or entity’s account with those of related joint accounts, trust accounts, and organizational accounts.

Customers will be notified by IBKR upon a status change from a retail customer to a Professional customer. In addition, IBKR’s smart order router is designed to take exchange fees (including differences between professional and non-professional customer fees) into consideration when making routing decisions.

For additional details, please see the following links:

CBOE Regulatory Circular RG16-064

ISE 2014 RIC and 2016 RIC

NYSE AMEX 10-29