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Options Penny Program

June 1st | 2020


In April 2020, the major U.S. options exchanges[1] banded together to submit a plan to the SEC that would make penny trading increments a permanent feature of the options markets.

In January 2007, the SEC approved rules that allowed the options exchanges to quote certain multiply listed options classes in penny increments for a six-month trial run (the “Penny Pilot”). Like the recent Tick Size pilot in the equities market, the Penny Pilot was an experiment to see whether investors would benefit from options being quoted in penny increments, and in which classes the benefits were most significant. Since 2007, the Penny Pilot has been expanded and extended several times; it is now set to expire on June 30, 2020, so the exchanges have proposed a permanent program (the “Penny Program”).


The minimum quoting increments that currently apply under the Penny Pilot would continue to apply for options classes included in the Penny Program. Specifically, (i) the minimum quoting increment for all series in the QQQ, SPY, and IWM would continue to be $0.01, regardless of price; (ii) options classes with a price of less than $3.00 would be quoted in $0.01 increments for all series; and (iii) options classes with a price of $3.00 or higher would be quoted in $0.05 increments for all series.


The Penny Program would initially apply to the 363 most actively traded, multiply listed options classes that (i) are currently included the Penny Pilot or, (ii) if not currently in the Penny Pilot, overlie securities priced below $200, or any index at an index level below $200. There are detailed requirements for when options enter and leave the Penny Program, but a rule of thumb appears to be that any option class that falls outside of the 425 most actively traded multiply listed option class would be removed from the Penny Program and therefore would be subject to the minimum quoting increment rules set by the exchanges.


Options classes subject to the Penny Program are reviewed annually to ensure the most active eligible issues are included in the Penny Program while also preventing a high rate of turnover for issues that are removed from the Penny Program. Unlike the Penny Pilot, the Program allows for options classes to enter and leave the Program throughout the year and during the annual review process.


This appears to be a pretty well-received measure because the SEC noted that “no comments were received in opposition to continuing to allow the Exchanges to quote in penny increments or with respect to the specific provisions regarding how the Penny Program will operate.”

[1] BOX Exchange LLC; Cboe BZX Exchange, Inc.; Cboe C2 Exchange, Inc.; Cboe Exchange, Inc.; CboeEDGX Exchange, Inc.; Miami International Securities Exchange, LLC; MIAX Emerald, LLC; MIAX PEARL, LLC; Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; NYSE American, LLC; NYSE Arca, Inc.

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