Why Do Commission Charges on U.S. Options Vary?
Our option commission charge consists of two parts:
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The execution fee which accrues to us. For Smart Routed orders this fee is set at $0.65 per contract, reduced to as low as $0.15 per contract for orders in excess of 100,000 contracts in a given month (see website for costs on Direct Routed orders, reduced rates on low premium options and minimum order charges); and
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Third party exchange, regulatory and/or transaction fees.
In the case of third party fees, certain U.S. option exchanges maintain a liquidity fee/rebate structure which, when aggregated with our execution fee and any other regulatory and/or transaction fees, may result in an overall per contract commission charge that varies from one order to another. This is attributable to the exchange portion of the calculation, the result of which may be a payment to the client rather than a fee, and which depends upon a number of factors outside of our control including the client's order attributes and the prevailing bid-ask quotes.
Exchanges which operate under this liquidity fee/rebate model charge a fee for orders which serve to remove liquidity (i.e., marketable orders) and provide a credit for orders which add liquidity (i.e., limit orders which are not marketable). Fees can vary by exchange, client type (e.g., public, broker-dealer, firm, market maker, professional), and option underlying with public client rebates (credits) generally ranging from $0.10 - $0.90 and public client fees from $0.01 - $0.95.
We are obligated to route marketable option orders to the exchange providing the best execution price and the Smart Router takes into consideration liquidity removal fees when determining which exchange to route the order to when the inside market is shared by multiple (i.e., will route the order to the exchange with the lowest or no fee). Accordingly, the Smart Router will only route a market order to an exchange which charges a higher fee if they can better the market by at least $0.01 (which, given the standard option multiplier of 100 would result in price improvement of $1.00 which is greater than the largest liquidity removal fee).
For additional information on the concept of adding/removing liquidity, please refer here.