The Financial Industry Regulatory Authority (FINRA) issued a new regulatory notice in response to the growing number of customers in Pennsylvania and around the country who desire to open brokerage accounts and trade options. The notice is designed to remind FINRA members of certain requirements necessary to approve a customer to trade options. These include requirements for FINRA members as well as their customers.
What is FINRA?
FINRA is a private U.S. corporation that is based in Washington, D.C. It acts as a self-regulatory agency for brokerage firms and exchange markets that voluntary join the organization.
Requirements to trade options
The FINRA stated requirements to trade options require broker-dealers to establish and then maintain what is called a Customer Identification Program to identify the identity of each of its customers. In addition, FINRA members must maintain specifically delineated information about each and every options customer during the entire existence of an account.
A customer can open and maintain an options account only if that individual or entity maintains pre-established margin requirements for options transactions. This data needs to be reviewed and revised as necessary during the life of an options account and must never be permitted to somehow become outdated.
Requirements also include the establishment of an approval process that FINRA members must follow when opening a customer’s brokerage account. There exists a requirement for ongoing supervisory review of options accounts.
Finally, FINRA members must provide all customers with the options disclosure statement. The options disclosure statement meeting FINRA requirements can be accessed via the Options Clearing Corporation’s website. In addition, members must satisfy all obligations enumerated in the the SEC’s Regulation Best Interest rule when making options transactions recommendations to retail customers.