Compliance and Regulatory Alerts  |  08-17-21

Regulatory Alert: FINRA Exam Letter Targets Options Trading

Regulatory Alert: FINRA Exam Letter Targets Options Trading

On August 10, 2021, FINRA issued a targeted examination letter alerting firms that the regulator was conducting a review of all activities related to options accounts. The letter follows FINRA guidance, issued on April 9, 2021, on options account approval, supervision and margin requirements. (See previous Bates post here.) In the new examination letter, FINRA requests information on account supervision, communications, and diligence from January 1, 2021, through August 10, 2021 (the date of the letter). Though the due date for the information has not yet been published, firms should begin working to formulate their responses immediately.

Among the requests for information include:

  •  All written supervisory procedures, manuals and guidance on the processes and procedures for account openings, options trading, and “activities specific to each level of trading permission.”
  •  Any surveillance or review of options accounts.
  •  Any technology used for approvals or denials on options accounts (and firm supervision over such processes).
  •  Examples of failures to apply options limitations appropriately and the follow-up steps taken to address them.
  •  Whether the firm requires customers “to open margin accounts or otherwise be approved for margin in connection with the options activity” (and any technology involved in a systematic approval or denial of margin accounts).
  •  Any reviews undertaken concerning recommendations or promotions for options trading across the customer base.
  •  Any advertisements to customers concerning the applications for options accounts (and samples of the applications themselves).
  •  All sample options related disclosure material that explains firm policies and practices on options recommendations, trading and expirations.

FINRA clarified that these requests for information pertain to both self-directed accounts and accounts in which registered representatives recommended options. The requests exclude institutional and managed accounts.

How Bates Helps:

Bates staff and experts have been retained to assist counsel in analyzing and explaining the interplay between the use of margin, the posting of collateral, their impact on equities trading and options strategies, and to help the parties understand the potential exposure. If you or your colleagues are involved in options and margin matters, we would be happy to arrange a call to share with you our knowledge and experience.

For more information concerning our Analyses and Litigation Services, please contact:

For regulatory and compliance questions, please contact:

 

Below, please find links to our options and margin consulting and testifying experts and their CVs for your reference:

Options

Margin

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