Series 4 cheat sheet

The Options Disclosure Document (ODD), 'Characteristics and Risks of Standardized Options,' must be delivered to the customer at or before the time the firm approves the account for options trading.

No options order may be accepted or executed until a Registered Options Principal (ROP) has approved the account in writing.

The new account application must capture age, marital status, dependents, investment objective, income, net worth, liquid net worth, investment experience, tax status, and existing holdings.

Uncovered (naked) writing and spread transactions each require specific written approval in addition to the general options trading approval on the account.

Discretionary options authority requires a written power of attorney from the customer plus written acceptance and ROP approval; such accounts receive heightened supervision.

If the signed options account agreement is not returned within 15 days of approval, the account may only enter closing transactions until the agreement is received.

Third-party trading authorization requires a written authorization signed by the customer and firm acceptance before orders may be accepted from the third party.

A recommendation to open an options account must satisfy the care obligation of Reg BI / suitability: reasonable basis, customer-specific, and cost- and alternatives-aware.

FINRA Rule 2360 (formerly Rule 2860) governs options account approval, account agreements, and the related recordkeeping obligations.

Standard position limit: 25,000 contracts on the same side of the market for each underlying, aggregated across all accounts under common control or acting in concert.

Exercise limits cap the contracts exercisable on the same side of the market over any five consecutive business days and generally mirror position limits.

Hedge exemptions and offsetting positions may relieve a limit, but the exemption must be documented before the position is established, not after.

Uncovered short equity call margin: 100% of premium + 20% of underlying value − out-of-the-money amount, minimum 100% of premium + 10% of underlying value.

Uncovered short equity put margin: 100% of premium + 20% of underlying value − out-of-the-money amount, minimum 100% of premium + 10% of strike price.

Options purchased in a cash account must be fully paid by settlement; a member may not extend credit, arrange a loan, or carry the position on margin.

OCC exercise-by-exception automatically exercises expiring in-the-money options with a strike differential of at least $0.01 unless a do-not-exercise instruction is filed before the cutoff.

Same-day resale of a purchased option requires a binding commitment from a buyer at a definite price obtained before the opening purchase order is entered.

The ROP must monitor cost-to-equity ratios, turnover, and concentration to detect and stop excessive trading or churning, and must act on red flags rather than wait for a complaint.

A standard equity option contract covers 100 shares, is American-style (exercisable any business day before expiration), and expires on the Saturday following the third Friday.

OCC adjusts outstanding contracts for stock splits and stock dividends of 10% or more; splits below 10% generally leave strike price and deliverable unchanged.

Broad-based index options such as those on the S&P 500 are European-style and cash-settled; AM-settled versions generally cease trading the Thursday before the third Friday.

Exchange matching priority is price first, then time of entry; internal crosses and trade allocations must be fair, documented, and never cherry-picked.

Best execution requires the firm to weigh price, speed, likelihood of execution and settlement, order size, and the nature of the order before routing.

Mergers, spin-offs, and special dividends can generate OCC adjustments that change the strike, the number of contracts, or the deliverable (including cash or other securities).

A stop order becomes a market order when the stop is elected; a stop-limit becomes a limit order and may go unfilled if the market gaps through the limit.

Firms must have procedures to solicit exercise instructions from customers holding expiring in-the-money positions and to act before the exercise cutoff.

Order tickets must record time of receipt, time of entry, time of execution, price, account identification, capacity, and whether the order was solicited.

Every retail communication concerning options must be approved in writing by a Registered Options Principal before first use, and the approval must be retained.

Communications must be fair and balanced, must include appropriate risk disclosure that options are not suitable for all investors, and may not omit material facts.

Projections of investment results and performance guarantees are prohibited; hypothetical illustrations may be used only with prescribed disclosures and never as a promise.

Past-performance claims must be representative of actual results, may not cherry-pick favorable accounts, and must disclose that past performance does not guarantee future results.

Most options retail communications must be filed with FINRA's Advertising Regulation Department within 10 business days of first use; new members must file pre-use.

Correspondence is written or electronic material sent to 25 or fewer retail investors in any 30-calendar-day period; it needs supervision and review but not principal pre-approval.

Testimonials in retail communications require disclosure of whether the speaker was paid, any conflicts of interest, and the fact that the testimonial may not be representative.

Copies of communications and the related approvals must be retained for three years, the first two in an easily accessible place.

Internal communications are not retail communications but remain subject to the firm's supervisory and review systems.

SEC Rule 17a-3/17a-4 and FINRA Rule 4511 require books and records to be preserved for six years, with the first two years readily accessible.

FINRA Rule 4530 requires the firm to report to FINRA quarterly certain written customer complaints, including allegations of theft, forgery, misappropriation, or options sales-practice violations.

FINRA Rule 3110 requires a written supervisory system and procedures; Rule 3120 requires an annual supervisory control report to senior management, certified by a CEO-level officer.

Regulation Best Interest imposes four obligations on recommendations to retail customers: disclosure, care, conflict of interest, and compliance.

AML obligations include a customer identification program, filing SARs within 30 calendar days of detecting suspicious activity (60 days if no subject is identified), and CTRs at $10,000.

Section 10(b) of the Exchange Act and Rule 10b-5 prohibit manipulative and deceptive options practices such as marking the close, front running, and wash trades.

Options sales literature and advertising are securities communications subject to FINRA Rules 2210 and 2220, including filing, approval, and retention requirements.

Options order tickets, confirmations, and account records must be produced promptly on regulatory request; missing or reconstructable records are treated as a supervisory failure.

Each member firm must have at least one Registered Options Principal registered with FINRA and the applicable options exchange before conducting an options business.

Form U4 must be filed within 30 days of the person's association with the firm; amendments are due within 30 days of a reportable event, and statutory disqualification events require notice within 10 days.

Continuing education: the Regulatory Element is due within 120 days of the second anniversary of registration and every three years thereafter; the Firm Element is required annually based on a training-needs analysis.

FINRA Rule 3110(c) requires an annual inspection of every office of supervisory jurisdiction; other offices are inspected on a risk-based cycle of at least every three years.

Rule 3270 requires prior written notice to and approval by the firm before a registered person accepts an outside business activity; Rule 3280 governs private securities transactions.

Rule 3220 limits gifts and gratuities connected to the firm's business to $100 per person per year; occasional meals and entertainment in reasonable circumstances are not counted.

Rule 3240 permits borrowing from or lending to customers only where the firm's written procedures allow it and specific conditions (such as a lending institution relationship) are met.

Form U5 must be filed within 30 days of termination of registration, and the firm must deliver a copy of the filing to the departed representative.

FINRA Rule 3110(a)(7) requires every registered person to attend an annual compliance meeting or complete equivalent annual training.

Fingerprint cards must be obtained for associated persons and non-registered personnel subject to fingerprinting, with records retained per Rule 17f-2.