Series 4 flashcards
Series 4 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Options Disclosure Document delivery timing
- The 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.
- Written ROP account approval
- A Registered Options Principal must review the customer's financial profile, objective, and experience and approve the options account in writing before any order is accepted.
- Uncovered writing separate approval
- Selling uncovered options and executing spread transactions each require specific written approval beyond general options authority, and that approval must be documented in the customer file.
- Discretionary options account requirements
- A discretionary options account requires a written power of attorney from the customer, written firm acceptance, and ROP approval, and is subject to heightened supervisory review.
- Options account information requirements
- The application must record age, investment objective, income, net worth, liquid net worth, investment experience, tax status, and existing holdings to support the suitability analysis.
- Reg BI care obligation
- When recommending options to a retail customer, the firm must have a reasonable basis, tailor the recommendation to that customer, and consider costs and reasonably available alternatives.
- Standard options position limit
- For most equity options a customer may hold no more than 25,000 contracts on the same side of the market for one underlying, aggregated across accounts under common control.
- Options exercise limits
- Exercise limits cap the number of contracts that may be exercised on the same side of the market over any five consecutive business days, generally mirroring position limits.
- Uncovered short call margin
- Required equity is 100% of premium plus 20% of underlying value minus the out-of-the-money amount, with a minimum of premium plus 10% of underlying value.
- Uncovered short put margin
- Required equity is 100% of premium plus 20% of underlying value minus the out-of-the-money amount, with a minimum of premium plus 10% of the strike price.
- Cash account options payment
- Options bought in a cash account must be paid for in full by settlement; the member may not extend credit, arrange a loan, or carry the position on margin.
- Exercise by exception threshold
- OCC automatically exercises expiring in-the-money options with a strike price differential of at least $0.01 unless the firm files a do-not-exercise instruction before the cutoff.
- Equity option contract specifications
- One standard equity option contract represents 100 shares, is American-style and exercisable any business day, and expires on the Saturday after the third Friday.
- OCC split adjustment threshold
- OCC adjusts outstanding contracts for stock splits and stock dividends of 10% or more; splits below 10% generally produce no change to strike price or deliverable.
- Broad-based index option characteristics
- Broad-based index options such as those on the S&P 500 are European-style and cash-settled, exercisable only at expiration; AM-settled versions stop trading Thursday.
- Options order priority rules
- Exchange matching rules give priority to the best price first, then to the earliest time of entry among orders bidding or offering at the same price.
- Best execution factors
- The firm must seek the most favorable terms reasonably available, weighing price, speed, likelihood of execution and settlement, order size, and the nature of the order.
- ROP approval of retail communications
- Every retail communication about options must be approved in writing by a Registered Options Principal before first use, and the approval record must be retained.
- Retail communication filing deadline
- Most options retail communications must be filed with FINRA's Advertising Regulation Department within 10 business days of first use; new member firms must file before use.
- Correspondence supervision definition
- Written or electronic messages distributed to 25 or fewer retail investors within any 30-calendar-day period; principal pre-approval is not required, but review and supervision are.
- Prohibited performance projections
- Retail communications may not project or imply specific investment results, and any hypothetical illustration must be labeled as hypothetical and not a promise of results.
- Past performance caveat rule
- Performance claims must reflect representative actual results without cherry-picking favorable accounts and must disclose that past performance does not guarantee similar future results.
- Records retention period
- SEC Rule 17a-4 and FINRA Rule 4511 generally require books and records to be preserved for six years, with the first two years maintained in an easily accessible place.
- Rule 4530 complaint reporting
- The firm must report to FINRA quarterly certain written customer complaints alleging theft, misappropriation, forgery, or options sales-practice violations, and must record all complaints.
- Annual supervisory control report
- FINRA Rule 3120 requires an annual report to senior management describing the supervisory control system, identifying significant failures, and certified by a CEO-level officer.
- Reg BI four obligations
- Regulation Best Interest imposes disclosure, care, conflict of interest, and compliance obligations on recommendations of options and other securities to retail customers.
- Suspicious activity report deadline
- A SAR must be filed with FinCEN within 30 calendar days of detecting suspicious activity, or 60 calendar days if no subject can be identified, and retained five years.
- Form U4 filing deadline
- A Form U4 must be filed within 30 days of the person's association with the firm, and amendments are due within 30 days of a reportable event.
- Regulatory Element completion timing
- Registered representatives must complete the Regulatory Element within 120 days of the second anniversary of registration and every three years thereafter; failure suspends registration.
- OSJ inspection frequency
- Each office of supervisory jurisdiction must be inspected at least annually; all other offices are inspected on a risk-based cycle of no less than every three years.
- Outside business activity notice
- Rule 3270 requires prior written notice to and approval by the firm before a registered person engages in an outside business activity for compensation or as an investment.
- Form U5 termination filing
- The firm must file a Form U5 within 30 days of termination of an associated person's registration and must provide that person a copy of the filing.