Series 9 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Options account approval

A registered options principal or qualified supervisor must approve a customer's options account before the first trade, after reviewing financial profile, objectives, experience, and risk tolerance.

ODD delivery requirement

The current OCC Characteristics and Risks of Standardized Options document must be delivered at or before options account approval, and delivery should be documented in firm records.

Discretionary options authority

Requires the customer's written power of attorney and principal approval before the firm accepts discretionary options orders; the scope of authority must be documented.

Material change review

When a customer's finances, investment objectives, or authorized traders change materially, the options account should be reviewed and reapproved as required by firm procedures.

Uncovered short option margin

Short options without cover require margin capacity and a higher approval level than long options because assignment can create unlimited or substantial obligations.

Position limit aggregation

Options position and exercise limits apply across accounts under common control, so supervisors must aggregate positions and prevent limit breaches before order entry.

Senior investor options review

Enhanced review is expected for senior customers, especially with concentrated or speculative options strategies; document the rationale and any escalation to a principal.

Options account agreement

The signed agreement identifies the customer, authorized traders, and terms for options trading; changes require customer authorization and firm approval.

Reg BI care obligation

For options recommendations, the firm must understand the product and the customer's profile and reasonably believe the recommendation is in the customer's best interest.

Guarantee against loss

Promising to cover a customer's options losses or sharing in profits violates FINRA rules and is prohibited regardless of the firm's approval process.

Early assignment risk

American-style short calls may be assigned before expiration, especially before ex-dividend dates; short puts may be assigned when deep in the money.

Exercise cutoff time

Firms set a daily cutoff for exercise and do-not-exercise instructions; missing it can result in automatic exercise of in-the-money options.

Best execution options

Supervisors must evaluate options order execution quality using price, size, speed, and venue characteristics, not merely the displayed NBBO at order entry.

Trade error handling

Options trade errors must be promptly escalated, documented, and corrected under firm procedures; concealment or improper customer allocation is prohibited.

Churning indicators

Excessive trading relative to the customer's objectives, high commissions, and repeated unsuitable options strategies can indicate churning and require principal review.

Options exercise limits

Exercise limits cap the number of contracts that may be exercised over a specified period for an underlying, and they are separate from position limits.

Fair and balanced

Options communications must present risks with prominence comparable to benefits and may not omit material facts that could mislead a reasonable investor.

Registered options principal approval

Options-related retail communications generally require approval by a registered options principal or qualified principal before use, with approval records retained.

Hypothetical performance disclosure

Projected or hypothetical options results must be clearly labeled, based on reasonable assumptions, and disclose that actual results may differ materially.

Testimonial disclaimer

A customer testimonial about options results must disclose that the experience is not typical and does not predict future performance.

Communication record retention

Communications and principal approvals must be retained for at least three years, with the first two years easily accessible under FINRA recordkeeping rules.

Social media supervision

Firm and personal social media used for options business is subject to the same approval, content, and recordkeeping standards as other retail communications.

No risk-free claim

Options communications may not describe options as safe, guaranteed, or risk-free; they must disclose that investors can lose the entire premium.

Options fee disclosure

Communications that discuss options costs must disclose material commissions, fees, and spreads that affect the customer's return or breakeven.

Form U4 amendments

A registered person must promptly amend Form U4 for material changes, including disclosure events, customer complaints, and changes to outside business activities.

Statutory disqualification screening

Firms must screen applicants for statutory disqualification before registration; hiring or associating with a disqualified person may require FINRA approval.

Fingerprint requirement

Employees whose duties involve securities activities must be fingerprinted under SEA Rule 17f-2 and firm procedures, with records retained.

Written supervisory procedures

FINRA requires written procedures that assign supervisors, describe review steps, and address options account approval, communications, and sales practices.

Regulatory Element deadline

Registered persons must complete the annual Regulatory Element continuing education by the required deadline; failure can result in registration inactivation.

Branch office inspection

Branch inspections review options sales, account approvals, communications, and supervisory records on a regular cycle set by firm procedures and FINRA rules.

Outside business activity

Before engaging in outside business activity, a registered person must provide written notice and obtain firm approval; undisclosed activities can violate FINRA rules.

Form U5 filing

After termination, the firm must file Form U5 promptly and amend it for post-termination disclosure events; inaccurate filings can harm the representative.