Supervising the Opening and Maintenance of Customer Options Accounts
The approval package
No options order - not even an opening purchase of a single call - may be accepted before the account is approved by an options-qualified principal. The file must contain: a customer application capturing investment objective, income, net worth, liquid net worth and prior options experience; the principal's written approval; evidence that the current Options Disclosure Document (Characteristics and Risks of Standardized Options) was delivered at or before approval and that the customer acknowledged receipt in writing; and, for margin accounts, signed margin and options agreements.
Traps the exam sets
- Approval by the wrong principal. A Series 7/24 branch manager who lacks an options principal or sales-supervisor registration cannot approve the account or later options activity.
- Retroactive approval. Signing the file after the trade executed is a violation even where the trade was suitable.
- Delivery versus mailing. Mailing the ODD the same day is not delivery before the order; an emailed link the customer never acknowledges is weak proof.
- Suitability is separate. The rep needs a reasonable basis given objectives and finances; the principal must independently review, not rubber-stamp.
- Maintenance. A change in objective, or a move from covered to uncovered writing, needs fresh approval and documentation.
Rule of thumb
No ODD, no trade. No qualified signature, no account.
Worked example
A customer calls at 9:40 a.m. to buy 10 calls. The application is complete, but the only signature on it is from a branch manager holding Series 7 and 24. The order must be refused until a Registered Options Principal or Series 9/10-qualified supervisor approves. If the rep enters the order and obtains approval at lunch, the firm has an unapproved options account - a supervisory violation regardless of profit or loss.