Supervising Options Communications
Categorize first, approve second
Every options communication with the public falls into one of three buckets under FINRA Rules 2210 and 2220: correspondence (written or electronic messages to fewer than 25 retail investors within any 30-day period), retail communications (25 or more retail investors, or any broadly distributed material such as a website, flyer, seminar handout or mass email), and institutional communications. Options communications must be approved by a Registered Options Principal, and retail communications must be approved before use. Correspondence may be reviewed after use under a written supervisory system, but the approval standard for options content is still the ROP.
Content standards
Material must be fair and balanced, must present risk alongside reward, must not promise or imply guaranteed returns, and must handle projections, hypothetical illustrations and past performance with the required caveats. Testimonials and cherry-picked track records are classic problem areas.
Traps
- Counting recipients incorrectly: one email blast to 40 prospects is retail, not correspondence.
- Assuming a Series 24 principal can sign off on options material - the approval must come from an ROP.
- Assuming internal memos to registered reps are "communications with the public" (they are not) yet ignoring that they still require supervisory review.
- Letting registered reps post options content on social media without pre-approval and retention.
Worked example
A rep wants to email a one-page flyer on covered-call income to 40 prospects. Because it reaches 25 or more retail investors in 30 days, it is a retail communication; it must be approved by an ROP before it goes out, and a copy must be retained. Sending it first and "filing it later" is a violation.