This is a reminder for broker-dealers who provide options services to their clients, that certain disclosure documents are required including the options disclosure document (“ODD”). In May 2022, FINRA provided an information notice to update firms on the options clearing corporation (“OCC”) disclosure document issued in March 2022. Under rule 9b-1 of the Securities Exchange Act broker-dealers are required to deliver the ODD and supplements to customers. FINRA has similar requirements in FINRA Rule 2360(b)(11)(A)(1), which, among other things, requires firms to deliver the current ODD to each customer at or before the time the customer is approved to trade options.
Firm’s may distribute disclosure documents in a number of ways including
- Conducting a mass mailing of the March 2022 ODD to all of its customers approved to trade options and who have already received the ODD;
- Distributing the March 2022 ODD to a customer who has already received the ODD, not later than the time a customer receives a confirmation of a transaction in the category of options to which the amendment pertains.
Firm’s who perform a mass mailing to clients with hard copy booklets, should ensure that they maintain the link to ensure that they are always accessing the current version of the document. The OCC notes that prior versions when a new version is available should not be used.
If firms choose to provide documents in electronic format (I.e. sending the link by email) firms should ensure that they are complying with the standards contained in the October 1995 and May 1996 Securities and Exchange Commission releases, and as discussed in Notice to Members 98-03. This includes an often missed component of consent to receive communications electronically. Specifically, “prior to delivering personal financial information electronically, the broker/dealer must notify the intended recipient that the information will be delivered electronically and obtain the recipient’s informed consent. The customer’s consent may be made either by a manual signature or by electronic means.”
Please contact us to learn more about our expert consulting related to the required compliance and product disclosures for your business.