FINRA Series 7Seeks Business for the Broker-DealerHard
A registered representative prepares a retail communication recommending a specific options strategy to prospective clients. Under FINRA rules governing options communications, this material must:
- ABe approved by the customer's employer if the customer works for a public company
- BBe filed with the Options Clearing Corporation before distribution
- CBe accompanied or preceded by the delivery of the Options Disclosure Document (ODD)
- DInclude only general market commentary and avoid any mention of specific option contracts
Show answer & explanationAnswer & explanation
Correct answer: C. Be accompanied or preceded by the delivery of the Options Disclosure Document (ODD)
Options communications recommending specific strategies must be preceded or accompanied by the Options Disclosure Document (ODD), also known as "Characteristics and Risks of Standardized Options," so investors understand the risks before or simultaneously with receiving promotional material.
Why the other options are wrong
- A. There is no requirement involving a customer's employer approving options communications.
- B. Filing with the OCC is not the applicable requirement; FINRA filing and ODD delivery are.
- D. Specific option contracts and strategies can be discussed, provided proper disclosure accompanies the material.
Options Disclosure Document (ODD) Requirement
Retail communications recommending specific options transactions must be accompanied or preceded by delivery of the ODD, explaining the risks and characteristics of standardized options.
- ODD must be given before or with the recommendation material.
- Applies specifically to options communications under FINRA Rule 2220.
- Failure to provide ODD is a violation of options communication rules.
Memory trick: No options pitch without the risk script — ODD comes first or alongside.