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FINRA examines broker-dealer handling of options accounts

On Behalf of | Sep 22, 2021 | FINRA, Representing Investors, Securities Law And Litigation |

When individual investors engage in options account trading, the potential for monetary gain is there, but also risk of financial loss. Because options trading can be more complex than some other kinds of investment, retail (individual) investors may elect to rely on their broker-dealers and financial advisors for education and advice about these transactions.

An option account consists of a contract giving its owner the optional right to purchase (call option) or sell (put option) a security like a stock or other financial product. The contract fixes the price (the strike price) and the time period within which the owner may exercise the option.

An option is a derivative investment because its worth is derived from a corresponding asset like a stock, currency or fund.

When negligent, improper or even fraudulent broker-dealer or advisor information, advice, oversight or activity as it concerns options accounts harms an individual investor, an attorney can provide advice about potential legal remedies before courts, organizations and agencies.

Oversight of practices regarding options accounts

In August 2021, the Financial Industry Regulatory Authority (FINRA) initiated a “targeted sweep” of broker-dealers to examine their business practices as they relate to opening and supervising options accounts for individual investors. The reviews will consider whether broker-dealers are complying with rules and regulations, following best practices for communication with retail investors and using sufficient due diligence vis-à-vis those accounts and their owners.

The letter sent to broker-dealers for this examination, which covers options account trading from Jan. 2020 to Aug. 2021, is available here.

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