Information Notice – 4/27/23

The Financial Industry Regulatory Authority, FINRA, has published an Information Notice (Notice 04/27/23) to inform member firms of the availability of a new Options Disclosure Document (ODD). The document was created and updated by the Options Clearing Corporation and contains „general disclosures on the characteristics and risks of trading standardized options“. It thereby covers various issues, including the different types of options available to customers, related costs and margin requirements, tax considerations, specific risks to either counterparty.
The revised version contains new provisions or details on the following (as mainly quoted):
1. cash-settled flexibly structured options on certain fund shares;
2. the fungibility of flexibly structured options with standardized options;
3. the treatment of cash-settled flexibly structured options on certain fund shares where no underlying security price is available; and
4. circumstances of non-trading of a.m. settled index options in relation to an option expiration date.
Pursuant to Rule 9b-1 under the Securities Exchange Act (12 CFR Part 240, § 240.9b) and FINRA Rule 2360, broker-dealers are required to furnish this document to (prospective) clients that are engaged or will be engaged in options trading. According to FINRA, the updated document may be provided to clients electronically, i.e. through the use of a mass mailing to all clients authorized to engage in options trading. In any way, the updated document must be furnished to existing clients before customers engage in any options trading relating to (cash-settled) flexibly structured options and index options and to new clients as soon as they are cleared for options trading.