Key Takeaways
- Customer account information must be updated regularly.
- Material changes in customer circumstances require account review.
- Supervisors must ensure options agreements remain current.
- Position limits and exercise limits must be monitored.
- Account statements must be reviewed for accuracy and sent timely.
Options Account Maintenance
Supervising options accounts is not a one-time event. Ongoing maintenance and monitoring are essential to ensure continued suitability and compliance.
Updating Customer Information
When Updates Are Required
| Trigger | Action Required |
|---|---|
| Customer notification | Update account records promptly |
| Annual review | Verify information is current |
| Significant life event | Proactively reach out for updates |
| Trading pattern change | Review if circumstances changed |
Information to Monitor
- Changes in financial situation (income, net worth)
- Changes in investment objectives
- Changes in employment status
- Changes in risk tolerance
- Changes in tax situation
Position Limits
The options exchanges and OCC impose position limits that restrict the maximum number of contracts a customer can hold.
Position Limit Rules
| Factor | Description |
|---|---|
| Definition | Maximum contracts on same side of market |
| Same side | Long calls + short puts OR long puts + short calls |
| Underlying | Limits apply per underlying security |
| Aggregation | Related accounts may be aggregated |
Current Position Limits
Position limits vary by underlying security:
| Category | Typical Limit |
|---|---|
| Broad-based index | 25,000 to unlimited |
| Large cap stocks | 250,000 contracts |
| Mid cap stocks | 75,000 contracts |
| Small cap stocks | 25,000 contracts |
Supervisor Duty: Monitor customer positions to ensure they don't exceed applicable limits. Violations can result in disciplinary action.
Exercise Limits
Exercise limits restrict the maximum number of contracts that can be exercised within a five consecutive business day period.
Exercise Limit Rules
| Rule | Description |
|---|---|
| Period | 5 consecutive business days |
| Limit | Same as position limit |
| Monitoring | Track exercises across related accounts |
Account Statement Review
Statement Requirements
| Element | Requirement |
|---|---|
| Frequency | Monthly (quarterly if no activity) |
| Content | All positions, transactions, balances |
| Delivery | Mail or electronic with consent |
| Supervisor review | Sample review for accuracy |
Red Flags on Statements
- Unauthorized transactions
- Excessive trading activity
- Positions inconsistent with objectives
- Large unrealized losses
- Margin deficiencies
Options Agreement Maintenance
Keeping Agreements Current
| Requirement | Details |
|---|---|
| Updates | When material changes occur |
| Re-approval | When trading level upgraded |
| Retention | Maintain for required period |
| Accessibility | Must be retrievable for examination |
Recordkeeping Requirements
Required Records for Options Accounts
| Record | Retention Period |
|---|---|
| Account applications | 6 years |
| Options agreements | 6 years |
| Account statements | 6 years |
| Order tickets | 6 years |
| Correspondence | 3 years |
Supervisor Access
Supervisors must be able to:
- Access account records promptly
- Review transaction history
- Verify customer communications
- Document supervisory reviews
Position limits for options restrict the maximum number of contracts a customer can hold:
Exercise limits restrict the number of contracts that can be exercised within what time period?