Key Takeaways
- FINRA classifies communications as retail, institutional, or correspondence.
- Different approval requirements apply to each communication category.
- Options communications have additional disclosure requirements.
- Pre-use approval is required for most options retail communications.
- Record retention requirements apply to all communications.
Options Communication Categories
Supervising options communications is critical because misleading information can lead customers to make unsuitable investment decisions. FINRA has specific rules for how options can be communicated to customers and the public.
FINRA Communication Categories
FINRA Rule 2210 classifies communications into three categories:
The Three Categories
| Category | Definition | Examples |
|---|---|---|
| Retail Communication | Any written communication distributed to more than 25 retail investors within 30 days | Advertisements, websites, brochures, social media posts |
| Institutional Communication | Communication distributed only to institutional investors | Research reports to institutions, RFP responses |
| Correspondence | Written communication to 25 or fewer retail investors within 30 days | Emails to specific customers, personalized letters |
Options-Specific Requirements
Additional Rules for Options Communications
| Requirement | Description |
|---|---|
| ODD reference | Must reference the Options Disclosure Document |
| Risk disclosure | Must include appropriate risk warnings |
| Balance | Cannot emphasize benefits without risks |
| No guarantees | Cannot guarantee profits or protection |
Required Disclosures
All options retail communications must include:
"Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options."
Approval Requirements by Category
Retail Communications
| Type | Approval Required |
|---|---|
| Options advertising | Pre-use principal approval |
| Sales literature | Pre-use principal approval |
| Website content | Pre-use principal approval |
| Social media | Pre-use or post-use depending on type |
Institutional Communications
| Requirement | Details |
|---|---|
| Pre-use approval | Not required |
| Supervision | Must have supervisory procedures |
| Training | Personnel must understand requirements |
| Review | Periodic review required |
Correspondence
| Requirement | Details |
|---|---|
| Pre-use approval | Generally not required |
| Review | Must be reviewed per firm procedures |
| Risk-based | Higher-risk correspondence needs more scrutiny |
| Sampling | Random sampling of correspondence required |
Record Retention
Retention Requirements
| Communication Type | Retention Period |
|---|---|
| Retail communications | 3 years |
| Institutional communications | 3 years |
| Correspondence | 3 years |
| Approval records | 3 years |
Note: The first 2 years must be in an easily accessible location.
Exam Tip: The "25 retail investors in 30 days" threshold is critical for distinguishing between correspondence (25 or fewer) and retail communication (more than 25). This is frequently tested.
A written communication about options distributed to 30 retail investors within a 30-day period is classified as:
Which of the following is required in options retail communications?