Securities Industry Essentials Exam 2023-2024 For Dummies with Online Practice by Steven M. Rice

Author:Steven M. Rice [Rice, Steven M.]
Language: eng
Format: epub
ISBN: 9781119886877
Publisher: Wiley
Published: 2022-05-06T00:00:00+00:00

Some additional option rules

Yes, I know … even more? Don’t blame me; I didn’t design the test. Anyway, as with the preceding section, I think a quick perusal of the following items will give you enough of a general understanding of some of the additional rules that you should be able to pick them out of any multiple-choice questions posed on the exam.

Position limits: A number placed on the amount of option contracts that a person can hold or write on the same side of the market (bullish or bearish) on the same security. This will be covered more in depth if you are taking the Series 7.

Exercise limits: A number placed on the amount of option contracts that a person can exercise on the same side of the market (bullish or bearish) within five consecutive business days. This will be covered in more detail if you are taking the Series 7 exam.

Limit on uncovered short positions: FINRA may decide to limit the amount of uncovered short positions on option contracts of a given class if deemed necessary for the protection of investors.

Restrictions on option transactions and exercises: As with the limit on uncovered short positions, FINRA may also place restrictions on option transactions or the exercise of option contracts in one or more series of options of any class when deemed necessary to help maintain a fair and orderly market.

Open order on the “ex-date” (ex-dividend date): Since the underlying stock price will be lowered due to a dividend, the OCC will adjust option contracts accordingly unless otherwise instructed by the customer.

Confirmations: Members are responsible for providing a written confirmation of each option transaction for each customer’s account. The confirmation must include the type of option (call or put); the underlying security or index; the expiration month; the exercise (strike) price; the number of option contracts; the premium, trade, and settlement dates; whether it was a purchase or sale (long or short); opening or closing transaction; whether it was done on a principal or agency basis; the amount of commission; and so on. There’s more on confirmations in Chapter 16 — yippee!

Statements of account (account statements): All clients must receive account statements at least monthly if there has been any trading in the account for the previous month and at least quarterly (once every three months) when there has been no trading in the previous month. The account statements must show the security and money positions, entries, interest charges, and any other charges assessed against the account. Account statements are covered in more detail in Chapter 16.

Opening of accounts: In order to open an options account for a client, the client must receive an ODD, and you must exercise due diligence by getting the customer’s investment objectives, employment status, estimated annual income, estimated net worth, estimated liquid net worth, marital status, number of dependents, age, investment experience and knowledge, and so on. In addition, the account and all transactions must be approved by a registered options principal (ROP), branch office manager, or limited principal-general securities sales supervisor.

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