Firms required to deliver Supplements to each customer who gets or previously go the ODD.

[by Howard Haykin ]

FINRA issued an Information Notice relating to the November 2012 supplement to the Options Disclosure Document (ODD).  The supplement amends the ODD disclosure to accommodate adjustments for cash dividends and distributions for options overlying less than 100 shares.  Among other things, this change will help to ensure that mini options are adjusted when the corresponding standard-sized options are adjusted.

Specifically, the November 2012 Supplement would make clear that no adjustment will normally be made for any cash dividend or distribution that amounts to less than $0.125 per underlying share.  Further, for contracts originally listed with a unit of trading larger than 100 shares, the November 2012 Supplement will continue to provide that no adjustment normally would be made for any cash dividend or distribution that amounts to less than $12.50 per contract.

Firm Obligations.  As with other supplements to the ODD, this should be read in conjunction with the current ODD, Characteristics and Risks of Standardized Options.  Rule 9b-1 under the Securities Exchange Act requires broker-dealers to deliver the ODD and supplements to customers.   FINRA has similar requirements, as follows:

• FINRA Rule 2360(b)(11)(A)(1) requires firms to deliver the current ODD to each customer at or before the time the customer is approved to trade options.
• FINRA Rule 2360(b)(11)(A)(1) requires firms to distribute a copy of each ODD supplement to customers who previously received the ODD.

• Delivery is no later than the time a customer receives a confirmation of a transaction in the category of options to which the supplement pertains.
• FINRA Rule 2360(b)(11)(A)(1) says firms may comply by distributing the ODD supplement in various ways, including, but not limited to, one of the following:

   

  • conducting a mass mailing of the supplement to all of its customers approved to trade options who have already received the ODD; or
  • distributing the supplement to a customer who has already received the ODD not later than the time a customer receives a confirmation of a transaction in the category of options to which the amendment pertains.

Electronic Transmission.   Firms are reminded they may electronically transmit documents that they are required to furnish to customers under FINRA rules, including the ODD and supplements thereto, provided the firm adheres to the standards contained in the May 1996 and October 1995 SEC Releases, and as discussed in Notice to Members 98-3. Firms may also transmit the ODD and supplements to customers who have  consented to electronic delivery through the use of a hyperlink.

FINRA Staff Contacts.   Direct questions to:   Kathryn Moore, Office of General Counsel, at (202) 974-2974.

To access the source document, go to:  [ FINRA InfoNote, 1/24/13 ]    [ ODD Nov. 2012 Supplement ].