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Wednesday, January 09, 2019

Options Regulatory Alert #2019 - 1
Approval of Supplement to the Options Disclosure Document


  • Regulatory

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On November 9, 2018, the Securities and Exchange Commission approved a supplement, referred to as the October 2018 Supplement (“Supplement”), to the Options Disclosure Document (“ODD”), entitled Characteristics and Risks of Standardized Options. See SR-ODD-2018-01.

The ODD contains general disclosures on the characteristics and risks of trading standardized options. The recently approved Supplement (i) amends and restates in its entirety the April 2015 Supplement, which accommodated foreign index options and certain implied volatility index options; (ii) provides additional contract adjustment disclosures regarding the determination of contract adjustments by The Options Clearing Corporation (“OCC”) rather than adjustment panels and the manner in which certain adjustments may affect an option’s value; and (iii) reflects T+2 settlement. As with other supplements to the ODD, the Supplement should be read in conjunction with the current ODD.

As provided in ISE, GEMX and MRX Rule 616: Every Member shall deliver a current options disclosure document to each customer at or prior to the time such customer's account is approved for options transactions. Where a customer is a broker or dealer, the Member shall take reasonable steps to assure that such broker or dealer is furnished reasonable quantities of current options disclosure documents, as requested by the broker or dealer, to enable it to comply with the requirements of this Rule.

As provided in NOM and BX Rules at Chapter XI, Section 7(e): At or prior to the time a Public Customer's account is approved for options transactions, an OEF shall furnish the Public Customer with one (1) or more current options disclosure documents issued by the OCC in accordance with the requirements of Section 15 of this Chapter XI (Delivery of Current Options Disclosure Documents and Prospectus).

As provided for in PHLX Rule 1024(v): At or prior to the time a customer's account is approved for options transactions, a member organization shall furnish the customer with one or more current Options Disclosure Documents in accordance with the requirements of Rule 1029.

The Supplement must be distributed to customers in accordance with the rules of your designated options examining authority regarding delivery of supplements to the ODD, including delivery by electronic means. Questions should be addressed to your designated options examining authority.

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