SIE Ready🎯 Options · Lesson 6 of 6 · 4 min
Opening an Options Account: ODD, Approval, Agreement
📝 Before a customer places a first option order, FINRA Rule 2360 requires the firm to complete three steps in order.
💡 Key idea
ODD at or before approval; principal approves before the first trade; signed options agreement within 15 days after approval.
🧠 Why it matters
Under FINRA Rule 2360: (1) DISCLOSE: deliver the OCC's options disclosure document (ODD), Characteristics and Risks of Standardized Options, AT OR BEFORE the time the account is approved for options. (2) APPROVE: a qualified principal, such as a Registered Options Principal, approves the account in writing after the firm gathers facts such as investment objectives, employment, income, net worth, age and experience. No option order may be accepted before approval. (3) AGREEMENT: WITHIN 15 DAYS AFTER approval, the firm obtains the customer's signed written agreement to follow the rules, and sends the account information to the customer for verification. Memory aid: D-A-A, Disclose, Approve, Agreement.
📈 In the real world
📬 Ana, a fictional customer, asks to start writing covered calls. Her rep sends her the ODD and collects her income, net worth and experience. A Registered Options Principal approves the account Monday, and Ana places her first trade Tuesday. The firm then has until 15 days after Monday's approval to get her signed options agreement back.
📌 Takeaways
- ODD delivered at or before account approval
- A qualified principal (for example, an ROP) approves before any options trade
- Signed options agreement due within 15 days after approval
📖 Terms in this lesson
Options disclosure document (ODD): The booklet 'Characteristics and Risks of Standardized Options', which must reach a customer at or before options account approval.
✅ Test yourself
When must a customer receive the options disclosure document?
- With the first trade confirmation
- Within 15 days after approval
- Within 15 days after the first trade
- At or before account approval
Answer: D · At or before account approval
FINRA Rule 2360 requires delivery of the ODD at or prior to the time the account is approved for options. The 15-days-after-approval deadline applies to the signed options agreement, not the ODD.
Who approves a customer's account for options trading?
- The options exchange
- The OCC
- The customer's registered rep alone
- A qualified principal, such as an ROP
Answer: D · A qualified principal, such as an ROP
A Registered Options Principal (or another principal qualified under Rule 2360) must approve the account in writing. The rep gathers information but cannot approve alone; OCC and exchanges do not approve customer accounts.
Within what time must the customer's signed options agreement be obtained?
- Before the ODD is delivered
- 30 days after the first trade
- Before the account is approved
- 15 days after account approval
Answer: D · 15 days after account approval
Rule 2360 requires the written options agreement within 15 days after the account is approved. It need not be signed before approval or before the first trade, and the ODD comes first.
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