Interpretive Letter to Name Not Public
February 17, 1999
Re: Compliance Registered Options Principal
This is in response to your letter to Timothy Miller, Assistant Director, NASD Regulation, Inc., District 1, concerning the scope of permissible activities of a Compliance Registered Options Principal (CROP) under NASD Rule 2860(b)(20)(B). Specifically, you ask whether a CROP may function as an "order taker," which you define as someone who becomes involved with a customer only after the customer has made the decision to buy or sell an option.
Rule 2860(b)(20)(B) states that:
Every member shall designate and specifically identify to the Association a Compliance Registered Options Principal (CROP), who may be the Senior Registered Options Principal, who shall have no sales functions and who shall be responsible to review and to propose appropriate action to secure the member’s compliance with securities laws and regulations and Association Rules in respect of its options business.
(emphasis added). Your letter seeks to limit the term "sales functions" as used in Rule 2860(b)(20)(B) to include only those activities that occur prior to receiving the options order, such as assisting the customer by offering opinions, providing research material or news releases, answering questions or in general saying anything or providing material in order to help the customer in making a decision to buy or sell an option. You argue that an order taker is not involved in option sales functions since he or she only becomes involved with a customer after the customer has made the decision to buy and sell an option.
We do not agree with your position. As was previously communicated to you, a CROP may not function as an order taker. A CROP is responsible for supervising a member’s options business, which includes not only the solicitation or support leading to a customer’s order, but also receipt and execution of such order. The requirement that a CROP has no sales functions is necessary to avoid the inherent conflict of interest of supervising one’s own activity. Since an order taker is directly involved in the firms options business, he or she must not serve as a CROP.
Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc. This letter responds only to the issues you have raised based on the facts as you have described them in your letter, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
Gary L. Goldsholle
Assistant General Counsel
Alden S. Adkins, Senior Vice President and General Counsel