NASD Reminds Members of Sales Practice Rules Applicable to Transactions in Exchange-Listed Index Warrants, Currency Warrants and Currency Index Warrants
May 14, 2007
It recently has come to NASD's attention that certain firms may not be fully aware of the requirements of the Rule 2840 Series, which regulates member conduct relating to customer transactions in exchange-listed index warrants, currency warrants and currency index warrants (collectively, "index and/or currency warrants").1
In general, the provisions in the Rule 2840 Series mirror those for trading options in Rule 2860. For instance, Rule 2843 provides that no member shall accept an order from a customer for the purchase or sale of an index and/or currency warrant unless the account is approved for options trading pursuant to Rule 2860(b)(16).2
Similarly, Rule 2844 provides that the suitability provisions applicable to options in Rule 2860(b)(19) also apply to recommendations of index and/or currency warrants. In addition, the provisions in the options rules governing discretionary accounts, supervision, customer complaints, communications with the public and recordkeeping generally apply with respect to index and/or currency warrants.3
Finally, with respect to index warrants only, members must adhere to the position and exercise limits established by the exchanges on which the index warrants trade and must comply with NASD's position liquidation requirements.4
1 Each of these products is defined in Rule 2842 (Definitions).
2 Members also should be aware that exchanges may provide specific guidelines regarding member firm compliance responsibilities when handling transactions in other derivative and/or new financial products. See, e.g., Notice to Members 05-59, page 5 (referencing specific exchange rules).
See Rule 2845 (Discretionary Accounts), Rule 2846 (Supervision of Accounts), Rule 2847 (Customer Complaints), Rule 2848 (Communications with the Public and Customers Concerning Index Warrants, Currency Index Warrants, and Currency Warrants), and Rule 2849 (Maintenance of Records) respectively.
4 See Rule 2850 (Position Limits), Rule 2851 (Exercise Limits) and Rule 2853 (Liquidation of Index Warrant Positions).