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IM-2860-2. Diligence in Opening Options Accounts

This rule is no longer applicable. NASD IM-2860-2 has been superseded by FINRA Rule 2360. Please consult the appropriate FINRA Rule.

(a) In fulfilling their obligations pursuant to Rule 2860(b)(16)(B), with respect to options customers who are natural persons, members shall seek to obtain the following information at a minimum (information shall be obtained for all participants in a joint account):

(1) Investment objectives (e.g., safety of principal, income, growth, trading profits, speculation);

(2) Employment status (name of employer, self-employed or retired);

(3) Estimated annual income from all sources;

(4) Estimated net worth (exclusive of family residence);

(5) Estimated liquid net worth (cash, securities, other);

(6) Marital status; number of dependents;

(7) Age; and,

(8) Investment experience and knowledge (e.g., number of years, size, frequency and type of transactions) for options, stocks and bonds, commodities, others.

(b) In addition, a customer's account records shall contain the following information, if applicable:

(1) Source or sources of background and financial information (including estimates) concerning the customer;

(2) Discretionary authorization agreement on file, name, relationship to customer and experience of person holding trading authority;

(3) Date disclosure document(s) furnished to customer;

(4) Nature and types of transactions for which account is approved (e.g., buying covered writing, uncovered writing, spreading, discretionary transactions);

(5) Name of registered representative;

(6) Name of ROP approving account; date of approval; and

(7) Dates of verification of currency of account information.

(c) Members should consider utilizing a standard account approval form so as to ensure the receipt of all the required information.

(d) Refusal of a customer to provide any of the information called for in paragraph (a) shall be so noted on the customer's records at the time the account is opened. Information provided shall be considered together with the other information available in determining whether and to what extent to approve the account for options trading.

(e) The requirement of Rule 2860(b)(16)(C) for the initial and subsequent verification of customer background and financial information is to be satisfied by sending to the customer the information required in paragraph (a)(1) through (a)(6) hereof, as contained in the member's records and providing the customer with an opportunity to correct or complete the information. In all cases, absent advice from the customer to the contrary, the information will be deemed to be verified.

Cross Reference–

Rule 2220, Options Communications with the Public

Amended by SR-NASD-93-48 eff. Mar. 8, 1994.