OCC Updates Options Disclosure Document

In an Information Notice, FINRA advised members that the Options Clearing Corporation ("OCC") issued the latest version of "Characteristics and Risks of Standardized Options" (also known as the "Options Disclosure Document" or "ODD"), which supersedes and replaces the prior document and related supplements. The ODD contains general disclosures on the characteristics and risks of exchange-traded options.

FINRA stated that the 2023 ODD contains new language to (i) accommodate cash-settled flexibly structured options on specific fund shares that meet certain specified criteria, (ii) provide additional details on the fungibility of flexibly structured options with standardized options, and (iii) address the scenario where an underlying security price may not be available and the resulting implications. The OCC also updated language describing when trading in a.m. settled index options may not occur in relation to an option expiration date and, in usual circumstances, due to market closures.

FINRA reminded members that (i) Rule 9b-1 ("Options disclosure document") under the Exchange Act requires broker-dealers to deliver the ODD and supplements to customers, and (ii) FINRA Rule 2360(b)(11)(A)(1) ("Options") have similar requirements, which mandate firms deliver the current ODD to each customer at or before the time the customer is approved to trade options. To comply with these regulations, FINRA said that firms may conduct a mass mailing of the March 2023 ODD to all approved customers or distribute the ODD to customers who have already received it at the time of confirmation of the relevant transaction. FINRA cautioned that (i) it is essential that firms comply with the requirements set forth by FINRA and SEC to ensure that customers receive the necessary disclosures before engaging in options trading and (ii) they may deliver the ODD electronically, provided that they adhere to the standards contained in Notice to Members 98-03. Firms may also transmit the ODD to customers who have consented to electronic delivery through a hyperlink.