Finra targets options trading in latest exam sweep

The regulator is probing how brokerages approve and monitor options trading for customers and is requesting information pertaining to self-directed accounts and accounts in which a registered representative made recommendations.

Finra is looking into brokerage firms’ practices related to options accounts.

The Financial Industry Regulatory Authority Inc. announced Tuesday that it is launching an examination sweep probing the supervision, communications and diligence surrounding the opening of options accounts.

The review covers accounts that were opened between Jan. 1, 2020, and this month, according to a notice posted on the Finra website. The broker-dealer self-regulator is requesting information pertaining to self-directed accounts and to accounts in which a registered representative recommended options, but excludes institutional and managed accounts.

The notice outlined the 10 kinds of information Finra examiners will seek. They will focus in part on the firm’s supervisory procedures for determining whether it’s appropriate to open an options account for a customer.

Finra also will review whether a firm has a system for monitoring accounts and determining whether a customer who previously has been approved for options trading should be moved into a more restrictive account.

“Describe instances identified by the firm where options limitations (account approval or transactions in options accounts) were not appropriately applied, and any steps taken to date to prevent future breaches of requirements,” according to the Finra notice.

Last month, Robinhood settled a lawsuit over the suicide of Alex Kearns, a 20-year-old customer on its platform who thought he had amassed $730,000 in debt while trading options. The online trading app announced changes to its options trading procedures shortly after Kearns’ death in June 2020.