Rule 791. Communications to Customers
This rule is no longer applicable effective February 17, 2009.
(a) General Rule
No member organization or member or employee of such member organization shall utilize any advertisement, educational material, sales literature or other communication to any customer or member of the public concerning options which:
No member organization or member or employee of such member organization shall utilize any advertisement, educational material, sales literature or other communication to any customer or member of the public concerning options which:
(i) contains any untrue statement or omission of a material fact or is otherwise false or misleading;
(ii) contains promises of specific results, exaggerated or unwarranted claims, opinions for which there is no reasonable basis or forecasts of future events which are unwarranted or which are not clearly labeled as forecasts;
(iii) contains hedge clauses or disclaimers which are not legible, which attempt to disclaim responsibility for the content of such communication or for opinions expressed therein, or which are otherwise inconsistent with such communication; or
(iv) would constitute a prospectus as that term is defined in the Securities Act of 1933 and the rules thereunder, unless it meets the requirements of Section 10 of said Act.
(b) Approval by Compliance Registered Options Principal
All advertisements, educational material and sales literature (except completed worksheets) issued by a member or member organization pertaining to options shall be approved in advance by the Compliance Registered Options Principal or designee. Copies thereof, together with the names of the persons who prepared the material, the names of the persons who approved the material and, in the case of sales literature, the source of any recommendations contained therein, shall be retained by the member or member organization and be kept at an easily accessible place for examination by the Exchange for a period of three years.
All advertisements, educational material and sales literature (except completed worksheets) issued by a member or member organization pertaining to options shall be approved in advance by the Compliance Registered Options Principal or designee. Copies thereof, together with the names of the persons who prepared the material, the names of the persons who approved the material and, in the case of sales literature, the source of any recommendations contained therein, shall be retained by the member or member organization and be kept at an easily accessible place for examination by the Exchange for a period of three years.
(c) Exchange Approval Required for Options Advertisements and Educational Material
In addition to the approval required by paragraph (b) of this Rule, every advertisement and all educational material of a member or member organization pertaining to options shall be submitted to the Exchange at least ten days prior to use (or such shorter period as the Exchange may allow in particular instances) for approval and, if changed or expressly disapproved by the Exchange, shall be withheld from circulation until any changes specified by the Exchange have been made or, in the event of disapproval, until the advertisement or educational material has been resubmitted for, and has received, Exchange approval.
The requirements of this paragraph shall not be applicable to:
In addition to the approval required by paragraph (b) of this Rule, every advertisement and all educational material of a member or member organization pertaining to options shall be submitted to the Exchange at least ten days prior to use (or such shorter period as the Exchange may allow in particular instances) for approval and, if changed or expressly disapproved by the Exchange, shall be withheld from circulation until any changes specified by the Exchange have been made or, in the event of disapproval, until the advertisement or educational material has been resubmitted for, and has received, Exchange approval.
The requirements of this paragraph shall not be applicable to:
(i) advertisements or educational material approved by another self-regulatory organization having comparable standards pertaining to advertisements and educational material; and
(ii) advertisements in which the only reference to options is contained in a listing of the services of a member organization.
(d) Options Disclosure Document Required
No sales literature respecting a kind of option may be disseminated to any person who has not previously received or does not contemporaneously receive the applicable current Options Disclosure Document(s).
No sales literature respecting a kind of option may be disseminated to any person who has not previously received or does not contemporaneously receive the applicable current Options Disclosure Document(s).
(e) Definitions
For purposes of this Rule, the following definitions shall apply:
For purposes of this Rule, the following definitions shall apply:
(i) The term "advertisement" shall include any sales communication that reaches a mass audience, through public media such as newspapers, periodicals, magazines, radio, television, telephone recording, motion picture, audio or video device, telecommunications device, billboards, signs or through written communications to customers or the public which conforms with the provisions of Rule 791.20.
(ii) The term "educational material" shall include any advertisement or explanatory material distributed or made generally available to customers or the public that is limited to information describing the general nature of the standardized options markets or one or more strategies and that conforms with the provisions of Rule 134a under the Securities Act of 1933.
(iii) The term "sales literature" shall include any written communication (not defined as an "advertisement" or as "educational material") distributed or made available to customers or the public that contains any analysis, performance report, projection or recommendation with respect to options, underlying securities or market conditions, any standard forms of worksheets, or any seminar text which pertains to options and which is communicated to customers or the public at seminars, lectures or similar such events.
• • • Supplementary Material: --------------
.10 Disclosure of Risks
The special risks attendant to options transactions and the complexities of certain options investment strategies shall be reflected in any advertisement, educational material or sales literature which discusses the uses or advantages of options. Such communications shall include a warning to the effect that options are not suitable for all investors. In the preparation of communications respecting options, the following guidelines shall be observed:
The special risks attendant to options transactions and the complexities of certain options investment strategies shall be reflected in any advertisement, educational material or sales literature which discusses the uses or advantages of options. Such communications shall include a warning to the effect that options are not suitable for all investors. In the preparation of communications respecting options, the following guidelines shall be observed:
(a) Any statement referring to the potential opportunities or advantages presented by options shall be balanced by a statement of the corresponding risks. The risk statement shall reflect the same degree of specificity as the statement of opportunities, and broad generalities should be avoided. Thus, a statement such as "with options, an investor has an opportunity to earn profits while limiting his risk of loss", shall be balanced by a statement such as "of course, an options investor may lose the entire amount committed to options in a relatively short period of time."
(b) It shall not be suggested that options are suitable for all investors.
(c) Statements suggesting the certain availability of a secondary market for options shall not be made.
.20 Advertisements
Advertisements pertaining to options (not defined as "educational material") shall conform to the following standards:
Advertisements pertaining to options (not defined as "educational material") shall conform to the following standards:
(a) Advertisements that describe or refer to one or more kinds of options may only be used (and copies of the advertisements may be sent to persons who have not received the applicable current Options Disclosure Document(s) as provided in paragraph (d)) if the communication meets the requirements of Rule 134 under the Securities Act of 1933, as that Rule has been interpreted as applying to options. Under Rule 134, advertisements must be limited to general descriptions of the security being offered and of its issuer. Advertisements under this Rule shall state the name and address of the person(s) from whom the applicable current Options Disclosure Document(s) may be obtained. Such advertisements may have the following characteristics:
(i) The text of the advertisement may contain a brief description of such options, including a statement that the issuer of every such option is The Options Clearing Corporation. The text may also contain a brief description of the general attributes and method of operation of the markets in which such options are traded and of The Options Clearing Corporation, including a discussion of how the price of an option is determined in such market(s).
(ii) The advertisement may include any statement required by any state law or administrative authority.
(iii) Advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics may be used, provided such material is not misleading.
(b) The use of recommendations or of past or projected performance figures, including annualized rates of return, is not permitted in any advertisement pertaining to options.
.30 Sales Literature
Sales literature pertaining to options shall conform to the following standards:
Sales literature pertaining to options shall conform to the following standards:
(a) Sales literature shall state that supporting documentation for any claims (including any claims made on behalf of options programs or the options expertise of sales persons), comparisons, recommendations, statistics or other technical data, will be supplied upon request.
(b) Sales literature may contain projected performance figures (including projected annualized rates of return), provided that:
(i) no suggestion of certainty of future performance is made;
(ii) parameters relating to such performance figures are clearly established (e.g., to indicate the exercise price of an option, the purchase price and market price or current index group value of the underlying security or underlying index stock group, the option premium, anticipated dividends, etc.);
(iii) all relevant costs, including commissions and interest charges (if applicable with regard to margin transactions) are disclosed;
(iv) such projections are plausible and are intended as a source of reference or a comparative device to be used in the development of a recommendation;
(v) all material assumptions made in such calculations are clearly identified (e.g., "assume option exercised," etc.);
(vi) the risks involved in the proposed transactions are also discussed; and
(vii) in such literature relating to annualized rates of return, that such returns are not based upon any less than a sixty-day experience; any formulas used in making calculations are clearly displayed; and a statement is included to the effect that the annualized returns cited might be achieved only if the parameters described can be duplicated and that there is no certainty of doing so.
(c) Sales literature may feature records and statistics which portray the performance of past recommendations or actual transactions, provided that:
(i) any such portrayal is done in a balanced manner, and consists of records or statistics that are confined to a specific "universe"' that can be fully isolated and circumscribed and that covers at least the most recent 12-month period;
(ii) such literature includes the date of each initial recommendation or transaction, the price of each such recommendation or transaction as of such date, and the date and price of each recommendation or transaction at the end of the period or when liquidation was suggested or effected, whichever was earlier; provided that if the literature is limited to summarized or averaged records or statistics, in lieu of the complete record there may be included the number of items recommended or transacted, the number that advanced and the number that declined, together with an offer to provide the complete record upon request;
(iii) such literature discloses all relevant costs, including commissions and interest charges (if applicable with regard to margin transactions) and, whenever annualized rates of return are used, all material assumptions used in the process of annualization;
(iv) an indication is provided of the general market conditions during the period(s) covered, and any comparison made between such records and statistics and the overall market (e.g. comparison to an index) is valid;
(v) such literature states that the results presented should not and cannot be viewed as an indicator of future performance; and
(vi) a Registered Options Principal determines that the records or statistics fairly present the status of the recommendations or transactions reported upon and so initials the report.
(d) In the case of an options program (i.e., an investment plan employing the systematic use of one or more options strategies), the cumulative history or unproven nature of the program and its underlying assumptions shall be disclosed.
(e) Standard forms of options worksheets utilized by member organizations, in addition to complying with the requirements applicable to sales literature, must be uniform within a member organization for each product type (e.g., equity, index, interest rate, etc.).
(f) If a member organization has adopted a standard form of worksheet for a particular options strategy, non-standard worksheets for that strategy may not be used.
(g) Sales literature that portrays performance of past recommendations or actual transactions and completed worksheets shall be kept at a place easily accessible to the sales office for the accounts or customers involved.
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Amendments. October 7, 1982. September 22, 1983. September 13, 1991. Amended by SR-FINRA-2008-036 eff. Nov. 11, 2008. Selected Notice: 08-64. |