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Options Disclosure Document Undergoing Restructuring


The options industry's risk disclosure document, "Characteristics and Risks of Standardized Options," (ODD) is being analyzed to determine ways to make it more concise, clear and meaningful to explain risks to investors.

The Options Industry Council’s Roundtable saw the need for a revision of the booklet that investors are required to read prior to buying or selling options, and urged OCC to work toward obtaining SEC approval to develop a “plain English” document that more clearly explains the risks involved in trading options.

OCC formed a committee to provide input on a restructured ODD. The group is chaired by Carolyn Mitchell, OCC First Vice President of Business Operations, and is comprised of exchange and clearing member representatives, along with OCC representatives. Two subcommittee working groups are focused on product and risk. Objectives include reducing the document from 183 pages to fewer than 50, eliminating redundancies, improving the management of supplements and re-organizing the material into two sections: strategy risk and product risk. In addition, the committee is seeking SEC approval for an electronic version that allows for keyword searches and links to deeper descriptions of the selected topics.

To quote Sy Syms, the famous clothing retailer, “An educated consumer is our best consumer, and we need to improve upon the basic communication building blocks like the ODD to better inform them of the characteristics and risks of exchange-traded options,” said Alan Grigoletto, OIC Vice President of Options Education. “To that end, we need to create an education piece that is written in a way that all consumers can comprehend.”

Just recently, OCC met with the Financial Industry Regulatory Authority, Inc. (FINRA) to discuss the best approach to achieve SEC approval of a more effective ODD. OCC distributed a survey to collect investor and broker dealer feedback. The next step is creating a sample chapter to use in a discussion with the SEC. Information required to be in the disclosure document is outlined in SEC rule 9b-1.

Originally published in the September 2013 issue of OCC News.

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