Option issuers may be surprised to learn that sales of some over-the-counter options are within the filing requirements of FINRA Rule 5123 (Private Placements of Securities). Rule 5123 requires members selling securities issued by non-members in a private placement to file the private placement memorandum, term sheet or other offering documents with FINRA within 15 days of the first sale of the securities, or indicate that there were no offering documents used.7
A sale of an OTC equity option to an individual accredited investor would require the member to make the filing required by the rule. Rule 5123(b)(1) exempts private placements to certain classes of investors, including accredited investors described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (institutional accredited investors) and eligible contract participants, as defined in Section 3(a)(65) of the Securities Exchange Act of 1934.
The rule also exempts private placements of standardized options, as defined in Rule 238 under the Securities Act. Standardized options must be traded on a national securities exchange or on a national securities association registered pursuant to Section 15A(a) of the Securities Exchange Act. Consequently, a private placement of OTC options to an individual accredited investor, or to any other investor not within the classes of exempted investors enumerated in Rule 5123(b)(1), would require a member to file the private offering documents. This seems to be an incongruous result since options trading can only be undertaken with customers that have been cleared for options trading and who receive options disclosures.8