Rule §109.11 Guarantee Of Options


Published: 2015

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(a) The broker-dealer guaranteeing the performance of the terms of the option must, on the date of the transaction, either be a member of the New York Stock Exchange or have stockholders' equity or partners' capital, according to generally accepted accounting principles, in excess of $1 million. (b) A broker-dealer shall not:   (1) write call options for its account to its customers unless performance of the call option is guaranteed by the ownership by such broker-dealer of shares of the underlying security free of encumbrances sufficient to fully perform the terms of the option; or   (2) write put options for its account to its customers unless performance of the put option is guaranteed by sufficient unencumbered liquid net assets of the broker-dealer to fully perform the terms of the option. (c) The guarantee must be full and unconditional and must be maintained throughout the term of
the option. (d) In lieu of the three requirements in subsections (a)-(c) of this section, the section 5.S(1) guarantee requirements will be satisfied if the option is issued by a clearing corporation recognized by the State Securities Board as satisfying all the following standards.   (1) Performance of the option issued by the clearing corporation is guaranteed by the clearing corporation and by broker-dealers which are members of the issuing clearing corporation.   (2) Every broker-dealer which is a member of the clearing corporation must be registered under the Federal Securities Exchange Act of 1934, as amended.   (3) The clearing corporation must be registered as a national clearing agency under the Securities Exchange Act of 1934, as amended, and must file with the commissioner a copy of the prospectus respecting such option currently being delivered pursuant to the requirements of the Securities Act of 1933,
as amended, and further must agree to promptly file with the commissioner a copy of any amendments of such prospectus.   (4) The option must either be "covered" and the underlying security on deposit with the clearing corporation or the clearing corporation must maintain adequate reserve funds and guarantee system to reasonably assure performance of the option.   (5) Any other conditions the State Securities Board deems necessary to adequately protect the investing public. (e) Application for recognition by the State Securities Board may be made by any organized options clearing corporation. Clearing corporations recognized by the State Securities Board are: Options Clearing Corporation; Chicago, Illinois.


Source Note: The provisions of this §109.11 adopted to be effective January 1, 1976; amended to be effective August 3, 1976, 1 TexReg 2000.