Client relationship

Product due diligence, KYP, KYC, account appropriateness and suitability for derivative accounts — including institutional exceptions, off-channel communications, and client-record upkeep.

1. 1.1

   Product due diligence

   • Investment Dealers and Approved Persons must understand each derivative before offering it.
   • Distinguish options and similar products, futures and similar products, and swaps.

2. 1.2

   Know-your-product (KYP)

   • Know structure, features, risks, initial and ongoing costs, and the impact of those costs.

3. 1.3

   Account appropriateness

   • Confirm a derivatives account is appropriate before it is opened or used.
   • Certain institutional clients and qualified hedgers may be treated under lighter obligations.

4. 1.4–1.5

   KYC and suitability

   • Collect KYC for retail and institutional clients, product type and strategy.
   • Institutional investors: assess sophistication; some trade-specific suitability determinations are not required.
   • Federally regulated financial institutions (e.g. trust companies) are typically exempt from trade-by-trade suitability.

5. 1.6

   Escalation and delegation

   • Derivative trading may only be delegated to another appropriately registered person.
   • Unlicensed assistants cannot roll option positions or place orders.

6. 1.7

   Client communications

   • Use firm-monitored channels. Move personal-app chats onto approved systems before giving guidance.
   • No misleading communications; social media and off-channel rules apply.

7. 1.8

   Client records

   • Material KYC changes (job, income) must be updated and confirmed with the client before the next trade.
   • Electronic records must be securely stored, retrievable, reproducible and backed up.