The Financial Industry Regulatory Authority has censured and fined TD Ameritrade $600,000 for failing to exercise reasonable due diligence before approving certain customers to trade options.
From November 2019 to October 2022, the firm relied primarily on an automated, electronic approval system to approve or disapprove customers for options trading, FINRA's order states.
"However, the system was not reasonably designed and resulted in certain customers being approved for options trading levels despite red flags that the approved level was potentially inappropriate for them," according to the order.
As a result, TD Ameritade violated FINRA Rules 3110, 2360 and 2010 during the relevant time period.
The purchase of TD Ameritrade by Schwab closed in October 2020, and most TDA accounts moved to the Schwab platform in 2023. TD Ameritrade is still registered with FINRA as a brokerage firm.
The matter originated from a FINRA targeted examination of firms' practices related to the opening of options accounts and related areas.
According to the order, TD Ameritrade's system to review and approve customer options applications was not reasonably designed.
"TD Ameritrade used a primarily automated process for systematic approval or denial of customer options account applications," the order states. "Pursuant to that process, the firm could approve a customer for the highest level of options trading authority a customer qualified for based on the firm's eligibility criteria and the information submitted by the customer, including income, net worth, and years of options trading experience."
