TD Ameritrade's $600K FINRA Fine: Options Approvals With a 60-Day Memory

Updated October 2026. First published July 2024.

On April 26, 2024, FINRA accepted a Letter of Acceptance, Waiver, and Consent from TD Ameritrade, Inc. (AWC No. 2021071986401). The firm was censured and fined $600,000 for approving certain customers to trade options without reasonable due diligence, from November 2019 to October 2022. FINRA found violations of Rules 2360, 3110(a) and (b), and 2010, and the firm consented to those findings without admitting or denying them.

The approvals were automated, and the system had a specific blind spot. It compared each new options application only with the customer's most recent approved application from the past 60 days. That gave customers a way to keep resubmitting until they got the level they wanted.

What Rule 2360 Requires

Rule 2360(b)(16)(B) requires a firm approving an account for options to use due diligence to learn "the essential facts relative to the customer," including age, income, net worth, investment objectives, and investment experience and knowledge. A Registered Options Principal or a General Securities Sales Supervisor then has to approve or disapprove the account in writing. In deciding whether, and how far, to approve, the firm has to weigh what the customer reports "together with the other information available" to it.

A firm's own records of earlier applications from the same customer are part of that other information. TD Ameritrade's system checked a new application against one of them at most.

How the System Worked

TD Ameritrade, which provided self-directed online brokerage to retail clients, relied mainly on an automated process to approve or deny options applications. It could approve a customer for the highest options level the customer qualified for under the firm's criteria, based on the customer's stated income, net worth, and years of options experience.

When a new application came in, the system compared it with the customer's most recent approved application submitted in the past 60 days. If the answers differed, the system rejected the new application or sent it to a Registered Options Principal for review. Before October 2022, the system did not compare a new application with:

• approved applications submitted more than 60 days earlier, or
• any rejected application, including ones rejected within the past 60 days.

What That Let Through

The firm approved more than 1,288 customers for Full/Advanced options trading, a level that under its own criteria required three or more years of options experience, although those customers had said within the prior six months that they had less than a year. More than 496 of them claimed more than six years of experience.

The AWC describes two customers:

• In January 2021, a customer approved for the lowest options level submitted three upgrade applications on one day. The firm rejected the first two because he reported less than a year of experience. It automatically approved the third, where he claimed one to two years. The firm automatically rejected five more of his applications later in January and in early February. In April 2021, he claimed six to nine years of experience and was automatically approved, despite eight earlier applications that said otherwise.
• A customer approved in December 2020 for the second-lowest level tried to upgrade four times over the next month. Across those applications his stated experience went from three to five years to ten or more, and his annual income from under $25,000 to between $100,000 and $249,999. The firm rejected all four. In April 2021, he filed six more applications over six days. The firm rejected the first five because more than ten years of experience didn't fit his age. On the same day it rejected the fifth, it approved the sixth, at the highest level, because he now claimed six to nine years. The system never compared that application with the ten before it.

Beginning in October 2022, after FINRA started its exam, the firm on its own initiative added exception reports to flag customers who changed the information they'd given the firm and customers who gave inconsistent answers across applications, rejected ones included.

What to Check in Your Own Approval Logic

FINRA reminded firms of these obligations in Regulatory Notice 21-15 in April 2021, eighteen months before this period ended. The case came out of a targeted exam of how firms open options accounts. If your firm approves options levels through rules, test them against these questions:

1. Does each new application get compared with every earlier application from that customer, approved or rejected, with no lookback limit?
2. Does the system count attempts? Six applications in six days is a red flag before you read a single answer.
3. Does it check that changes make sense over time? Experience can't grow from under a year to six years in four months, and stated experience has to fit the customer's age.
4. Do sharp jumps in income or net worth between applications go to a principal instead of straight to approval?
5. Who is the principal of record for automated approvals, and who owns the criteria and the exception reports? Rule 2360 requires a principal's written approval, and a rules engine doesn't change that.

This post is for informational purposes only and does not constitute legal advice. For guidance on specific regulatory obligations, consult your counsel or compliance advisor.

Related reading: FINRA Rule 3110: Supervision.