U.S. regulators are warning of a rise in fraudulent options trading enabled by criminals taking control of client accounts.
The U.S. Financial Industry Regulatory Authority Inc. (FINRA) reported a recent increase in options trading frauds that are being carried out either through intrusions into clients’ accounts or phony new accounts set up via identity theft.
“While the risks associated with account takeovers and new account fraud are not new, FINRA has recently observed an increase in the use of fraudulent options trading associated with these schemes,” the self-regulatory organization said.
FINRA noted that options trading is particularly attractive for these sorts of schemes due to the financial leverage inherent to options, and the lower liquidity and wider spreads in the options market.
Given these concerns, FINRA is reminding firms of the need to protect clients’ information, and to be vigilant of options trading that may involve fraudulent activity.
“Account takeover schemes and new account fraud may trigger legal or regulatory obligations for firms housing either the victim or profiting accounts,” it said, adding that firms should also review their supervisory procedures to ensure that they address these risks.