The operation phase of an IT system is concerned with user authentication.
Authentication is the process where a system establishes the validity of a transmission, message, or a means of verifying the eligibility of an individual, process, or machine to carry out a desired action, thereby ensuring that security is not compromised by an untrusted source.
It is essential that adequate authentication be achieved in order to implement security policies and achieve security goals. Additionally, level of trust is always an issue when dealing with cross-domain interactions. The solution is to establish an authentication policy and apply it to cross-domain interactions as required.
Source: STONEBURNER, Gary & al, National Institute of Standards and Technology (NIST), NIST Special Publication 800-27, Engineering Principles for Information Technology Security (A Baseline for Achieving Security), June 2001 (page 15).

Risk is defined as the combination of the probability that a particular threat source will exploit, or trigger, a particular information system vulnerability and the resulting mission impact should this occur. Previously, risk avoidance was a common IT security goal. That changed as the nature of the risk became better understood. Today, it is recognized that elimination of all risk is not cost-effective. A cost-benefit analysis should be conducted for each proposed control. In some cases, the benefits of a more secure system may not justify the direct and indirect costs. Benefits include more than just prevention of monetary loss; for example, controls may be essential for maintaining public trust and confidence. Direct costs include the cost of purchasing and installing a given technology; indirect costs include decreased system performance and additional training. The goal is to enhance mission/business capabilities by managing mission/business risk to an acceptable level.
Source: STONEBURNER, Gary & al, National Institute of Standards and Technology (NIST), NIST Special Publication 800-27, Engineering Principles for Information Technology Security (A Baseline for Achieving Security), June 2001 (page 8).

Security must be considered in information system design. Experience has shown it is very difficult to implement security measures properly and successfully after a system has been developed, so it should be integrated fully into the system life-cycle process. This includes establishing security policies, understanding the resulting security requirements, participating in the evaluation of security products, and finally in the engineering, design, implementation, and disposal of the system.
Source: STONEBURNER, Gary & al, National Institute of Standards and Technology (NIST), NIST Special Publication 800-27, Engineering Principles for Information Technology Security (A Baseline for Achieving Security), June 2001 (page 7).

A security policy is an important document to develop while designing an information system. The security policy begins with the organization’s basic commitment to information security formulated as a general policy statement.
The policy is then applied to all aspects of the system design or security solution. The policy identifies security goals (e.g., confidentiality, integrity, availability, accountability, and assurance) the system should support, and these goals guide the procedures, standards and controls used in the IT security architecture design.
The policy also should require definition of critical assets, the perceived threat, and security-related roles and responsibilities.
Source: STONEBURNER, Gary & al, National Institute of Standards and Technology (NIST), NIST Special Publication 800-27, Engineering Principles for Information Technology Security (A Baseline for Achieving Security), June 2001 (page 6).

The software development life cycle (SDLC) (sometimes referred to as the System Development Life Cycle) is the process of creating or altering software systems, and the models and methodologies that people use to develop these systems.
The NIST SP 800-64 revision 2 has within the description section of para 3.2.1:
This section addresses security considerations unique to the second SDLC phase. Key security activities for this phase include:
• Conduct the risk assessment and use the results to supplement the baseline security controls;
• Analyze security requirements;
• Perform functional and security testing;
• Prepare initial documents for system certification and accreditation; and
• Design security architecture.
Reviewing this publication you may want to pick development/acquisition. Although initiation would be a decent choice, it is correct to say during this phase you would only brainstorm the idea of security requirements. Once you start to develop and acquire hardware/software components then you would also develop the security controls for these. The Shon Harris reference below is correct as well.
Shon Harris’ Book (All-in-One CISSP Certification Exam Guide) divides the SDLC differently:
Project initiation Functional design analysis and planning System design specifications Software development Installation Maintenance support Revision and replacement
According to the author (Shon Harris), security requirements should be developed during the functional design analysis and planning phase. SDLC POSITIONING FROM NIST 800-64

SDLC Positioning in the enterprise Information system security processes and activities provide valuable input into managing IT systems and their development, enabling risk identification, planning and mitigation. A risk management approach involves continually balancing the protection of agency information and assets with the cost of security controls and mitigation strategies throughout the complete information system development life cycle (see Figure 2-1 above). The most effective way to implement risk management is to identify critical assets and operations, as well as systemic vulnerabilities across the agency. Risks are shared and not bound by organization, revenue source, or topologies. Identification and verification of critical assets and operations and their interconnections can be achieved through the system security planning process, as well as through the compilation of information from the Capital Planning and Investment Control (CPIC) and Enterprise Architecture (EA) processes to establish insight into the agency’s vital business operations, their supporting assets, and existing interdependencies and relationships.
With critical assets and operations identified, the organization can and should perform a business impact analysis (BIA). The purpose of the BIA is to relate systems and assets with the critical services they provide and assess the consequences of their disruption. By identifying these systems, an agency can manage security effectively by establishing priorities. This positions the security office to facilitate the IT program’s cost-effective performance as well as articulate its business impact and value to the agency.
SDLC OVERVIEW FROM NIST 800-64 SDLC Overview from NIST 800-64 Revision 2

NIST 800-64 Revision 2 is one publication within the NISTstandards that I would recommend you look at for more details about the SDLC. It describe in great details what activities would take place and they have a nice diagram for each of the phases of the SDLC. You will find a copy at:
http://csrc.nist.gov/publications/nistpubs/800-64-Rev2/SP800-64-Rev…
DISCUSSION:
Different sources present slightly different info as far as the phases names are concerned.
People sometimes gets confused with some of the NIST standards. For example NIST 800-64 Security Considerations in the Information System Development Life Cycle has slightly different names, the activities mostly remains the same.
NIST clearly specifies that Security requirements would be considered throughout ALL of the phases. The keyword here is considered, if a question is about which phase they would be developed than Functional Design Analysis would be the correct choice.
Within the NIST standard they use different phase, howeverr under the second phase you will see that they talk specifically about Security Functional requirements analysis which confirms it is not at the initiation stage so it become easier to come out with the answer to this question. Here is what is stated:
The security functional requirements analysis considers the system security environment, including the enterprise information security policy and the enterprise security architecture. The analysis should address all requirements for confidentiality, integrity, and availability of information, and should include a review of all legal, functional, and other security requirements contained in applicable laws, regulations, and guidance.
At the initiation step you would NOT have enough detailed yet to produce the Security Requirements. You are mostly brainstorming on all of the issues listed but you do not develop them all at that stage.
By considering security early in the information system development life cycle (SDLC), you may be able to avoid higher costs later on and develop a more secure system from the start.
NIST says: NIST`s Information Technology Laboratory recently issued Special Publication (SP) 800-64, Security Considerations in the Information System Development Life Cycle, by Tim Grance, Joan Hash, and Marc Stevens, to help organizations include security requirements in their planning for every phase of the system life cycle, and to select, acquire, and use appropriate and cost-effective security controls.
I must admit this is all very tricky but reading skills and paying attention to KEY WORDS is a must for this exam.
References:
HARRIS, Shon, All-In-One CISSP Certification Exam Guide, McGraw-Hill/Osborne, Fifth Edition, Page 956 and NIST S-64 Revision 2 at http://csrc.nist.gov/publications/nistpubs/800-64-Rev2/SP800-64-Rev… and http://www.mks.com/resources/resource-pages/software-development-li…

In multilevel mode, two or more classification levels of data exist, some people are not cleared for all the data on the system.
Risk is higher because sensitive data could be made available to someone not validated as being capable of maintaining secrecy of that data (i.e., not cleared for it).
In other security modes, all users have the necessary clearance for all data on the system. Source: LaROSA, Jeanette (domain leader), Application and System Development Security CISSP Open Study Guide, version 3.0, January 2002.

Padded cells complement Intrusion Detection Systems (IDSs) and are not related to DBMS security. Padded cells are simulated environments to which IDSs seamlessly transfer detected attackers and are designed to convince an attacker that the attack is going according to the plan. Cell suppression is a technique used against inference attacks by not revealing information in the case where a statistical query produces a very small result set. Perturbation also addresses inference attacks but involves making minor modifications to the results to a query. Partitioning involves splitting a database into two or more physical or logical parts; especially relevant for multilevel secure databases.
Source: LaROSA, Jeanette (domain leader), Application and System Development Security CISSP Open Study Guide, version 3.0, January 2002.

In general, IT security measures are tailored according to an organization’s unique needs. While numerous factors, such as the overriding mission requirements, and guidance, are to be considered, the fundamental issue is the protection of the mission or business from IT security-related, negative impacts. Because IT security needs are not uniform, system designers and security practitioners should consider the level of trust when connecting to other external networks and internal sub-domains. Recognizing the uniqueness of each system allows a layered security strategy to be used -implementing lower assurance solutions with lower costs to protect less critical systems and higher assurance solutions only at the most critical areas.
The more complex the mechanism, the more likely it may possess exploitable flaws. Simple mechanisms tend to have fewer exploitable flaws and require less maintenance. Further, because configuration management issues are simplified, updating or replacing a simple mechanism becomes a less intensive process.
Security designs should consider a layered approach to address or protect against a specific threat or to reduce a vulnerability. For example, the use of a packet-filtering router in conjunction with an application gateway and an intrusion detection system combine to increase the work-factor an attacker must expend to successfully attack the system. Adding good password controls and adequate user training improves the system’s security posture even more.
The need for layered protections is especially important when commercial-off-the-shelf (COTS) products are used. Practical experience has shown that the current state-of-the-art for security quality in COTS products does not provide a high degree of protection against sophisticated attacks. It is possible to help mitigate this situation by placing several controls in series, requiring additional work by attackers to accomplish their goals.
Source: STONEBURNER, Gary & al, National Institute of Standards and Technology (NIST), NIST Special Publication 800-27, Engineering Principles for Information Technology Security (A Baseline for Achieving Security), June 2001 (pages 9-10).

In order to offer more independence and get more attention from management, an IT security function should be independent from IT and report directly to the CEO. Having it report to a specialized business unit (e.g. legal) is not recommended as it promotes a low technology view of the function and leads people to believe that it is someone else’s problem. Source: HARE, Chris, Security management Practices CISSP Open Study Guide, version 1.0, april 1999.

Policies are high-level statements, beliefs, goals and objectives and the general means for their attainment for a specific subject area. Standards are mandatory activities, action, rules or regulations designed to provide policies with the support structure and specific direction they require to be effective. Guidelines are more general statements of how to achieve the policies objectives by providing a framework within which to implement procedures. Procedures spell out the specific steps of how the policy and supporting standards and how guidelines will be implemented.
Source: HARE, Chris, Security management Practices CISSP Open Study Guide, version 1.0, april 1999.