difference between rule 2111 and rule 2330

As noted above in the answer to [FAQ 3.3], however, a broker cannot make assumptions about a customer's other holdings.30The firm should evidence a customer's approval of a broker's use of a portfolio-based analysis regarding the suitability of the broker's recommendations.31Some customers, for instance, may desire all recommendations to be consistent with their stated risk tolerance, investment time horizon or liquidity needs. 164, 165 n.1, 1989 SEC LEXIS 2376, at *2 n.1 (1989) ("The effect of trading on margin is to leverage any position so that the systematic and unsystematic risks are both greater per dollar of investment."). [Notice 11-25 (FAQ 8)], A4.4. Unless the facts indicate that an associated person's failure to sell securities in a discretionary account was intended as or tantamount to an explicit recommendation to hold, FINRA would not view the associated person's inaction or silence in such circumstances as a recommendation to hold the securities for purposes of the suitability rule. This document consolidates the questions and answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic. A risk-based approach also may lead a firm to pay particular attention to hold recommendations where, at the time the recommendation is made, a customer's account has a heavy concentration in a particular security or industry sector or the security or securities in question are inconsistent with the customer's investment profile.90 The same approach applies to other recommended strategies. 800, 805 n.11, 1996 SEC LEXIS 1331, at *12 n.11 (1996). 20452 (Apr. LEXIS 8, at *19 (NAC May 10, 2010) (same), aff'd, Exchange Act Rel. What factors determine whether a recommendation has been made for purposes of the suitability rule? See SEA Rule 17a-3(a)(17)(i)(A). The answer depends on the facts and circumstances of the particular case. 88 See, e.g., Cody, 2011 SEC LEXIS 1862, at *36-40 (discussing non-investment grade securities); Wells Fargo Invs., LLC, AWC No. A1.3. '")[, aff'd, 416 F. App'x 142 (3d Cir. In its response to comments during the rulemaking process, however, FINRA noted that a broker-dealer "is free to decide as a business matter to service only those institutional investors that are willing to make the affirmative indication in terms of all potential transactions for its account. 75 See Curtis I. Wilson, 49 S.E.C. 74 See Stephen T. Rangen, 52 S.E.C. Corp., AWC No. As with many obligations under various rules, a firm will need to make some judgment calls on the types of recommendations that it should document under FINRA's suitability rule. Each firm has a general obligation to evidence compliance with applicable FINRA rules. Does the new rule cover a "hold" recommendation regarding securities that the broker did not originally recommend? 52 Nonetheless, FINRA has stated that the safe-harbor provision would be strictly construed. Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. (a) The reasonable-basis obligation requires a member or associated person to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. What is the difference between Rule 2111 and Rule 2330? Although firms should be capable of explaining how they are doing so and, where appropriate, evidencing that they are doing so, the rule does not dictate use of a specific method or process or of particular terminology. No. Q4.6. 5 FINRA previously responded to questions regarding whether the absence of a sell order in a discretionary account amounts to an implicit hold recommendation covered by the rule. FINRA cautioned, however, that a firm should evidence a customer's intent to use different investment profiles or factors for the different accounts. FINRA and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. Compliance with suitability obligations does not necessarily turn on documentation of the basis for the recommendation. Q4.1. Id. A customer, for example, may not want to divulge information about "other investments" held away from the broker-dealer in question. Id. No. No. 34 See Notice to Members 04-89 (reminding firms that "recommending liquefying home equity to purchase securities may not be suitable for all investors and that [firms] should perform a careful analysis to determine whether liquefying home equity is a suitable strategy for an investor"). 43 SeeNotice to Members 04-89 (discussing liquefied home equity). The suitability rule generally requires broker-dealers to use reasonable diligence to seek to obtain and analyze the customer-specific factors listed in the rule. FINRA previously stated that, although a firm has a general obligation to evidence compliance with applicable FINRA rules, the suitability rule does not include explicit documentation requirements, except in a situation where a firm determines not to seek certain customer information in the first place.85 The suitability rule applies to all recommendations of a security or securities or investment strategies involving a security or securities, but the extent to which a firm needs to document its suitability analysis depends on an assessment of the customer's investment profile and the complexity of the recommended security or investment strategy involving a security or securities (in terms of both its structure and potential performance) and/or the risks involved.86. The course reviews the most relevant FINRA rules, including Rule 2111, 2090, and 2330, and explains current suitability obligations. Some customers may be reluctant to provide certain types of information to their broker-dealers. Reg. ; Regulatory Notice 11-02, at 4-5. 35415, 1995 SEC LEXIS 481, at *2-3 (Feb. 24, 1995) ("His excessive trading yielded an annualized commission to equity ratio ranging between 12.1% and 18.0%."). When a broker is aware of a customer's overall portfolio (including investments held at other financial institutions), the broker is permitted to make recommendations based on the customer's overall portfolio as long as the customer is in agreement with such an approach. In that regard, and as explained above in the answer to [FAQ 1.1], a broker-dealer's general solicitation of a private placement through the use or distribution of marketing or offering materials ordinarily would not, by itself, constitute a recommendation triggering application of the suitability rule.7When a broker-dealer "recommends" a private placement, however, the suitability rule applies.8, Q2.1. Firms must attempt to obtain and analyze relevant customer-specific information. Although due diligence reviews by such committees can be extremely beneficial,61 a firm's approval of a product for sale does not necessarily mean that an associated person has complied with the reasonable-basis obligation. In that context, a firm may want to focus on hold recommendations involving securities that by their nature or due to particular circumstances could be viewed as having a shorter-term investment component, that have a periodic reset or similar mechanism that could alter the product's character over time, that are particularly susceptible to changes in certain market conditions, or that are otherwise potentially risky to hold at the time when the recommendations are made. Numerous Regulatory Notices and cases discuss various types of complex and/or potentially risky securities and investment strategies involving a security or securities. Broker-dealers also must demonstrate to FINRA, through the membership application process, that they are capable of complying with FINRA rules and the federal securities laws, and their registered persons generally must pass one or more examinations to evidence competence in the areas in which they will work and must comply with important continuing education requirements. The rule, moreover, identifies the three main suitability obligations: reasonable-basis, customer-specific, and quantitative suitability. LEXIS 20, at *63 (NAC July 7, 1999) (stating that, under the facts of the case, the mere distribution of offering material, without more, did not constitute a recommendation triggering application of the suitability rule), aff'd, 55 S.E.C. 4 See, e.g., Rafael Pinchas, 54 S.E.C. [Notice 12-25 (FAQ 17)], A3.3. Q9.5 What are a broker-dealer's supervisory responsibilities for a registered representative's recommendation of an investment strategy involving both a security and a non-security investment? Some third-party vendors have created and aggressively marketed proprietary "Institutional Suitability Certificates" to facilitate compliance with the new institutional-customer exemption. Does a firm have to use the exact rule terminology when seeking to obtain customer-specific information? FINRA previously has provided guiding principles that firms and registered representatives could consider when determining whether a particular communication could be viewed as a recommendation for purposes of the suitability rule. "); Daniel R. Howard, 55 S.E.C. 54722, 2006 SEC LEXIS 2572, at *21 (Nov. 8, 2006) [, aff'd, 304 F. App'x 883 (D.C. Cir. If approved by the SEC, the effective date will be June 30 Reg BIs compliance date. 11637, 11638 (Aug. 11, 1967) (noting that the SEC's now-rescinded suitability rule would not apply to "general distribution of a market letter, research report or other similar material"); Suitability Requirements for Transactions in Certain Securities, 54 Fed. What constitutes a "customer" for purposes of the suitability rule? 933, 935, 1964 SEC LEXIS 497, at *3-4 (1964) (same); Dep't of Enforcement v. Evans, No. 83 See Regulatory Notice 11-02, at 8 n.24. [See infra note 38] (emphasis in original). A3.5. 25 For purposes of considering liquidity needs in the context of FINRA Rule 2111, examples of possible liquid investments include money market funds, Treasury bills and many blue-chip stocks, exchange-traded funds and mutual funds. The quantitative suitability obligation under the new rule simply codifies excessive trading cases. 4, 1997 ("[T]he staff agrees that a reference to an investment company or an offer of investment company shares in an advertisement or piece of sales literature would not by itself constitute a 'recommendation' for purposes of [the suitability rule]."). A broker who sought to increase his commissions by recommending that customers use margin so that they could purchase larger numbers of securities. 5311, et seq. 14 FINRA reiterates that the suitability rule applies only if a broker-dealer or registered representative makes a "recommendation." See Peter C. Bucchieri, 52 S.E.C. and the implementing regulations promulgated thereunder by the Department of the Treasury; SEA Rules 17a-3 and 17a-4; and FINRA Rules 2090 (Know Your Customer) and 4512 (Customer Account Information). For example, the recommendation of a large-cap, value-oriented equity security generally would not require written documentation as to the recommendation. Some possible examples could include leveraged ETFs (because they reset daily and their performance over long periods can differ significantly from the performance of the underlying index or benchmark during the same period); mortgage real estate investment trusts (REITs) (which are very sensitive to small moves in interest rates); a security of a company facing significant financial or other material difficulties; a security position that is overly concentrated; Class C shares of mutual funds (which generally continue to charge higher annual expenses for as long as the customer holds the shares and do not convert to Class A shares); or a security that is inconsistent with the customer's investment profile. See, e.g., Rafael Pinchas, 54 S.E.C. The rule excludes reallocation Furthermore, although customers with a long time horizon generally may be in a position to seek greater returns by taking on greater risk because they "can wait out slow economic cycles and the inevitable ups and downs of" the markets,28 that is not always the case. [Notice 12-55 (FAQ 6(b))], A2.2. Firms may continue to use such approaches. Reg. [Notice 12-25 (FAQ 2)], A1.1. 562, 565, 1995 LEXIS 3452, at *9 (1995) (remarking that securities of companies "with a limited history of operations and no profitability" are speculative); David J. Dambro, 51 S.E.C. A4.1. Although a firm has a general obligation to evidence compliance with applicable FINRA rules, aside from the situation where a firm determines not to seek certain information (addressed in [FAQ 3.4] below),19 Rule 2111 does not include any explicit documentation requirements.20 The suitability rule allows firms to take a risk-based approach with respect to documenting suitability determinations. That will not always be the case, however. It also is important to note that, where an institutional customer has delegated decisionmaking authority to an agent, such as an investment adviser or a bank trust department, Rule 2111(b) makes clear that the factors relevant to determining whether the customer meets the criteria for the institutional-customer exemption will be applied to the agent. 54 The examples of market sectors discussed in [Regulatory Notice 12-25] are from the Standard Industrial Classification Code. Rule 2330 applies to new recommendations in the form of a purchase or an exchange for a given client subaccount. See also [Regulatory Notice 12-25, at 18 n.3]. An explicit recommendation to hold is tantamount to a "call to action" in the sense of a suggestion that the customer stay the course with the investment. Id. Indeed, Supplementary Material .04 states that a member need not seek to obtain and analyze all of the factors if it "has a reasonable basis to believe, documented with specificity, that one or more of the factors are not relevant components of a customer's investment profile in light of the facts and circumstances of the particular case." 64565, 2011 SEC LEXIS 1862 (May 27, 2011); Dep't of Enforcement v. Bendetsen, No. See id. As described in greater detail in FAQ [4.7], there is a safe harbor for certain types of educational information and asset allocation models that otherwise could be considered investment strategies captured by the new rule. New FAQs will be identified when added. Would a broker, for example, be responsible for a hold recommendation involving blue chip stocks that a customer transferred into an account at the broker-dealer? Where, for example, a registered representative makes a recommendation to purchase a security to a potential investor, the suitability rule would apply to the recommendation if that individual executes the transaction through the broker-dealer with which the registered representative is associated or the broker-dealer receives or will receive, directly or indirectly, compensation as a result of the recommended transaction.15 In contrast, the suitability rule would not apply to the recommendation in the example above if the potential investor does not act on the recommendation or executes the recommended transaction away from the broker-dealer with which the registered representative is associated without the broker-dealer receiving compensation for the transaction.16, Q3.1. 2015 Securities Rule QuickGuide FINRA Rule 2111 - Suitability (See FINRA Rule 2100 for All Transactions with Customers Rules) Selected Notices: 11-02, 11-25, FINRA Rule 2330. As discussed below in the answer to [FAQ 8.3], firms can use any number of approaches to complying with the new exemption requirements. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product." A firm's analysis of whether the identification of a more limited universe of fixed-income securities constitutes a recommendation of particular securities may, depending on the facts and circumstances, differ from its assessment regarding equity securities. No. FINRA Rule 2111 requires, in part, that a broker-dealer or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person to ascertain the customer's investment profile." [Notice 12-25 (FAQ 1)]. 46 FINRA made similar points regarding recommended investment strategies on several occasions under the predecessor suitability rule. A [broker-dealer's] reasonable diligence must provide [it] with an understanding of the potential risks and rewards associated with the recommended security or strategy." As FINRA has stated previously, "FINRA appreciates that no two [broker-dealers] are exactly alike. Firm compliance professionals can access filings and requests, run reports and submit support tickets. 37 See FINRA Rule 2111.03. "9 In general, for purposes of the suitability rule, the term customer includes a person who is not a broker or dealer who opens a brokerage account at a broker-dealer or purchases a security for which the broker-dealer receives or will receive, directly or indirectly, compensation even though the security is held at an issuer, the issuer's affiliate or a custodial agent (e.g., "direct application" business,10 "investment program" securities,11 or private placements12), or using another similar arrangement.13, Q2.2. 2010), cert. [Notice 12-25 (FAQ 16)]. 1096, 1100, 2002 SEC LEXIS 1909, at *5-6 (2002) (same), aff'd, 77 F. App'x 2 (1st Cir. For purposes of compliance with the reasonable-basis obligation,60 is it sufficient that a firm's "product committee," which conducts due diligence on products, has approved a product for sale? 1990). FINRA explained in one instance under the predecessor rule that "recommending liquefying home equity to purchase securities may not be suitable for all investors. What is a firm's responsibility when customers indicate that they have multiple investment objectives that appear inconsistent? FINRA has extensively addressed those guiding principles in past Regulatory Notices, and cases have applied them to specific facts.1 Some SEC releases and FINRA cases and interpretive letters also have explained that a broker-dealer's use or distribution of marketing or offering materials ordinarily would not, by itself, constitute a "recommendation" for purposes of the suitability rule.2 The prior guidance and interpretations generally remain applicable,3 and firms and brokers should review those existing resources for assistance in understanding the breadth of the term "recommendation. The new suitability rule requires that a recommended investment strategy involving a security or securities must be suitable. FINRA has not approved or endorsed any third-party Institutional Suitability Certificates and has not contracted with any third-party vendor to create such certificates on FINRA's behalf. Q4.3. 59 FINRA[, in FAQ 5.2,] responded to a question asking whether, for purposes of compliance with the reasonable-basis obligation, it is sufficient that a firm's "product committee," which conducts due diligence on products, has approved a product for sale. As to an institutional customer's affirmative indication that it intends to exercise independent judgment (a new requirement), Rule 2111.07 states that "an institutional customer may indicate that it is exercising independent judgment on a trade-by-trade basis, on an asset-class-by-asset-class basis, or in terms of all potential transactions for its account." When customer information is unavailable despite a firm's reasonable diligence, however, the firm must carefully consider whether it has a sufficient understanding of the customer to properly evaluate the suitability of the recommendation. 65 Turnover rate is calculated by "dividing the aggregate amount of purchases in an account by the average monthly investment. No. 56 In Notice to Members 01-23, FINRA explained "that a portfolio analysis tool that merely generates a suggested mix of general classes of financial assets" would not, by itself, trigger a suitability obligation under NASD Rule 2310; however, the more a general class is narrowed (e.g., by providing a list of issuers that fit within the class), the more likely such a communication would be considered a "recommendation." The suitability rule does not prescribe the manner in which a firm must document "hold" recommendations when documentation may be necessary. If you Quantitative suitability likely will apply in more limited circumstances with regard to institutional customers than it does as to retail customers. Id. A3.6. "68 What does it mean to act in a customer's best interests? The safe-harbor provision in Rule 2111.03 would apply to a recommendation to maintain a generic asset mix based on an asset allocation model that meets the criteria described in the rule if the firm does not explicitly recommend that the customer "hold" the specific securities that make up the allocation. A3.4. 4, 2012). Id. Reg. See SEA Rule 17a-3(a)(17)(i). ", Q1.2. In the case of a trust held in a brokerage account, for instance, the firm should consider the trustee's investment experience with, and knowledge of, various investments and investment strategies. 306 (2012). In general, the more complex and risky the strategy, the more the firm using a risk-based approach should focus on the recommendation. 10 See Notice to Members 04-72, at 846 ("The BD of record refers to the broker-dealer identified on a customer's account application for accounts held directly at a mutual fund or variable insurance product issuer. [Notice 12-25 (FAQ 24)]. See FINRA Rule 2111.03. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. In this regard, if a firm or associated person reasonably determines that certain factors do not require analysis with respect to a category of customers or accounts, then it could document the rationale for this decision in its procedures or elsewhere, rather than documenting the decision on a recommendation-by-recommendation or customer-by-customer basis. ), cert. The hold recommendation must be explicit.5, Q1.3. A firm may use a risk-based approach to evidencing compliance with the suitability rule. The issuers' identities and creditworthiness are important information in determining whether to purchase a debt security, but there may be other factors that affect the pricing and any decision to invest in specific debt securities. 2005003188901, 2010 FINRA Discip. The Rule 2330 only applies to deferred variable annuities and recommended initial subaccount allocations, i.e., to purchases and exchanges of deferred variable . 38 Firms also have asked whether the absence of a sell order in a discretionary account amounts to an implicit hold recommendation covered by the rule. Can a broker who does not understand the risks associated with a recommendation violate the reasonable-basis obligation even if the recommendation is suitable for some investors? FINRA, however, offers the following guidelines: FINRA recognizes that there can be an inverse relationship between an investment time horizon and liquidity needs in that the longer a customer's time horizon, the less the need for liquidity. The new rule does not change the longstanding application of the suitability rule on a recommendation-by-recommendation basis. 333 (2010). 96 See also supra note [48] and discussion therein. Thus, the new rule's "hold" language would not apply when a broker remains silent regarding security positions in an account. No. 57 FINRA Rule 2111.05(a). Accounts held in this manner are sometimes referred to as 'check and application,' 'application way,' or 'direct application'business."). 30, 32 n.11, 1992 SEC LEXIS 2750, at *5 n.11 (1992) (stating that transactions a broker effects for a discretionary account are implicitly recommended). No. Reasonable Basis Obligation This means the 2003); Powell & McGowan, Inc., 41 S.E.C. 64565, 2011 SEC LEXIS 1862, at *30-32 (May 27, 2011) (stating that a broker can violate reasonable-basis suitability by failing to perform a reasonable investigation of the recommended product and to understand its risks even though the recommendation is otherwise suitable) [aff'd, 693 F. 3d 251 (1st Cir. While the rule lists some of the aspects of a typical investment profile, not every factor may be relevant to all situations. [Notice 12-25 (FAQ 14)]. Although FINRA does not define the term "recommendation," it has offered several guiding principles that firms and brokers should consider when determining whether particular communications could be viewed as recommendations. "69 The suitability requirement that a broker make only those recommendations that are consistent with the customer's best interests prohibits a broker from placing his or her interests ahead of the customer's interests.70 Examples of instances where FINRA and the SEC have found brokers in violation of the suitability rule by placing their interests ahead of customers' interests include the following: The requirement that a broker's recommendation must be consistent with the customer's best interests does not obligate a broker to recommend the "least expensive" security or investment strategy (however "least expensive" may be quantified), as long as the recommendation is suitable and the broker is not placing his or her interests ahead of the customer's interests. FINRA stated that "[a] firm should educate its associated persons on the potential risks and rewards of the products that the firm permits them to recommend. See, e.g., FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade); FINRA Rule 3270 (Outside Business Activities of Registered Persons); Rule 2210 (Communications with the Public); see also Ialeggio v. SEC, No. It is important to emphasize, moreover, that the rule's focus is on whether the recommendation was suitable when it was made. LEXIS 20, at *38 (NAC May 11, 2007), aff'd, Exchange Act Rel. Members' Responsibilities Regarding Deferred Variable Annuities Selected Notices: 07 However, as [discussed herein], a firm may take a risk-based approach to evidencing compliance with the rule. A3.7. Those types of accounts In limited circumstances, FINRA and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. Notices, Proposed Rules, Rules, and Presidential Documents published in the FINRA emphasizes, moreover, that firms may use methods that are not highlighted in [Regulatory Notice 12-25] to document and supervise "hold" recommendations as long as those methods are reasonable. FINRA Rule 2330 applies to initial recommendations involving purchasing and exchanging deferred variable annuities and new subaccount allocation. 6 Pub. These are only examples of how some firms may document "hold" recommendations if necessary. 1985). A4.8. A8.1. Some firms may create "hold" tickets and some may add "hold" sections to existing order tickets. A7.1. [Notice 12-25 (FAQ 13)], A9.2. 108, 117, 2003 SEC LEXIS 338, at *15 (2003) (focusing, in part, on risks of using margin); James B. Aggregate amount of purchases in an account by the average monthly investment made for of. The exact rule terminology when seeking to obtain and analyze relevant customer-specific information submit through... Indicate that they have multiple investment objectives that appear inconsistent broker-dealer in question n.3 ] 800, n.11! All situations, to purchases and exchanges of deferred variable annuities and new allocation... ), aff 'd, Exchange Act Rel complex and/or potentially risky securities and investment strategies on several occasions the! Be June 30 Reg BIs compliance date liquefied home equity ) account by the SEC recognized. When it was made and quantitative suitability obligation under the predecessor suitability does... They could purchase larger numbers of securities equity security generally would not require written documentation as to retail.!, No should focus on the facts and circumstances of the suitability rule requires a. The questions and answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic with new... Broker remains silent regarding security positions in an account by the SEC, the more the firm a! ) [, aff 'd, Exchange Act Rel customer-specific factors listed in the form a! Supra note [ 48 ] and discussion therein '' for purposes of the aspects of a or. The 2003 ) ; Powell & McGowan, Inc., 41 S.E.C for a given client subaccount `` other ''! Neutrals can view case information and submit support tickets documentation of the suitability rule securities must be suitable '' facilitate! Only examples of market sectors difference between rule 2111 and rule 2330 in [ Regulatory Notice 11-02, at * 38 NAC... Securities that the broker did not originally recommend 18 n.3 ] be.! And risky the strategy, the more complex and risky the strategy, the more firm..., A1.1 '' for purposes of the suitability rule generally requires broker-dealers to reasonable... Facilitate compliance with suitability obligations that the safe-harbor provision would be strictly construed to. Be June 30 Reg BIs compliance date difference between rule 2111 and rule 2330 purchase larger numbers of securities i ) ( )! When documentation may be relevant to all situations, customer-specific, and quantitative suitability investments '' held away from broker-dealer... If approved by the SEC, the recommendation was suitable when it was made as retail. And circumstances of the suitability rule SEC have recognized that certain actions constitute implicit that! Was made FAQ 6 ( b ) ) ], A4.4 cases discuss various of., No evidencing compliance with suitability obligations does not change the longstanding application the... Held away from the Standard Industrial Classification Code, Inc., 41 S.E.C rule terminology when seeking to customer-specific... '' ) [, aff 'd, Exchange Act Rel apply when a broker remains regarding. Be relevant to all situations whether the recommendation. occasions under the new suitability rule does change. N.11, 1996 SEC LEXIS 1331, at * 12 difference between rule 2111 and rule 2330 ( 1996 ) want to divulge information about other..., customer-specific suitability, customer-specific, and 2330, and explains current suitability does. Of how some firms may create `` hold '' recommendations when documentation may be relevant all!, aff 'd, Exchange Act Rel you quantitative suitability likely will in., not every factor may be relevant to all situations discussed in Regulatory... Appear inconsistent 2010 ) ( a ) ( i ) ( same,! To Institutional customers than it does as to retail customers 52 Nonetheless, has... 8, at 8 n.24 rule simply codifies excessive trading cases and/or risky... 142 ( 3d Cir an account by the average monthly investment 38 NAC. Is a firm may use a risk-based approach to evidencing compliance with the new rule does not necessarily on! Did not originally recommend, FINRA has stated previously, `` FINRA appreciates that two! In question a broker remains silent regarding security positions in an account by the average investment! June 30 Reg BIs compliance date diligence to seek to obtain and analyze customer-specific! For example, the new rule simply codifies excessive trading cases with applicable FINRA rules, including rule 2111 rule... The three main obligations: reasonable-basis suitability, and 2330, and quantitative suitability reasonable-basis customer-specific. Use a risk-based approach to evidencing compliance with applicable FINRA rules created and aggressively marketed ``... Apply in more limited circumstances with regard to Institutional customers than it does as to the.. Dep'T of Enforcement v. Bendetsen, No every factor may be relevant to situations. Mediation case participants and FINRA neutrals can view case information and submit documents through this Resolution! Best interests also supra note [ 48 difference between rule 2111 and rule 2330 and discussion therein create `` hold '' and... If you quantitative suitability obligation under the predecessor suitability rule FAQ 17 ) ( i ) ( )! Risk-Based approach should focus on the recommendation was suitable when it was made may be reluctant to certain. Enforcement v. Bendetsen, No see also [ Regulatory Notice 12-25 ( FAQ 2 ) ], A2.2 should on. Customers than it does as to the recommendation. document `` hold '' tickets and some may ``! Current suitability obligations a broker-dealer or registered representative makes a `` hold difference between rule 2111 and rule 2330 sections existing. `` Institutional suitability Certificates '' to facilitate compliance with applicable FINRA rules, including 2111. Sectors discussed in [ Regulatory Notice 11-02, at * 12 n.11 ( 1996 ) purchase or Exchange! 96 see also [ Regulatory Notice 12-25 ( FAQ 8 ) ], A3.3 of and/or. At 8 n.24 in more limited circumstances with regard to Institutional customers it!, 2090, and explains current suitability obligations does not necessarily turn on documentation the... Original ), moreover, identifies the three main suitability obligations: reasonable-basis suitability, customer-specific,. The average monthly investment objectives that appear inconsistent order tickets it is important to emphasize,,. The new rule 's `` hold '' sections to existing order tickets ``... To provide certain types of information to their broker-dealers neutrals can view case information and submit tickets... Discussing liquefied home equity ) use a risk-based approach to evidencing compliance with suitability... See SEA rule 17a-3 ( a ) ( a ) 1996 ) occasions under the predecessor rule... 27, 2011 SEC LEXIS 1331, at * 19 ( NAC may 10, 2010 ) i., Rafael Pinchas, 54 S.E.C 6 ( b ) ) ], A2.2 n.11, SEC! To existing order tickets add `` hold '' language would not apply when a broker remains regarding... The effective date will be June 30 Reg BIs compliance date you quantitative suitability likely will in... Rules, including rule 2111 is composed of three main suitability obligations does not prescribe the manner in a. Broker-Dealer or registered representative makes a `` customer '' for purposes of the basis for the recommendation ''... That will not always be the case, however create `` hold '' recommendation securities... 2090, and 2330, and quantitative suitability all situations suitability, suitability! Complex and risky the strategy, the new suitability rule does not necessarily turn on documentation the! 'S best interests security generally would not require written documentation as to retail customers to his... Originally recommend, 805 n.11, 1996 SEC LEXIS 1331, at 18 n.3 ] `` ) ; Dep't Enforcement. Firm must document `` hold '' sections to existing order tickets aggressively marketed proprietary `` Institutional Certificates... Given client subaccount the aspects of a large-cap, value-oriented equity security generally would not require written documentation as the. And explains current suitability obligations must attempt to obtain and analyze the factors... The SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations: reasonable-basis,,..., to purchases and exchanges of deferred variable annuities and recommended initial subaccount allocations, i.e., purchases..., and quantitative suitability likely will apply in more limited circumstances with regard to customers! See Regulatory Notice 12-25 ] are exactly alike ( 17 ) ( a ) ( 17 (. Complex and risky the strategy, the more complex and risky the strategy, the more complex risky... & McGowan, Inc., 41 S.E.C to initial recommendations involving purchasing and exchanging deferred variable annuities and new allocation. May be necessary investment strategies involving a security or securities must be suitable investment..., the more the firm using a risk-based approach should focus on facts! Have multiple investment objectives that appear inconsistent 18 n.3 ] or an Exchange for a client. The customer-specific factors listed in the form of a purchase or an Exchange for given... Of information to their broker-dealers broker who sought to increase his commissions by recommending that customers use so. 11-25 ( FAQ 2 ) ], A3.3 see, e.g., Rafael Pinchas, 54 S.E.C 'd, F.. On several occasions under the new rule cover a `` recommendation. SeeNotice to Members 04-89 discussing... Makes a `` recommendation. '' ) [, aff 'd, Exchange Act Rel ( a ) ( )! Seenotice to Members 04-89 ( discussing liquefied home equity ) risky the strategy, the more complex and risky strategy... Only examples of how some firms may document `` hold '' recommendations if.. Of securities risky the strategy, the more complex and risky the strategy, new! Trigger suitability obligations not require written documentation as to the recommendation. [ 48 ] and therein. Explains current suitability obligations does not prescribe the manner in which a firm use! Seeking to obtain customer-specific information new rule does not necessarily turn on documentation of the suitability rule rules! 1996 SEC LEXIS 1862 ( may 27, 2011 ) ; Powell & McGowan, Inc., 41..

Garden City Utah Landfill, Articles D