Chapter 9.3 Flashcards
Private Securities Transactions of an Associated Person
Means any securities transactions outside the regular course or scope of an associated person’s employment with a B/D. Persons associated with a member who intend to participate in a private securities transaction must:
- Give written notice to their member firm
- Receive a written acknowledgment from the member firm of approval or diapproval
- If approval of the transaction is given, the member firm must record the transaction on it’s books and records and supervise the person’s participation
- If disapproved, the person associated with the member shall not participate in the transaction in any matter
- *Engaging in private securities transactions are sometimes referred to as “selling away”
- FINRA approval is NOT required for private securities transactions
Borrowing from or lending to customers
A registered person with a member firm is prohibited from borrowing from or lending money to any customer unless:
- The member has written procedures allowing such transactions and
- The lending or borrowing meets one of the following conditions:
- The customer is a member of the person’s immediate family
- The customer is a financial institution that is in the business of providing credit, financing, or loans
- The customer and the registered person are both registered persons of the same member firm
- The lending arrangement is based on a personal relationship outside of the B/D relationship
- The lending is based on a business relationship outside of the B/D relationship
**Immediate family includes Cousins, Aunts/Uncles, and Grandparents.
Approval procedures for borrowing from or lending to customers
- Members must pre-approve in writing the lending or borrowing arrangements between:
- The 2 registered persons with the same firm
- The person with a personal relationship with the customer outside the B/D relationship
- Based on the business relationship outside the broker-customer relationship
- Pre-approval is not required if the customer is an immediate family member or if the customer is a financial institution in the business of lending
When an employee of a member firm wants to open an account at another firm, certain procedures must be followed:
- The associated person who wants to open an account with another firm must notify in writing both the employing member and the executing member before the account is opened
- The employing firm must advise the employee in writing of approval or disapproval of the request
- If the executing member learns that an employee of another firm wants to open an account at the firm, the executing firm must notify in writing the employing member firm of it’s intention to open or maintain such account before it executes any transaction
- If approved, the executing member must follow the instructions of the employing member regarding requests for copies of confirmations and/or monthly statements
- Account opened prior to association with employer member firm: If the account was opened prior to the person’s association with the employer member, the associated person, within 30 calendar days of becoming associated, shall obtain the written consent of the employer member to maintain the account and shall notify in writing the executing member or other financial institution of his or her association with the employer member.
Related and other persons
The associated person shall be presumed to have a beneficial interest in, and to have established, any account that is held by:
- The spouse of the associated persons
- A child of the associated person or of the associated person’s spouse, provided that the child resides in the same household as or is financially dependent upon the associated person;
- Any other related individual over whose account the associated person has control; or
- Any other individual over whose account the associated person has control and to whose financial support the associated person materially contributes
Transactions and accounts not subject to transactions by associated persons:
The requirements of this rule shall not apply to transactions in:
- Unit Investment trusts
- Municipal fund securities
- Qualified 529 tuition programs
- Variable contracts
- Redeemable securities of Registered investment companies or
- Monthly investment plan type accounts
Accounts at a financial institution other than a member firm
The employer member shall consider the extent to which it will be able to obtain, upon written request, duplicate copies of confirmations and statements directly from the non-member financial institution in determining whether to provide its written consent to an associated person to open or maintain such account.
- *If copies of confirmations and/or statements are received by the employing B/D, they must be reviewed periodically
- *If a RR had an account at another firm 10 years ago and that account no longer exists, that information would not have to be disclosed
- *An employee of an insurance company licensed to sell fixed annuities would not be subject to these rules
Outside Business activities of an associated person
No registered person may accept compensation from any other business activity outside of his employment with the member firm, other than passive investment income, unless the registered person provides prompt written notice to the member firm. FINRA notification is NOT required.
