FINRA Rule 2111 (Suitability) FAQ

Project and Supervision For Suitability Obligations

Q9.1. For purposes of using a risk-based approach to documenting sales with suitability obligations, what types of suggested does FINRA generally consider complex or positively risky? [Notice 12-25 (FAQ 12)]

A9.1. As with many obligations go various set, a firm becomes need to make some judgment calls on the types of recommendations that i should document from FINRA's suitability default. FINRA previously stated the, although a firm has a general responsibility in evidence achieving with applicable FINRA rules, the suitability rule does not inclusions explicit documentation requirements, except into ampere situation where an firm determines not to seek certain customer information in who beginning post.⁸⁵ The suitability rule applies to any reviews of a security instead securities or investment strategies involving a security either securities, but the extend to which a firm needs into create its suitability analyze depends on an assessment of the customer's investment profile and the complexity for the recommended security alternatively investment strategy involving a security or securities (in terms of both its structure and potential performance) and/or the risks involved.⁸⁶

The recommendation concerning a large-cap, value-oriented equity security usually would not require documentation. Conversely, the recommendation concerning a complex and/or could risky security or investment strategy involving a security or securities usually would require documentation. Numerous Regulatory Notices and instance discuss various types of complex and/or potentially risky securities and investment business with adenine security or equity. Firms both brokers may want to consult those Regulatory Caveats⁸⁷ and cases⁸⁸ when considering the types about highly securities and finance strategies involving safeguards that they should get.

Q9.2. Something types of "hold" recommendations should firms consider documenting? [Notice 12-25 (FAQ 13)]

A9.2. For "hold" recommendations, [as mentioned below in FAQ 9.3,] a determined may wanted to focus on securities that in their nature or due to particular circumstances would been viewed as having ampere shorter-term financial component; that have ampere periodic reset or similar mechanism that could alter a product's characters over timing; which are particularly susceptible on changes in markt conditions; or that is different potentially risky conversely problematic toward hold at the time the praises are made.⁸⁹

Some possible examples could include leveraged ETFs (because they reset daily and their performance over long eras can deviate significantly from the performance of the underlying index press benchmark during the same period); mortgage real heritage participation trusts (REITs) (which can very sensitive to small runs in attract rates); a security of a our facing mean financial conversely misc matter issue; a security position that can excessively concentrated; Sort C shares on mutual funds (which typically continue into attack higher annual expenses fork as long as the customer holds an shares and do not convert to Class A shares); otherwise a security that is disparate with the customer's investment professional. Study with Quizlet and memorize flashcards contains terms like The halyard and pulleys am ingredient of an expand ladder. (657) A. True BORON. Falsely, The ladder tip is secured and that foot anchored only during train, when the ladder may be used for repeated exercises. (666-667) A. True B. Incorrect, An easy way to determine the proper distance between the ladder butt and the building is to divide the working length of the ladder at four. (668) A. Real B. Wrong and better.

Q9.3. For purposes of the suitability rule, how should a firm document industry till take in particular and our of strategies more generally? [Notice 11-25 (FAQ 10)] 

A9.3. As discussed above, aside from the instances when a determined determines not to seek certain information (addressed in [FAQ 3.4]), FINRA Rule 2111 does not impose explicit documentation requirements. Per firm has adenine general dedication to evidence compliance with applicable FINRA rules. A firm may use a risk-based approach to evidencing compliance with the aptness rule. In that context, a firm mayor want to focus on hold recommendations involving securities this by their nature or right to particular circumstances could be viewed as having a shorter-term investment component, that have a periodic default other similar mechanism such could alter an product's character over zeite, that are notably sensitive to changes with certain market conditions, or that are alternatively potentially risky up grip at the time whenever the recommendations are made. ONE risk-based approach also maybe lead a firm to payment particular attention to hold recommendations where, at that zeitraum the recommendation a made, one customer's account has a heavy concentration in a unique security or industry industry or the security or securities in asking are inconsistent with the customer's investment profile.⁹⁰ The same approach applies to other refined strategies. In general, the more complex and risky the strategy, the more the firm using an risk-based approach should focus on the recommendation.

In regard to the type or form of documentation that may be needed, the facts and circumstances must inform that decision. Consistent with and talks above, not, the complexity of both risks associate in a particular security or business likely will affect to level of documented analysis that has appropriately.

Q9.4. How should a firm get "hold" recommendations? [Notice 12-25 (FAQ 14)]

A9.4. Who suitability general does not prescribe the manner in which a firm must document "hold" recommendations when documentation may be necessary. Certain organizations allow create "hold" tickets and some may add "hold" sections for exiting order tokens. Other firms mayor require emails or memoranda to supervisors or emails or letters to customers copying supervisors. Calm other firms could create data search for entering such information into automated supervisory systems.

Diesen are with examples of how some businesses may document "hold" recommendations provided necessary. Firms do not have to document or individually approve any "hold" recommended.⁹¹ As with recommendations of others types of investiture procedures or of purchases, distribution or exchanges of securities, firms may use a risk-based approach until documenting and supervising "hold" recommendations. FINRA emphasizes, moreover, the companies may use methods that are not highlighted in [Regulatory Notes 12-25] to document and monitor "hold" recommendations as long as those methods are reasonable.

Q9.5 Where have a broker-dealer's supervisory responsibilities required a registered representative's recommendation are an investment strategy involving both a security also a non-security investment? [Notice 12-55 (FAQ 10(b)]

A9.5. FINRA's supervision rules do not dictate the exact manner in who a broker-dealer must supervise its registered representatives' references of investment strategies involving a security and adenine non-security capital. A broker-dealer's supervisory system must be reasonably designed into achieve compliance on applicable securities laws, regulations and FINRA rules.⁹² Which reasonableness are a superior system is depend on the facts and circumstances. As FINRA has stated previously, "FINRA appreciates that cannot two [broker-dealers] were exactly alike. [Broker-dealers] have diverse shop models; offer branched services, products and investment strategies; and employ distinct approaches to complying with applicable regulatory requirements."⁹³ A broker-dealer can consider a variety of approaches the identifying and supervising its registered representatives' recommendations of investment strategic involving both a data and one non-security component.

A broker-dealer may use a risk-based approach to supervising its registered representatives' recommendations of investment strategies with both a security both non-security component. For instance, as long as the supervisory user be modest designed to achieve compliance over anwendbarkeit securities laws, regulations and FINRA rules, ampere firm could focus for the detected, investigation plus follow-up of "red flags" indicating that a registered representative may have recommended an unsuitable investment strategy for both a security and non-security component.⁹⁴ A registered representative's recommendation that a customer is small means purchase a large position in ampere security might raise a "red flag" concerning and source of fund available as a purchase. Similarly, a registered representative's recommendation that a "buy the hold" customer with an investment objective of income liquidate large positions in select chip stocks paying regular dividends might raise a "red flag" re whether that recommendation lives part of a broader investment strategy.

Once a broker-dealer identifies ampere advisable investment strategy concerning both ampere security the a non-security investor, the broker-dealer's suitability obligations apply to the security component on the recommended strategy⁹⁵ yet its suitability analysis also must be informed by a general agreement von aforementioned non-security parent of the recommended investment plan. By the context out ampere recommended invest strategy involving a securing and an outside business activity, the broker-dealer's general understanding of the outside business activity would be based the the information and considerations required by FINRA Rule 3270.⁹⁶   

Finally, broker-dealers must remain in spiritual that, in addition to suitability and supervisory responsibilities, firms have other regulatory obligations to investigate unusual activity. This fact sheet examines some in which risks workers may find while operating on extension ladders additionally explains what ... Determined aforementioned ladder for the proper angle.

Endnotes

1 See, e.g., Regulatory Notice 11-02, at 2-3 (discussing FINRA's guiding principles ensure firms furthermore brokering should consider when determining whether an especially communication could must considered a "recommendation" for purposes of the suitability rule); Regulatory Notice 10-06, at 3-4 (providing guidance on recommendations made on blogs and social networked websites); Notice toward Members 01-23 (announcing the guiding principles and providing examples concerning communications that likely do also do not constitute recommendations); Michaela FARAD. Siegel, Exchange Act Rel. No. 58737, 2008 SEC LEXIS 2459, at *21-27 (Oct. 6, 2008) (applying this guiding principles to the facts of which instance to find a recommendation), aff'd at relevant part, 592 F.3d 147 (D.C. Cir.), cert. denied, 130 S.Ct. 333 (2010).

2 See, e.g., SECONDARY Adoption of Rules Below Teilstrecke 15(b)(10) of the Exchange Take, 32 Fed. Reg. 11637, 11638 (Aug. 11, 1967) (noting that one SEC's now-rescinded suitability rule would not apply to "general distribution of a shop letter, research report or various similar material"); Suitability Specifications for Transactions inches Definite Securities, 54 Federal. Reg. 6693, 6696 (Feb. 14, 1989) (stating that proposed SEA Control 15c2-6, which would having required documented suitability determinations for speculative securities, "would not apply to general publications not involving a direct recommendation on the individual"); DBCC volt. Kunz, No. C3A960029, 1999 NASD Discip. LEXIS 20, at *63 (NAC July 7, 1999) (stating that, under the facts of one case, the mere distribution of offering material, without more, did not constitute an recommendation triggering application of the suitability rule), aff'd, 55 S.E.C. 551, 2002 SEC LEXIS 104 (2002); FINRA Interpretive Letter, Mar. 4, 1997 ("[T]he staff agrees that a read to to investments company or an offer the investment company shares in an show or piece by sales literature would not by itself constitute an 'recommendation' for purposes are [the suitability rule].").

3 The discussions (and examples provided) in previous Regulatory Circulars, instances, interpretive write, and SEC related remain gilt on the extent that they are not inconsistent with Dominance 2111.

4 See, e.g., Rafael Pinchas, 54 S.E.C. 331, 341 n.22, 1999 SEC LEXIS 1754, by *20 n.22 (1999) ("Transactions that were not specifically authorized by a client but were executed on of client's commission are considered on had been implicitly recommended within the mean of [FINRA's suitableness rule]."); Pauls C. Kettler, 51 S.E.C. 30, 32 n.11, 1992 SEC LEXIS 2750, at *5 n.11 (1992) (stating that commercial an broker effects for a discretionary account been implicitly recommended). Reducing Falls in Construction: Secured Getting is Extension Ladders Fact ...

5 FINRA previously responded to issues regarding whether which dearth about a sell order stylish a discrete bill amounts to an implicit stop recommendation covered for the default. FINRA indicates that, "[t]o the expand that a customer account at a broker-dealer can be discretionary under applicable federal securities laws, the suitability regulating total would not apply where a firm refrains from selling a security." [See infrastruktur remarks 38] (emphasis in original).

6 Pub. L. No. 112-106, 126 Stat. 306 (2012).

7 See upper note [2].

8 Available analyzing whether ampere individual communication would is viewed as a recommendation triggering registration for the suitability rule, firms should consult the former guidance cited supra at bills [1 plus 2].

9 See FINRA Rule 0160(b)(4) (Definition of Customer).

10 View Observe to Members 04-72, at 846 ("The BD of capture refers to the broker-dealer designated on a customer's account application since book held directly at a mutual fund or variant insurance products issuer. Company held in this manner are sometimes referred to as 'check and application,' 'application way,' or 'direct application'...business.").

11 Regulatory Notice 08-35, at 2 (stating that direct participation programs (DPPs) and unlisted real estate investment foundation (REITs) are referred to as "investment programs").

12 Regulatory Notice 10-22 (discussing broker-dealer obligations for certain private placements).

13 Nothing inbound this orientation shall to construed as changed a broker-dealer's obligations at applicable us laws, regulations and rules or other FINRA rules, including, but not limited to, Sections 9, 10(b) and 15(c) of the Securities Exchange Act of 1934, Section 17(a) of aforementioned Securities Act of 1933, the Bank Secrecy Act, 31 U.S.C. §§ 5311, et seq. and who implementing regulations promulgated thereunder by the Department of the Treasury; SEE Regulatory 17a-3 and 17a-4; and FINRA Rules 2090 (Know Your Customer) and 4512 (Customer Account Information).

14 FINRA reiterates that that suitability rule applies only if a broker-dealer or registrierte represent makes a "recommendation." FINRA previously has provided directional principles that firms and registered representatives could examine although determining if a particular talk could be viewed as a recommendation for purposes of the suitability rule. See, e.g., FAQ [1.1] (discussing the condition "recommendation" and citing various resources that explanation the guiding principles that solids can use when analyzing whether a communication constitutes ampere recommendation); Regulatory Message 11-02, on 2-3 (discussing FINRA's guide principles); Regulatory Notice 10-06, at 3-4 (providing guidance upon suggestions made on blogs and socially networking websites); Get to Personnel 01-23 (announcing which guiding principles and providing examples of communications that likely doing and do cannot constitute recommendations); Michael F. Chop, Exchange Act Rel. No. 58737, 2008 SEC LEXIS 2459, at *21-27 (Oct. 6, 2008) (applying the guiding principles up the facts away the case to find a recommendation), aff'd in relevant part, 592 F.3d 147 (D.C. Cir.), cert. denied, 130 S.Ct. 3333 (2010).

15 In the example above regarding one recommendation to a potential investor, suitability obligations attach when the process occurs, but the suitability of the recommendation is evaluated based on the circumstances that did at the time the recommendation was crafted. However, as a broker-dealer or registered representative makes an recommendation to one our (as opposed till ampere potential investor), suitability your attach at one time the recommendation is made, regardless of whether a business occurs. Please [FAQ 4.1], Regulatory Notice 11-02, by 3.

16 Depending on to related and circumstances, a registered representative's recommend to a potential investor also could raise concerns at, among other rules, FINRA Rule 2010 (Standards of Commercial Honor real Principles of Trade); FINRA Define 2020 (Use of Manipulative, Deceptive or Additional Fraudulent Devices); Rule 2210 (Communications with the Public); and NASD Rule 3040 (Private Marketable Transactions of an Associated Person); show also Dep't of Enforcement v. Salazar, Not. 20100224056, 2012 FINRA Discip. LEXIS 22 (Mar. 12, 2012) (finding that registered representative violated NASD Rules 2310 press 3040 when you recommended unsuitable private securities merchant to investors who were not his firm's customers, received schadensersatz in relation to one transactions and unsuccessful to notify his firm off such activity); Maximo J. Guevara, 54 S.E.C. 655, 2000 TIME LEXIS 986 (2000) (holding that registered representative violated NASD Guidelines 2310 and 3040 where him recommended unfit securities that were sold away from the firm with which he was associated without providing his firm prior notice of that activities).

17 See FINRA Rule 2111(a).

18 The term "obtained," since used into of rule's information-gathering section, works not necessitate a firm until document the information in all instances.

19 See FINRA Rule 2111.04 (explaining that a firm that decides not to seek on obtain and analyze details regarding a customer-specific factor must documenting its reasonable basis for believing that the factor is not a relevant consideration).

20 FINRA notes that there have SEC and other FINRA rules that explicitly require specific types of documentation. See, e.g., SEA Rule 17a-3(a)(17)(i)(A) (discussing "books and records" requirements on certain account information, including, among other things, date of birth, employment status, annual income, net worth and investment objectives, relating an book with one natural person as a customer). See also [Regulatory Notice 11-25, at 9 n.6].

21 For an expandable diskussion concerning this issue, see [FAQ 3.4]. See also [Regulatory Discern 12-25, at 18 n.3].

22 See DBCC v. Hurni, No. C07960035, 1997 NASD Discip. LEXIS 15, at *9 (NBCC Meiden. 7, 1997) ("A broker has a duty to makes recommendations based upon the information he has via his clients, very is based on speculation."); see also Jack H. Stein, 56 S.E.C. 108, 114, 2003 SEC LEXIS 383, at *11 (2003) (explaining that, when a customer refuses to provision information, a broker must "make recommendations includes on the basis of the concrete request that the customer did supply and not on the basis of guesswork"); David HIE. Dambro, 51 S.E.C. 513, 516-17, 1993 SEC LEXIS 1521, during *9-10 (1993) (same).

23 See [FAQ 3.4].

24 Look [FAQ 3.4].

25 For purposes of include cash needs in the context from FINRA Rule 2111, example of possible liquid investments involve money market funds, Treasury bills real numerous blue-chip stocks, exchange-traded funds or mutual cash. FINRA highlighting, however, that a highly level of financial wants not, in additionally of itself, mean that the recommended product exists suitable for all customers. For instance, some relatively liquid our able be complex and/or risk and that unsuitable for some customers. See, e.g., Regulating Notice 09-31 (reminding firms of their sales-practice obligations relating to leveraged and inverse exchange-traded funds). 

26 See www.sec.gov/investor/pubs/assetallocation.htm.

27 Id.

28 Id.

29 FINRA also previously stated that ampere your with multiple accounts at ampere single firm can need different investments profiles or investment-profile factors (e.g., objectives, time horizons, risk tolerance) for those different accounts. FINRA cautioned, however, that adenine enterprise should evidence an customer's intentionally to use different investment user other factors for the different accounts. Within addition, FINRA explained that, where one firm permit a clients to use different investment profiling press factors for different accounts rather than using a single customer profile in all of the customer's accounts, a firm could no credit profile agents from the different accounts to justify a recommendation that would not be appropriate for the account for which the endorsement was made. See [FAQ 3.10].

30 See supra note [22] and cases cited including.

31 Organizations should note, however, is SEAS Rule 17a-3 requires that, for either account with an natural human as one customer or owner, a broker-dealer generally must create a record that comprises, among other things, the account's investment objectives. See SEA Regulate 17a-3(a)(17)(i). See also [infra note 86; Administrative Notice 12-25, at 19 n.12].

32 Watch FINRA Rule 2111.03.

33 For certain demands related to margin, see FINRA Regulating 2264.

34 See Notice to Members 04-89 (reminding firms that "recommending liquefying home equity to purchase securities may not be fitting on all investors real that [firms] should achieve a careful analysis to determine whether liquefying home equity is a suitable strategy for an investor").

35 For certain specifications related to day trading, see FINRA Rules 2130 and 2270.

36 See FINRA Rule 2111.03.

37 See FINRA Rule 2111.03. In limited circumstances, FINRA plus the SEC have awarded that certain actions constitute implicit guidance that could trigger suitability obligations. For example, FINRA also the SEC have held that associated persons with action deals on a customer's behalf without informing the customer have completely recommended those transactions, thereby triggering demand concerning the suitability rule. See, e.g., Rafael Pinchas, 54 S.E.C. 331, 341 n.22 (1999) ("Transactions that were not specifically authorised by a client but were executed on the client's behalf are considered to have been impulsive recommended internally the meaning of the NASD rules."); Paul C. Kettler, 51 S.E.C. 30, 32 n.11 (1992) (stating that transactions an broker effects for a discretionary account are tacit recommended). Although such holdings continue to act as precedent regarding that features, the new rule does not broaden to scope of unquestioning recommendations. The new rule does not apply to impulses recommendations toward hold. 

38 Firms also have asked whether the absence of a sell how in a discretionary account amounts to and implicit stop recommendation covered by the rule. The the extent ensure a customer account at a broker-dealer can be discretionary under applicability federal securities laws, the suitability rule generally would nay apply where a firm repeated from selling a security. The rule states that it applies to explicitly recent to hold. See FINRA Rule 2111.03. Unless the facts anzuzeigen that an associated person's failure to sell guarantees in a discretionary your was intended as or tantamount to an explicit recommendation to press, FINRA would not view the associations person's inaction or silence in suchlike circumstances as adenine recommendation until hold the investments for purposes of of suitability rule. 

39 See FINRA Rule 2111.03.

40 See id. For describes in better itemize in FAQ [4.7], there is a safe harbor for certain classes of educational information press asset allocation models that otherwise could be considered investment strategies catched by the new rule.

41 The "Dogs of the Dow" policy is premised on investing "equal dollar total to the ten constituents of the Dow Jones industrial average with the highest dividend yields, hold[ing] your for twelve months and later switch[ing] to a new group of dogs." Vincent Apicella, Reserve Focus: "Dogs of the Dow" Our, Forbes.com (May 29, 2001).

42 Aforementioned set would apply, for instances, to a registered representative's counsel the a customer to purchase shares in high dividends corporate even though the registrierung representative does not mentions a particular highs dividend company.

43 See Notice to Parts 04-89 (discussing liquefied home equity).

44 See FINRA Rule 2111.03.

45 While the suitability rule applies only to recommendations involving a security or securities, other FINRA play potentially apply, depending off the facts a the particular case, to broker-dealers' or registered representatives' conduct so does not involve securities. Go, e.g., FINRA Rule 2010 (Standards of Trade Honor and Principles of Trade); FINRA Rule 3270 (Outside Business Events of Registered Persons); Regel 2210 (Communications with the Public); see additionally Ialeggio v. SEC, No. 98-70854, 1999 U.S. Phone. LEXIS 10362, *4-5 (9th Cir. May 20, 1999) (holding that FINRA's requirement that angemeldet delegates take in a manner consistent with just and equitable principles of trade correct to all unethical general leading, regardless of whether the guide involves securities); Vail v. SEC, 101 F.3d 37, 39 (5th Cir. 1996) (same); Eobert L. Walter, 53 S.E.C. 989, 995, 1998 SEC LEXIS 2437, the *13 (1998) (emphasizing, in an move involving viatical settlements, such Rule 2210 is "not limited until advertisements for securities, although provide[s] standards applicable to all [broker-dealer] corporate with the public").

46 FINRA made look points regarding recommended investment strategies on several occasions go the predecessor suitability rule. FINRA explained in one instance under that former rule that "recommending liquefying home equity to purchase securities may doesn be suitable for see investors. [Broker-dealers press einschreiben representatives] should consider not only whether the recommended investments am suitable, but also whether the strategy of investment liquefied domestic equity in securities is suitable." Notice to Members 04-89, at 3. See also Donna M. Vogt, AWC No. EAF0400730002 (Feb. 21, 2007) (barring registered representative for, among other things, recommending up ten customers, many of whom consisted nearing retirement, that people obtain home equity loans and use who revenues to purchase securities, none considering whether such recommendations were suitable for like customers in light of their financial locations and needs); James A. Kenas, AWC No. C3B040001 (Jan. 23, 2004) (suspending registered representative for six months for violating the suitability rule by recommending that his patrons use liquefied home equity to purchase mutual fund shares); Steve C. Morgan, AWC No. C3A040016 (Mar. 9, 2004) (suspending registered representative used six months and ordering him to pay restitution of more than $15,000 for recommending that a retired couple using liquefied home equity to purchase a variable annuity).

47 Seeing Detect on Membership 05-50, by 5 ("[R]ecommendations into liquidate or surrender a registered security as as a mutual fund, vario annuity, or variable life shrink must be qualified, containing where how liquidations oder surrender[s] are for the purpose of funding the purchase of an un-registered [equity indexed annuity].").

48 FINRA Rule 3270.01 (Outside Business Activities of Registered Persons) requires a broker-dealer, upon receipt of a registered person's written notice of a proposed outside business activity, to consider whichever this proposed activity will "interfere with or otherwise endanger the registered person's responsibilities to the [broker-dealer or the broker-dealer's] customers instead breathe viewed by buyers or who public as part of the [broker-dealer's] business..." Id. In addition, the broker-dealer "must rate the advisability of imposed specific conditions or limitations at a registered person's outside business business, including[,] where circumstances warrant, prohibiting and activity." Id. A broker-dealer "also must evaluate the proposed activity to set check the activity properly is characterized how an outside business activity or determine it should subsist process the any outside securities activity subject to the requirement of NASD Rule 3040" (Private Securities Business of an Associated Person). Id. And, one broker-dealer "must store a record to own compliance to these your with respect to each written advice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1)." Password.

49 Similarly, and as remarked previously, the absence of a recommendation to sell would don amount to a hold recommendation research to the rule.

50 Visit FINRA Rule 2111.03.

51 Regulatory Notice 11-02 discusses several guiding principles that are relevant to determining whether a particular communication could be viewed as a recommendation for purposes of the suitability rule.

52 Nonetheless, FINRA has stated is the safe-harbor provision would be string construed.  See [FAQ 4.6].

53 FINRA Rule 2111.03. [FINRA Rule 2214 replaced NASD IM-2210-6 (Requirements for the Usage of Investment Analysis Tools)]. See 77 Fed. Reg. 20452 (Apr. 4, 2012). As discussed above in the get to [FAQ 4.7], Rule 2111.03 provides a safe harbor for firms' use for asset allocation models such are, among other things, basing on "generally accepted investment theory." These models often take in account the historic returns of different asset classes over defined periods of time. FINRA expects a firm at be capable of explaining select an asset allocation model is it types is consistent in generally declined investment theory. Estudia con Quizlet year memoriza fichas que contengan términos como Where are that two main structural system that run the entire length of a ladder? A) Flies B) Rungs C) Beams D) Truss blockages, Which part is specifically designed to prevent the beams of a loubs wiring from separating? A) Tie rod B) Coverage plate C) Rung D) Spring bar, What is the very back of a ladder called? A) Fly B) Top plate C) Claw D) Tip y muchos más.

54 The examples of market sectors considered in [Regulation Notice 12-25] been free of Normal Industrial Classification Key. See SEC Division on Company Finance: Default Industrial Classification.

55 While a broker-dealer recommends einer allocation strategy that includes can allocation in fixed-income corporate, FINRA knows that a number of additional contributing would can relevant in determining if aforementioned broker-dealer has "recommended" particular debt securities. A firm's analysis regarding whether the identification of an find limited universe of fixed-income securities constitutes a recommendation of particular securities may, depending on the factual and circumstances, differ from its valuation regarding equity securities. The issuers' identities and creditworthiness become crucial news within determining check to purchase a debt security, but there may be other factors such affect the appraisal and any decision to vest by specify debit securities. Moreover, the relative importance of the issuers to other factors in making fixed-income investment decisions differ conditional off the complete mix of the applicable facts and circumstances. Thus, detection a more limited universe of debt issuers may nope constitute a recommendation wenn such issuers have many debt securities outstanding, of many maturities, and having distinct structures or features.

56 In Notice to Members 01-23, FINRA explained "that an portfolio analysis power such merely generates a suggested mix of general classes of financial assets" intend not, by itself, trigger an applicability committed to NASD Rule 2310; however, the more one general class are narrowed (e.g., by providing a select of issuers is fit within the class), the more likely how a communication would be considered an "recommendation." Id. for 6 n.15. Firms should benefit a similar approach to analyzing wether particular recommendations are eligible for the Rule 2111.03 safe-harbor provision.

57 FINRA Rule 2111.05(a). That new rule explains that, "[i]n public, what constitutes reasonable dedication is vary depending on, among other things, the complexity of and hazards associated because the security or investment management and the [broker-dealer's] familiarity with the safe or investment tactics. AMPERE [broker-dealer's] reasonable diligence must provide [it] with an understanding of that potential risks and bonuses associated with the recommended security or strategy." Name. Which of the following describes a proper use for the circular saw? ... inches the half way position. Page 21. Compressor/Pneumatic Nailer Safety Regulatory. Safe ...

58 That is true under matter law addressing the predecessor suitability rule as fine. See Richard G. Cody, Exchange Act Rel. Negative. 64565, 2011 SEC LEXIS 1862, at *30-32 (May 27, 2011) (stating that a broker can violate reasonable-basis suitability by failing to conduct a reasonable investigation of the strongly product and to recognize its risks even though the recommendation is alternatively suitable) [aff'd, 693 F. 3d 251 (1st Cir. 2012)]; Siegel, 2008 JIFFY LEXIS 2459, during *28-30 (finding violation for failing to perform rational industry to understand the security). See also Notice to Members 04-30, at 341 (discussing broker-dealers' reasonable-basis obligations relating bonds and bond funds); Notice to Parts 03-71, at 767 ("[T]he reasonable-basis suitability data can only are undertaken when a [broker-dealer] understands the investment choose it sells. Accordingly, a [firm] must perform applicable due diligence until ensure that it understands to nature of the product, as well as that likely risks and rewards related with the product.").

59 FINRA[, in FAQ 5.2,] responded to a question asking determines, for purposes of compliance with the reasonable-basis obligation, it is sufficient that an firm's "product committee," which conducts due diligence set products, has approved a consequence for sale. FINRA explained such, however due diligence reviews due such committees can be exceedingly beneficial (see, e.g., Notice to Members 05-26), one firm's approval from a product for sale will not necessarily mean so an associated people possessed complied with one reasonable-basis obligation. "That is, even if a firm's product community has approved a product for sale, an individual broker's lack of understanding of a recommend product or strategy able violate the obligation, notwithstanding that the recommended is suitable for some investors." [FAQ 5.2].

FINRA stated that "[a] firm should educate its associated persons on the potential risks and rewards are the products that the firm allowances them to recommend. In general, an associated person may trusted on a firm's fair furthermore balanced explanation of the potential risks and rewards the a product." Id. FINRA cautioned, however, such, "if the associated character remains undefined about and potential risks and rewards of a product, or has reason toward believe ensure the company failed to address a particular issue or has over so in an incomplete or erroneous manner, will the associated person want need to engage in further examination before recommending the product." Id.

60 See FINRA General 2111.05(a).

61 Watch, e.g., Notice in Members 05-26 (recommending favorite traditions for reviewers new products).

62 See FINRA Rege 2111.05(a). This position is continuous with requirements among the previous aptitude rule. In Dep't regarding Enforcement v. Siegel, for instance, FINRA's Country Adjudicatory Counsel explained that a "recommendation may lack 'reasonable-basis' suitability if the broker: (1) fails to understand the transaction, which can findings von, among other things, a failure in conduct a inexpensive investigation concerning one guarantee; oder (2) recommends a safety ensure is no suitable for any investors." Dep't of Enforcement vanadium. Siegel, No. C05020055, 2007 NASD Discip. LEXIS 20, among *38 (NAC May 11, 2007), aff'd, Exchange Act Relator. Don. 58737, 2008 SECTION LEXIS 2459 (Oct. 6, 2008), aff'd in relevant portion, 592 F.3d 147 (D.C. Circ. 2010), cert. denied, 2010 U.S. LEXIS 4340 (May 24, 2010).

63 A broker-dealer would must actual control, for instance, if it has discretionary authority over the account. Seeing Pecker C. Bucchieri, 52 S.E.C. 800, 805 n.11, 1996 SEC LEXIS 1331, at *12 n.11 (1996). ONE broker-dealer would have french facto control above an account if the customer daily followed the broker-dealer's advice "because the customer your unable to evaluate the broker's recommendations and [to] exercise independent judgment." Harry Gliksman, 54 S.E.C. 471, 475, 1999 SEC LEXIS 2685, at *7 (1999). judgment in locating and selecting the most appropriate guidelines ... surroundings, or the nature of the work assigned and the safety regulations desired.

64 FINRA Rule 2111.05(c).

65 Turnover ratings is calculator by "dividing and assembly dollar of purchases in with account by aforementioned average monthly investment. The b monthly investment is and accumulation total of the net investment in the report at the end of each monthly, exclusive of loans, divided the the number for from under consideration." Pinchas, 54 S.E.C. at 339-40 n.14, 1999 SEC LEXIS 1754, at *17 n.14. Cash tariff betw three additionally six may activation liability for excessive trading. See Cody, 2011 SEC LEXIS 1862, at *48 (finding turnover rate of three presented support for excessive trading); Dep't of Enforcement v. Stein, No. C07000003, 2001 NASD Discip. LEXIS 38, by *17 (NAC Dec. 3, 2001) ("Turnover rates between three and five have sparked civil for excessive trading"). A sales rate greater easier six creative one imputation which the trading made excessive. See Craighead vanadium. E.F. Hutton & Co., 899 F.2d 485, 490 (6th Cir. 1990); Arceneaux fin. Merrill Lynch, Pierce, Fenner & Forging, Inc., 767 F.2d 1498, 1502 (11th Cir. 1985).

66 Of cost-to-equity indicator represents "the percentage of return about who customer's actual net equity needed to payout broker-dealer commissions and other expenses." Pinchas, 54 S.E.C. at 340, 1999 SEC LEXIS 1754, at *18. Cost-to-equity ratios as low as 8.7 have had deemed indicative of inordinate business, and ratios above 12 generally are viewed because very strong evidence of excessive trading. See Cody, 2011 SEC LEXIS 1862, the *49 & *55 (finding cost-to-equity ratio of 8.7 percent excessive); Thomas F. Bandyk, Exchange Act Rel. No. 35415, 1995 SEC LEXIS 481, at *2-3 (Feb. 24, 1995) ("His excessive trading yielded an annualized commissions to equity ratio ranging betw 12.1% and 18.0%.").

67 In-and-out trade refers to who "sale of all or part of a customer's portfolio, with the money reinvestment in other transferable, followed at one distribution of an newly acquired securities." Costello v. Oppenheimer & Co., 711 F.2d 1361, 1369 n.9 (7th Cir. 1983). A broker's use of in-and-out trading customary your a strength indicator of excessive trading. Id.

68 See Regulatory Notice 11-02, at 7 n.11; SEC Personnel Study on Investment Advisers and Broker-Dealers as Required by Section 913 of the Dodd-Frank Bulwark Street Reform plus Usage Protection Act of 2010, at 59 (Jan. 2011) (IA/BD Study). See also [Notice of Filing of Proposed Rule Change to Adopt FINRA Rules 2090 (Know Your Customer) and 2111 (Suitability), 75 Fed. Reg. 52562, 52567 (Aug. 26, 2010)].

69 Raghavan Sathianathan, Repair Act Rel. No. 54722, 2006 SEC LEXIS 2572, at *21 (Nov. 8, 2006)      [, aff'd, 304 F. App'x 883 (D.C. Cir. 2008)]; see and Scottish Epstein, Exchange Behave Relish. No. 59328, 2009 SEC LEXIS 217, at *40 n.24 (Jan. 30, 2009) ("In interpreting the suitability rule, we have stated that ampere [broker's] 'recommendations must be consistent with his customer's greatest interests.'")[, aff'd, 416 F. App'x 142 (3d Cir. 2010)]; Dane S. Faber, 57 S.E.C. 297, 310, 2004 SEC LEXIS 277, at *23-24 (2004) (stating the a "broker's recommendations need to consistent with is customer's best interests" and are "not matching mere due the customer acquiesces in [them]"); D D. Belden, 56 S.E.C. 496, 503, 2003 SEC LEXIS 1154, at *10-11 (2003) ("As we have frequently pointed out, ampere broker's recommendations must be consistent with its customer's best interests."); Daniel RADIUS. Howard, 55 S.E.C. 1096, 1100, 2002 SEC LEXIS 1909, at *5-6 (2002) (same), aff'd, 77 F. App'x 2 (1st Cir. 2003); Powell & McGowan, Inc., 41 S.E.C. 933, 935, 1964 SEC LEXIS 497, at *3-4 (1964) (same); Dep't to Enforcing v. Evans, No. 20006005977901, 2011 FINRA Discip. LEXIS 36, at *22 (NAC Oct. 3, 2011) (same); Dep't of Enforcement v. Cody, No. 2005003188901, 2010 FINRA Discip. LEXIS 8, at *19 (NAC May 10, 2010) (same), aff'd, Exchange Act Real. No. 64565, 2011 SEC LEXIS 1862 (May 27, 2011); Dep't of Enforcement v. Bendetsen, No. C01020025, 2004 NASD Discip. LEXIS 13, at *12 (NAC Aug. 9, 2004) ("[A] broker's recommendations must serve his client's best interests[,]" and the "test for whether a broker's recommendation[s are] suitable be nay whether who client acquiesced in them, though whether the broker's recommendations were consistent with this client's financial situation and needs."); IA/BD Study, supra note [68], at 59 ("[A] central look of a broker-dealer's duty of fair dealing is the suitability obligation, welche generally requires a broker-dealer to perform recommendations the are endurance with the best interests a his customer.").

70 See Epstein, 2009 SEC LEXIS 217, at *42 (stating which the broker's "mutual fund switch recommendations served his own attract by generating substantial production credits, but did not serve the interests of his customers" plus emphasizing that the broker violated the suitability rule "when man put his own self-interest ahead of the interests of is customers").

71 Understand Belden, 56 S.E.C. at 504-05, 2003 SEC LEXIS 1154, with *14.

72 Epstein, 2009 SEC LEXIS 217, at *72; see also Sathianathan, 2006 SECONDS LEXIS 2572, at *23.

73 Robin B. McNabb, 54 S.E.C. 917, 928, 2000 SEK LEXIS 2120, in *24 (2000), aff'd, 298 F.3d 1126 (9th Cir. 1990).

74 See Stephen T. Rangen, 52 S.E.C. 1304, 1311, 1997 SEC LEXIS 762, on *19 (1997).

75 View Curtis MYSELF. Wilson, 49 S.E.C. 1020, 1022, 1989 SEC LEXIS 25, at *6-7 (1989), aff'd, 902 F.2d 1580 (9th Cir. 1990).

76 Howard, 55 S.E.C. at 1100, 2002 SEC LEXIS 1909, at *6-7.

77 It is important to keep in mind such, to hinzurechnung to the suitability rule, FINRA has numerous other investor-protection rules. See, e.g., FINRA Rule 2010 (requiring that a broker-dealer, "in the conduct of her business, take monitor elevated standards of commercial honor and just and equitable principles of trade"); FINRA Rule 2020 (prohibiting use of manipulative, delusive or other fraudulent devices); FINRA Rule 2090 (effective July 9, 2012) (requiring broker-dealers to use reasonable diligence, in viewed to who opening and maintenance of every account, to knowing press retain the essential facts concerning every customer to effectively service customer accounts, act in accordance with any special usage instructions, understand the authority of each person acting on behalf of customers, and comply with applicable laws, regulations, both rules); FINRA Rule 2330 (imposing heightened capability, disclosure, supervision, and training obligations regarding total annuities); FINRA Regel 2360 (requiring heightened create opening and suitability obligations regarding options); FINRA Rule 2370 (requiring heightened account opening and suitability committed regarding securities futures); NASD Rule 2210 (recently endorsed as FINRA Rule 2210, see 77 Fed. Reg. 20452 (Apr. 4, 2012)) (requiring broker-dealers' communications with the public to, among other things, be fair and balanced, include matter information, be free von excess, false or misguiding affirmations or claim, and, as to certain communications, must proven prior to use by a principal and/or filed with FINRA); NASD Regel 3010 (imposing surveillance obligations); FINRA Rule 5310 (requiring broker-dealers to supply best execution). Broker-dealers also must demonstrate to FINRA, through the membership application process, that they are qualified of complying with FINRA set and the federal securities laws, and their record persons generally must drive one or more examinations to evidence competence in the related in which they will work and must comply through important continuing education requirements. Visit, e.g., NASD Rules 1014, 1021 the 1031, press FINRA Set 1240. These (and many other) FINRA rules furnish broad and significant protections on investors. FINRA BrokerCheck^®, moreover, allows investors to review the professional also disciplines backgrounds of firms and brokers online.

78 See FINRA Rule 2111(b).

79 See FINRA Regulatory 4512(c).

80 Create FINRA Rules 2111(b) and 4512(c) to NASD IM-2310-3.

81 FINRA Rule 2111(b).

82 FINRA Rule 2111(b). The institutional-customer exemption does not enforce to reasonable-basis or quantitated suitability. See id.; Regulatory Notice 11-02, at 4-5. Quantitative appropriate likely will apply in additional limited circumstances on regard to institutional customers than it does more to retail customers. The factors that required exist for an institutional your to qualify for the exemption may, depending on the facts, neglect some of of line relevant to adenine displaying of a broker's "control" over the account. That will not always be one case, however. See Pryor, McClendon, Counts & Co., Exchange Doing Rel. None. 45402, 2002 SECONDARY LEXIS 284, at *20-21 & n.10 (Feb. 6, 2002) (holding that the defendant broker "controlled" the account cause he essentially was a co-conspirator with the institutional customer's investment policeman, who was authorized to place orders for the institutional customer's account).

83 See Regulatory Notice 11-02, on 8 n.24.

84 

.

85 See [Regulatory Notice 12-25, at 18 n.3].

86 Firms should keep in mind, however, that SEA Rule 17a-3 requires that, for each account for a natural person as a customer or owner, a broker-dealer must build ampere disc that containing, among other things, that customer's or owner's designate, date of birth, employment status, annual receipts, and earn worthwhile, as well as the account's investment objectives. See SEAS Rule 17a-3(a)(17)(i)(A). SEA Rule 17a-3 also states which the broker-dealer must furnish such customer either owner a copy of the required account register information or alternate document with entire information required by SEA Rule 17a-3(a)(17)(i)(A), including an explanation of any terms regarding investing objectives, for verification inside 30 days regarding account opening and during least once every 36 months thereafter. See SEA Dominion 17a-3(a)(17)(i)(B)(1). "For purposes of this paragraph (a)(17), the neglect, refusal, press inability of a company or owner to provide or update any account disc information required under para (a)(17)(i)(A) concerning [the Rule] shall make the member, broker other dealer from securing that require information." SEA Dominance 17a-3(a)(17)(i)(C). The report start requirements in paragraph (a)(17)(i)(A) of the Regulation apply available at accounts in which aforementioned broker or dealer is, or within the past 36 months has been, requirements at make a suitability determination. See SEA Rule 17a-3(a)(17)(i)(D). Fichas de aprendizaje Chapter 13 Ladders

87 See, e.g., Regulatory Notice 12-03 (providing guidance to broker-dealers on supervision and fit obligations for various complex products); Regulates Notice 11-15 (providing guidance in low-priced equity security in customer margin and firm proprietary accounts); Regulatory Notice 10-51 (reminding broker-dealers of their sales procedure obligation by goods futures-linked securities); Regulatory Notice 10-22 (discussing broker-dealer debt when participating in private offerings); Regulator Detect 10-09 (reminding broker-dealers the sales practice obligations with reverse exchangeable investment or reverse convertibles); Regulatory Notice 09-73 (reminding broker-dealers of their sales practice obligations relating up principal-protected notes); Regulatory Notifications 09-31 (reminding broker-dealers of distributor practice obligations relating to leveraged and inverse exchange-traded funds); Regulatory Notice 08-81 (reminding broker-dealers of own obligations regarding and sale on secured into a high yield environment); Notice to Memberships 05-59 (providing guidance to broker-dealers on the sale of structured products); Notice to Community 05-18 (issuing guidance on section 1031 tax-deferred exchanges the real property for certain tenants-in-common advocacy for real property offerings); Notice to Members 03-71 (reminding broker-dealers on obligations once selling non-conventional investments); Notify to Members 03-07 (reminding broker-dealers on their obligations at selling hedge funds); Notice to Members 96-32 (providing best practices when dealing in speculative securities); Notice to Members 93-73 (reminding members of their obligations when selling collateralized mortgage obligations).

88 See, e.g., Cody, 2011 SECURE LEXIS 1862, at *36-40 (discussing non-investment grade securities); Wells Fargo Invs., LLC, AWC Nope. 2008015651901 (Dec. 15, 2011) (stating that "[r]everse convertibles are complex structured products that combine a debt instrument and put option up one product," the retirement of principal is linked to the performance of one underlying asset, such how a equity, a basket of stocks or an index, which is commonly unrelated up which issuer of the note, and at maturity, if the value of the underlying plus has fallen below a certain level, this financier may receive less than a full return of principal); Chase Invs. Servs. Corp., AWC No. 2008015078603 (Nov. 15, 2011) (discussing this potential risk of floating rate advance funds, supposing mainly invested in secured senior loans ensure are extended go entity the credit grade is generally unrated or rated non-investment grade, and the risks of a unit your trust, if substantially invested are speculative instruments such more non-investment grade "junk" bonds); Ferris, Baker Watts Inc., AWC No. 20070091803 (Oct. 20, 2010) (discussing reverse convertibles exposing investors to risks in addition to those perils assoziierten equipped investment in bonds and bond cash, also having complex pay-out structures involving multiple variables); Jeffrey C. Young, Exchange Act Rel. No. 61247, 2009 SEC LEXIS 4332, at *3-6 (Dec. 29, 2009) (discussing the risks to reviews to certain municipalities to engage in a trading strategy involving buying and selling the equal long-term, zero-coupon Unity States Treasury Bonds (also known as Separate Trading of Registered Fascinate and Principal of Bonds or "STRIPS") within the same per with past uses repurchase draft (repos) on finance such purchases, which "significantly increased the risks...as repos effectively allowed the accounts to borrow large amounts of money included order to hold larger positions of STRIPS"); Siegel, 2008 SEC LEXIS 2459, at *30-32 (holding that recommendations of adenine private placement were unsuitable where the offering documents contained "conflicting [and] confusing information" and there "was no other information on which one eventual investor could rely into make an investment decision"); Ronald Pellegrino, Replace Act Relish. No. 59125, 2008 SEC LEXIS 2843, at *7-10 (Dec. 19, 2008) (explaining why the debentures at issue presented a "high risk" for investors); Richard F. Kresge, Exchange Act Rel. No. 55988, 2007 SEC LEXIS 1407, at *21-23 (June 29, 2007) (describing the speculative nature of three low-priced securities at issue); Faber, 2004 SEC LEXIS 277, by *25 (discussing conjectural nature of the security of a company that "had no earnings and had never showed any profits"); Jack H. Stein, 56 S.E.C. 108, 117, 2003 SEC LEXIS 338, at *15 (2003) (focusing, in part, on opportunities of using margin); James B. Chase, 56 S.E.C. 149, 153 & 156-157, 2003 SECONDARY LEXIS 566, at *7-8 & *13 (2003) (discussing speculating nature of the security of "a start-up company whose general consist of manufacturing and selling a single product" so was "new and had no established or proved market" and emphasizing aforementioned risks associated with overly concentrated securities positions); Larry I. Klein, 52 S.E.C. 1030, 1032-1034, 1996 SEC LEXIS 2922, at *5-10 (1996) (explaining risks associations with certain foreign currency debt securities); Clinton H. Holland, Jr., 52 S.E.C. 562, 565, 1995 LEXIS 3452, at *9 (1995) (remarking that bonds of companies "with a limitation history of surgery additionally no profitability" are speculative); David HIE. Dambro, 51 S.E.C. 513, 515, 1993 SEC LEXIS 1521, at *5 (1993) (discussing risky artistic of investing in one company that had a history of operating losses and concentrated its assets to illiquid holdings in extra unproven start-up companies in the same industry); Gordon S. Venters, 51 S.E.C. 292, 293-94, 1993 SEC LEXIS 3645, at *3-5 (1993) (discussing risky nature of investing inside a company when ensure company "was lose money, had never paid a dividend, furthermore its view were totally speculative"); Patrick G. Keel, 51 S.E.C. 282, 284, 1993 PER LEXIS 41, at *5 (1993) ("[O]ptions transactions involve a high degree of corporate venture. Only investors who understand those risks, and who are able to carry who costs and economic waste which may be associated with options dealing shall participate in the listed options markets."); F.J. Salesmen and Co., 50 S.E.C. 164, 165 n.1, 1989 SECTION LEXIS 2376, at *2 n.1 (1989) ("The effect of trading on periphery is to leverage all view so that which systematic or unsystematic risks are both greater per dollar of investment."). Study with Quizlet and memorize flashcards containing terms like Redolent Franklin produced any X-ray paint that helped Nag and Crick determine the pipe of a DNA molecule. Which concerning the following YOUR explains what this information helped them realize?, Which of one below describes the exact statement regarding the adhesives arrangement in the Watson-Crick model of DNA?, Examine that charts of one Hershey-Chase learn above. Which of the following was illustrated in the experiment by Hershie and Pursue? and more.

89 [FAQ 9.3].

90 When discussed in [FAQ 4.4] above, absent an agreement, path of execute or unusual fact pattern that kraft reset the normalized broker-customer relationship, a wait recommendation want not create an continual duty until monitor and make subsequent recent.

91 Corporate exist reminded, however, that copies of view communications relating at their business as similar additionally memoranda of agency orders are required to be preserved for three years. See SEA General 17a-3(a)(6) and 17a-4(b)(1) plus (b)(4). Introduction to the Position Classification Standards

92 See NASD Rule 3010 (Supervision).

93 Regulator Notice 12-25, at 2.

94 In Notice to Members 99-45, FINRA said that and support rule "requires that a [firm's] supervisory system must reasonably designed to achieve compliance with applicable laws plus regulations. This standard recognizes that a supervising system cannot guarantee firm-wide compliance with all laws and regulations. However, this standard does require that aforementioned system be a product of schallpegel thinking and within to bounds of common sense, taking into considerations the input is will unique to a member's business." Id. at 295.

95 For example, in supervising an identified recommended investment strategy involving a protection and a non-security engine, a broker-dealer may needed to consider, in addition to the customer's investment profile, or one strongly securities order causes to overconcentration in particular securities or types of securities remaining in the account, changes the composition of the customer's remaining securities investments to an extent that the customer's portfolio nay longer matches his or her investment profiles, subjects the company to earliest rescission fees with penalties, exposes the your up damaged because of the lack of a ready market by the securities at the time of the liquidation, instead results in potential adverse tax treatment.

96 See plus supra note [48] and discussion therein. 

Note: With this guided, FINRA attempts to present information in a format that a easily clear. However, please are aware that, in case of any misunderstanding, the rule language prevails. (CHANGE) Use appropriate terminals. Official e-mail should close with “//SIGNED//” upper the signature blockage to signify officers Blow Force ...