The Securities Litigation Expert Blog

Finra Clarifies Suitability Rule 2111

Posted by Jack Duval

Jan 3, 2013 3:48:21 AM

Finra has released NTM 12-55 to further clarify the recently updated suitability Rule 2111.  (Finra)  Some key takeaways:

  1. The term "customers" does not include other broker-dealers;

  2. The suitability rule applies to recommendations made to potential clients who become clients and execute the recommended trade or strategy at the recommending firm;

  3. The suitability rule applies to recommended strategies, such as the general use of margin, even if there is no specific investment recommendation made;

  4. The suitability rule applies to explicit recommendations to hold securities or to continue with an investment strategy (Finra uses an example of a quarterly review meeting with a client where the Registered Representative explicitly advises the client not to sell any securities or to continue their existing investment strategy.);

  5. The suitability rule applies to recommendations to sell securities in order to raise funds to purchase non-securities.

See our previous coverage of suitability Rule 2111 here.

Compliance departments need to update their policies and procedures to reflect these clarifications and to monitor RR activity regarding: investment strategies, hold recommendations, and sell recommendations to purchase non-securities.

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Topics: Rule 2111, FINRA, client, hold recommendations, supervision, NTM 12-55, SEC, Compliance, regulation., investment strategies

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