FINRA Rule 2111 (Kesesuaian) FAQ Pendahuluan Pertanyaan yang sering diajukan (FAQ) ini memberikan panduan mengenai FINRA Rule 2111 (Kesesuaian). Dokumen ini mengkonsolidasikan pertanyaan dan jawaban di Pemberitahuan Peraturan 12-55. 12-25 dan 11-25. Diatur berdasarkan topik. FAQ baru akan diidentifikasi saat ditambahkan. Aturan FINRA 2111 mensyaratkan, bahwa pialang atau pihak terkait memiliki dasar yang masuk akal untuk percaya bahwa strategi transaksi atau investasi yang direkomendasikan yang melibatkan sekuritas atau sekuritas sesuai untuk pelanggan, berdasarkan informasi yang diperoleh melalui ketekunan yang wajar dari Perusahaan atau orang yang terkait untuk memastikan profil investasi pelanggan. Secara umum, profil investasi pelanggan mencakup usia pelanggan, investasi, situasi keuangan dan kebutuhan lainnya, status pajak, tujuan investasi, pengalaman investasi, cakrawala waktu investasi, kebutuhan likuiditas dan toleransi risiko. Aturan tersebut juga secara eksplisit mencakup strategi investasi yang direkomendasikan yang melibatkan sekuritas, termasuk rekomendasi untuk memegang sekuritas. Aturannya, terlebih lagi, mengidentifikasi tiga kewajiban kesesuaian utama: kesesuaian dasar, spesifik pelanggan, dan kuantitatif. Akhirnya, aturan tersebut memberikan pengecualian kelembagaan-pelanggan yang dimodifikasi. Rekomendasi Q1.1. Aturan kesesuaian hanya berlaku untuk sekuritas dan strategi investasi yang direkomendasikan yang melibatkan sekuritas, namun FINRA tidak menentukan istilah rekomendasi selain untuk mengatakan bahwa itu adalah fakta dan penyelidikan keadaan. Faktor apa yang menentukan apakah sebuah rekomendasi telah dibuat untuk tujuan peraturan kesesuaian Pemberitahuan 12-25 (FAQ 2) A1.1. Meskipun FINRA tidak mendefinisikan istilah rekomendasi, namun telah menawarkan beberapa prinsip panduan yang harus dipertimbangkan oleh perusahaan dan broker saat menentukan apakah komunikasi tertentu dapat dipandang sebagai rekomendasi. FINRA telah secara ekstensif membahas prinsip-prinsip panduan tersebut di Pemberitahuan Regulasi sebelumnya, dan kasus-kasus telah menerapkannya pada fakta-fakta tertentu. 1 Beberapa contoh SEC dan FINRA dan huruf penafsir juga telah menjelaskan bahwa broker atau dealer menggunakan atau mendistribusikan materi pemasaran atau penawaran biasanya tidak dengan sendirinya menjadi rekomendasi untuk tujuan peraturan kesesuaian. 2 Pedoman dan interpretasi sebelumnya umumnya tetap berlaku, 3 dan perusahaan dan pialang harus meninjau kembali sumber daya yang ada untuk mendapatkan bantuan dalam memahami luasnya rekomendasi istilah tersebut. Q1.2. FINRA telah menyatakan bahwa peraturan kesesuaian baru tidak memperluas cakupan rekomendasi implisit yang berlaku untuk peraturan pendahulunya. Apa saja kondisi di mana rekomendasi implisit dapat memicu aturan kesesuaian Pemberitahuan 12-25 (FAQ 3) A1.2. FINRA dan SEC telah menyadari bahwa tindakan tertentu merupakan rekomendasi implisit yang dapat memicu kewajiban kesesuaian. FINRA dan SEC telah memegang, misalnya, bahwa broker yang melakukan transaksi atas nama pelanggan tanpa memberitahukan pelanggan secara implisit merekomendasikan transaksi tersebut, sehingga memicu penerapan peraturan kesesuaian. 4 Meskipun kepemilikan semacam itu terus bertindak sebagai preseden mengenai isu-isu tersebut, peraturan baru tersebut tidak memperluas cakupan rekomendasi implisit. Aturan baru, misalnya, tidak berlaku untuk rekomendasi implisit untuk menyimpan sekuritas atau sekuritas. Dengan demikian, peraturan baru ini mengharuskan bahasa tidak berlaku saat broker tetap diam mengenai posisi keamanan di sebuah akun. Rekomendasi terus harus eksplisit. 5 Q1.3. Pelanggan terkadang bertanya kepada call center agen broker apakah mereka dapat terus mempertahankan investasinya di perusahaan jika, misalnya, mereka ingin pindah dari rekening pensiun yang disponsori oleh perusahaan yang dipegang di perusahaan tersebut ke akun pensiun individu yang diadakan di perusahaan tersebut. Jika sebuah perusahaan call center menginformasikan pelanggan bahwa mereka diizinkan untuk terus mempertahankan investasi mereka di perusahaan dalam keadaan seperti itu, akan FINRA menganggap komunikasi tersebut mendapat rekomendasi yang memicu penerapan peraturan kesesuaian yang baru. Pemberitahuan 12-25 (FAQ 4) A1. 3. Secara umum, FINRA tidak akan menganggap komunikasi tersebut sebagai rekomendasi tetap untuk tujuan aturan karena perusahaan call center tidak menanggapi pertanyaan apakah pelanggan harus memegang sekuritas, namun apakah pelanggan dapat terus mempertahankannya di perusahaan. . Q1.4. Bagian 201 (a) Jumpstart Undang-undang Startup Bisnis Kami (JOBS Act) 6 mengarahkan SEC untuk mengubah Peraturan 506 Peraturan D berdasarkan Securities Act tahun 1933 untuk menghapuskan larangan permintaan umum sejauh seluruh pembeli diakreditasi oleh investor. Apakah penghapusan larangan permohonan umum umum berarti bahwa pialang tidak lagi memiliki kewajiban kesesuaian mengenai penempatan pribadi Pemberitahuan 12-25 (FAQ 5) A1.4. Tidak. UU JOBS menghapus hambatan pemasaran tertentu namun bukan kewajiban kesesuaian broker-dealer. Dalam hal itu, dan seperti yang dijelaskan di atas dalam jawaban atas FAQ 1.1, permintaan umum broker perantara untuk penempatan pribadi melalui penggunaan atau pendistribusian materi pemasaran atau penawaran biasanya tidak dengan sendirinya, merupakan rekomendasi yang memicu penerapan kesesuaian. aturan. 7 Jika agen broker merekomendasikan penempatan pribadi, aturan kelayakan berlaku. 8 Q2.1. Apa yang dimaksud dengan pelanggan untuk tujuan peraturan kesesuaian Pemberitahuan 12-55 (FAQ 6 (a)) A2.1. Aturan kesesuaian berlaku untuk broker-dealer atau rekomendasi perwakilan yang terdaftar dari strategi keamanan atau investasi yang melibatkan keamanan kepada pelanggan. FINRAs definisi pelanggan di FINRA Aturan 0160 tidak termasuk broker atau dealer. 9 Secara umum, untuk tujuan aturan kesesuaian, istilah pelanggan mencakup orang yang bukan broker atau agen yang membuka rekening perantara di agen broker atau membeli sekuritas yang diterima atau diterima oleh broker broker. Atau secara tidak langsung, kompensasi meskipun keamanan diadakan di penerbit, afiliasi emiten atau agen kustodian (misalnya bisnis aplikasi langsung, 10 sekuritas program investasi, 11 atau penempatan pribadi 12), atau menggunakan pengaturan serupa lainnya. 13 Q2.2. Apakah aturan kesesuaian berlaku bila agen broker atau perwakilan terdaftar membuat rekomendasi kepada calon investor Pemberitahuan 12-55 (FAQ 6 (b)) A2.2. Aturan kesesuaian akan berlaku bila agen broker atau perwakilan terdaftar membuat rekomendasi 14 kepada calon investor yang kemudian menjadi pelanggan. Dimana, misalnya, perwakilan terdaftar membuat rekomendasi untuk membeli sekuritas ke calon investor. Aturan kesesuaian akan berlaku untuk rekomendasi jika individu tersebut mengeksekusi transaksi melalui agen broker yang perwakilannya terdaftar atau broker-dealer menerima atau akan menerima, secara langsung atau tidak langsung, kompensasi sebagai akibat dari transaksi yang disarankan. 15 Sebaliknya, aturan kesesuaian tidak akan berlaku untuk rekomendasi dalam contoh di atas jika calon investor tidak bertindak sesuai dengan rekomendasi atau melaksanakan transaksi yang disarankan dari agen broker yang perwakilannya terdaftar dikaitkan dengan broker-dealer Menerima kompensasi untuk transaksi 16 Daftar Informasi Pengambilan Informasi Informasi Investasi Pelanggan Q3.1. Apakah perusahaan harus memperbarui semua dokumentasi akun pelanggan berdasarkan tanggal pelaksanaan aturan kesesuaian untuk mendapatkan faktor profil investasi pelanggan baru (umur, pengalaman investasi, cakrawala waktu, kebutuhan likuiditas dan toleransi risiko) yang ditambahkan ke daftar yang ada (kepemilikan lain) , Situasi dan kebutuhan keuangan, status pajak dan tujuan investasi) 17 Pemberitahuan 11-25 (FAQ 2) A3.1. Tidak, aturan kesesuaian tidak mengharuskan perusahaan untuk memperbarui semua dokumentasi akun pelanggan. Aturan mengharuskan broker mencari 18 dan mempertimbangkan informasi spesifik pelanggan yang relevan saat membuat rekomendasi. Meskipun sebuah perusahaan memiliki kewajiban umum untuk memastikan kepatuhan terhadap peraturan FINRA yang berlaku, selain dari situasi di mana perusahaan menentukan untuk tidak mencari informasi tertentu (dibahas di FAQ 3.4 di bawah), 19 Peraturan 2111 tidak menyertakan persyaratan dokumentasi eksplisit. 20 Aturan kesesuaian memungkinkan perusahaan mengambil pendekatan berbasis risiko berkenaan dengan mendokumentasikan determinasi kesesuaian. Sebagai contoh, rekomendasi dari sebuah ekuitas yang besar, jaminan ekuitas berorientasi nilai pada umumnya tidak memerlukan dokumentasi tertulis mengenai rekomendasi tersebut. Dalam semua kasus, aturan kesesuaian berlaku untuk rekomendasi, namun sejauh mana perusahaan perlu memastikan kesesuaian pada umumnya, tergantung pada kompleksitas keamanan atau strategi dalam struktur dan kinerja dan atau risiko yang terkait. Kepatuhan terhadap kewajiban kesesuaian tidak serta merta mengaktifkan dokumentasi dasar rekomendasi. Namun, perusahaan harus memahami bahwa, sejauh mana dasar kesesuaian tidak terbukti dari rekomendasi itu sendiri, pemeriksaan FINRA dan masalah penegakan hukum akan meningkat dengan tidak adanya bukti dokumenter untuk rekomendasi tersebut. Selain itu, dokumentasi dengan sendirinya tidak menyembuhkan rekomendasi yang tidak sesuai. Q3.2. Apakah broker-dealer harus berusaha untuk mendapatkan semua faktor khusus pelanggan yang tercantum dalam peraturan baru berdasarkan peraturan tanggal pelaksanaan Pemberitahuan 12-25 (FAQ 15) A3.2. Tidak. Aturannya umumnya mewajibkan broker-dealer untuk mencari dan menganalisis faktor khusus pelanggan yang tercantum dalam peraturan saat membuat rekomendasi kepada pelanggan. Dengan demikian, perwira pialang dapat memilih untuk mencari dan menganalisis faktor khusus pelanggan yang tercantum dalam Peraturan 2111 saat membuat rekomendasi baru bagi pelanggan (terlepas dari apakah mereka baru atau pelanggan lama). 21 Q3.3. Bagaimana jika pelanggan menolak memberikan informasi spesifik khusus kepada pelanggan Pemberitahuan 12-25 (FAQ 17) A3.3. Beberapa pelanggan mungkin enggan memberikan beberapa jenis informasi kepada broker-dealer mereka. Seorang pelanggan, misalnya, mungkin tidak ingin membocorkan informasi tentang investasi lain yang dipegang dari agen broker yang bersangkutan. Aturan kesesuaian umumnya mewajibkan broker-dealer untuk menggunakan ketekunan yang wajar untuk mencari dan menganalisis faktor spesifik pelanggan yang tercantum dalam peraturan. Penyalur broker tidak dapat membuat asumsi tentang faktor khusus pelanggan yang ditolak pelanggan untuk memberikan informasi. 22 Selanjutnya, bila informasi pelanggan tidak tersedia meskipun seorang perisai kewajaran melakukan uji coba yang wajar, perusahaan harus mempertimbangkan dengan hati-hati apakah perusahaan tersebut memiliki pemahaman yang cukup tentang pelanggan untuk mengevaluasi kesesuaian suatu rekomendasi dengan benar. Seperti peraturan pendahulu Aturan NASD 2310, peraturan baru tersebut tidak melarang pialang broker membuat rekomendasi tanpa adanya faktor spesifik khusus selama perusahaan memiliki cukup informasi tentang pelanggan agar memiliki nilai wajar. Dasar untuk meyakini rekomendasi itu cocok. Pentingnya tipe informasi pelanggan tertentu akan bergantung pada fakta dan keadaan dari kasus tertentu. 24 Q3.4. Apakah sebuah perusahaan melanggar peraturan kesesuaian jika membuat rekomendasi kepada pelanggan yang tidak memperoleh semua informasi spesifik pelanggan yang tercantum dalam FINRA Rule 2111 (a) Pemberitahuan 11-25 (FAQ 3) A3.4. Persyaratan penting dari ketentuan ini adalah bahwa perusahaan anggota atau orang yang terkait melakukan uji coba yang wajar untuk memastikan profil investasi pelanggan. Dalam kebanyakan kasus, meminta pelanggan untuk mendapatkan informasi merupakan ketekunan yang wajar. Bila informasi pelanggan tidak tersedia meskipun perusahaan memiliki ketuntasan yang wajar, perusahaan harus secara hati-hati mempertimbangkan apakah mereka memiliki pemahaman yang cukup tentang pelanggan untuk mengevaluasi kesesuaian dengan rekomendasi dengan benar. Meskipun peraturan tersebut mencantumkan beberapa aspek profil investasi biasa, tidak semua faktor mungkin relevan dengan semua situasi. Memang, Bahan Pelengkap .04 menyatakan bahwa seorang anggota tidak perlu mencari dan menganalisis semua faktor jika memiliki dasar untuk percaya, didokumentasikan dengan spesifisitas, bahwa satu atau lebih faktor bukan komponen yang relevan dari profil investasi pelanggan. Mengingat fakta dan keadaan dari kasus tertentu. Dalam hal ini, jika perusahaan atau orang terkait cukup menentukan bahwa faktor-faktor tertentu tidak memerlukan analisis berkenaan dengan kategori pelanggan atau akun, maka dokumen tersebut dapat mendokumentasikan alasan keputusan ini dalam prosedurnya atau di tempat lain, daripada mendokumentasikan keputusan mengenai Rekomendasi berdasarkan rekomendasi atau basis pelanggan per pelanggan. Misalnya, perusahaan dapat menyimpulkan bahwa usia tidak relevan mengenai semua pelanggan yang merupakan entitas atau kebutuhan likuiditas tidak relevan mengenai semua pelanggan yang hanya akan mendapatkan sekuritas cair. Tidak adanya beberapa informasi pelanggan yang tidak material dalam keadaan umumnya seharusnya tidak mempengaruhi kemampuan perusahaan untuk membuat rekomendasi. Untuk memenuhi kewajiban kesesuaiannya, perusahaan harus memperoleh dan menganalisis cukup banyak informasi pelanggan agar memiliki dasar yang wajar untuk memastikan bahwa rekomendasi tersebut sesuai. Pentingnya tipe informasi pelanggan tertentu pada umumnya akan bergantung pada fakta dan keadaan dari kasus tertentu, termasuk sifat dan karakteristik produk atau strategi yang dipermasalahkan. Q3.5. Apa yang dimaksud dengan ketelitian yang wajar dalam mencoba mendapatkan informasi khusus pelanggan Pemberitahuan 12-25 (FAQ 16) A3.5. Meskipun kewajaran usaha akan tergantung pada fakta dan keadaan, meminta pelanggan untuk mendapatkan informasi biasanya akan mencukupi. Selain itu, tidak ada bendera merah yang menunjukkan bahwa informasi tersebut tidak akurat atau bahwa pelanggan tidak jelas mengenai informasi tersebut, broker umumnya mungkin bergantung pada tanggapan pelanggan. Seorang broker mungkin tidak dapat mengandalkan secara eksklusif tanggapan pelanggan dalam situasi seperti berikut: broker mengajukan pertanyaan yang membingungkan atau menyesatkan sampai pada tingkat tertentu bahwa proses pengumpulan-informasi tercemar, pelanggan menunjukkan tanda-tanda jelas akan kapasitas yang berkurang, Atau bendera merah lainnya ada yang menunjukkan bahwa informasi pelanggan mungkin tidak akurat. Q3.6. Selain menggunakan ketekunan yang wajar untuk mendapatkan dan menganalisis faktor spesifik tertentu tentang pelanggan, peraturan kesesuaian yang baru mengharuskan broker untuk mempertimbangkan informasi lain yang mungkin diungkapkan oleh pelanggan sehubungan dengan rekomendasi tersebut. Berapa banyak tugas yang harus dimiliki perusahaan untuk memperoleh informasi lain yang mungkin diungkapkan oleh pelanggan untuk dilihat apakah ada implikasi kesesuaian Apakah perusahaan memiliki kewajiban, misalnya, untuk bertanya kepada pelanggannya apakah ada hal lain yang harus diketahui tentang mereka ketika Mengumpulkan informasi untuk tujuan kesesuaian Pemberitahuan 12-25 (FAQ 18) A3.6. Apabila pelanggan mengungkapkan informasi kepada broker sehubungan dengan rekomendasi tersebut, broker harus mempertimbangkan informasi tersebut sebagai bagian dari analisis kesesuaian. Informasi spesifik pelanggan apa yang harus dicari perusahaan dari pelanggan selain faktor-faktor yang secara spesifik daftar aturan tergantung pada fakta dan keadaan kasus tertentu. Meskipun perusahaan tidak diharuskan untuk secara afirmatif bertanya kepada pelanggan apakah ada hal lain yang perlu diketahui tentang mereka, praktik yang lebih baik adalah berusaha mendapatkan informasi sebanyak mungkin sebelum membuat rekomendasi. Q3.7. Bagaimana FINRA mendefinisikan persyaratan kebutuhan likuiditas, horizon waktu dan toleransi risiko untuk tujuan peraturan kesesuaian Perhatikan 11-25 (FAQ 4) A3.7. Aturan FINRA 2111 tidak mendefinisikan persyaratannya. Sebagai masalah umum, persyaratan ini harus dipahami sepadan dengan artinya dalam analisis keuangan. FINRA, bagaimanapun, menawarkan panduan berikut: Kebutuhan Likuiditas: Sejauh mana pelanggan menginginkan kemampuan atau memiliki kewajiban finansial yang mendikte kebutuhan untuk dengan cepat dan mudah beralih ke uang tunai semua atau sebagian dari investasi atau investasi tanpa mengalami kerugian signifikan dalam Nilai dari, misalnya, kurangnya pasar yang siap, atau menimbulkan biaya atau denda yang signifikan. 25 Time Horizon: Jumlah bulan, tahun, atau dekade yang diharapkan yang direncanakan pelanggan untuk diinvestasikan untuk mencapai tujuan keuangan tertentu. 26 Toleransi Risiko: Kemampuan dan kemauan pelanggan untuk kehilangan sebagian atau seluruh investasi asli dengan imbalan potensi pengembalian yang lebih besar. 27 FINRA menyadari bahwa dapat terjadi hubungan terbalik antara cakrawala waktu investasi dan kebutuhan likuiditas sehingga semakin lama cakrawala pelanggan, semakin sedikit kebutuhan akan likuiditas. Namun, pelanggan mungkin memiliki cakrawala yang panjang, namun mungkin juga perlu atau ingin menginvestasikan sebagian atau seluruh portofolio aset likuidnya untuk membayar biaya tak terduga atau memanfaatkan peluang yang tak terduga. Lebih jauh lagi, meskipun pelanggan dengan horison waktu yang panjang umumnya mungkin dalam posisi untuk mendapatkan keuntungan lebih besar dengan mengambil risiko lebih besar karena mereka dapat menunggu siklus ekonomi yang lambat dan pasang surut pasar yang tak terelakkan, 28 hal itu tidak selalu terjadi. Beberapa pelanggan dengan cakrawala waktu yang lama mungkin tidak ingin mengambil risiko semacam itu dan yang lainnya, karena pertimbangan di luar cakrawala waktu mereka, tidak dapat melakukannya. Q3.8. Apakah perusahaan harus menggunakan terminologi aturan yang tepat saat mencari informasi spesifik pelanggan Pemberitahuan 11-25 (FAQ 6) A3.8. Tidak. FINRA menyadari bahwa beberapa perusahaan saat ini meminta pelanggan untuk mendapatkan informasi yang relevan tanpa menggunakan terminologi peraturan yang tepat atau faktor penunjukan terpisah (misalnya, tujuan investasi yang mencakup komponen toleransi risiko yang tidak diberi label secara terpisah seperti itu). Perusahaan dapat terus menggunakan pendekatan semacam itu. Perusahaan harus berusaha untuk mendapatkan dan menganalisis informasi spesifik pelanggan yang relevan. Meskipun perusahaan harus mampu menjelaskan bagaimana kinerjanya dan, bila perlu, membuktikan bahwa mereka melakukannya, peraturan tersebut tidak menentukan penggunaan metode atau proses tertentu atau terminologi tertentu. Q3.9. Apa tanggung jawab perusahaan ketika pelanggan menunjukkan bahwa mereka memiliki banyak tujuan investasi yang tampaknya tidak konsisten Pemberitahuan 12-25 (FAQ 19) A3.9. Jika pelanggan memilih beberapa tujuan investasi yang tampak tidak konsisten, perusahaan harus melakukan pengawasan yang tepat dan penentuan kesesuaian yang berarti, sebagaimana berlaku, sehubungan dengan perbedaan tersebut. Misalnya, perusahaan harus, antara lain, memperjelas maksud pelanggan dan, jika perlu, berdamai dan menentukan bagaimana hal itu akan menangani pelanggan dengan tujuan investasi yang berbeda. Q3.10. Dapatkah pelanggan dengan banyak akun di satu perusahaan memiliki profil investasi atau faktor profil investasi yang berbeda (mis., Sasaran, cakrawala waktu, toleransi risiko) untuk akun yang berbeda tersebut Perhatikan 11-25 (FAQ 5) A3.10. Seorang pelanggan dapat melanjutkan dengan cara seperti itu, namun perusahaan harus membuktikan bahwa pelanggan bermaksud menggunakan profil investasi yang berbeda atau faktor profil investasi untuk akun yang berbeda. Namun, tidak ada satu pun panduan ini yang membebaskan perusahaan dari keharusan memastikan bahwa profil investasi atau faktor-faktor tersebut secara akurat mencerminkan keputusan pelanggan. Selain itu, di mana perusahaan mengizinkan pelanggan menggunakan profil investasi atau faktor yang berbeda untuk akun yang berbeda daripada menggunakan satu profil pelanggan untuk semua akun pelanggan, perusahaan tidak dapat meminjam faktor profil dari akun yang berbeda untuk membenarkan rekomendasi yang akan Tidak sesuai untuk akun yang rekomendasi dibuat. Q3.11. Dapatkah broker membuat rekomendasi berdasarkan portofolio keseluruhan pelanggan, termasuk investasi yang dimiliki di lembaga keuangan lainnya. Misalnya, apakah setiap rekomendasi individu harus sesuai dengan profil investasi pelanggan atau apakah kesesuaian dari rekomendasi broker dapat dinilai berdasarkan konsistensinya. Dengan portofolio keseluruhan pelanggan Pemberitahuan 12-25 (FAQ 21) A3.11. Jawabannya tergantung pada fakta dan keadaan kasus tertentu. Aturan kesesuaian berlaku berdasarkan rekomendasi berdasarkan rekomendasi. Analisis kesesuaian terhadap rekomendasi dan pertimbangan tertentu dari portofolio investasi keseluruhan pelanggan, bagaimanapun, bukanlah konsep yang saling eksklusif. Aturan kesesuaian baru (seperti peraturan pendahulunya) mewajibkan broker untuk mencari dan menganalisis investasi lain dari pelanggan. Aturan tersebut secara eksplisit mengizinkan analisis kesesuaian untuk dilakukan dalam konteks pelanggan investasi lainnya. Beberapa pelanggan, terlebih lagi, menginginkan portofolio yang terdiri dari sekuritas dengan berbagai tingkat likuiditas, risiko dan cakrawala waktu. Ketika broker mengetahui portofolio keseluruhan pelanggan (termasuk investasi yang diadakan di lembaga keuangan lainnya), broker diperbolehkan membuat rekomendasi berdasarkan portofolio keseluruhan pelanggan selama pelanggan setuju dengan pendekatan semacam itu. Dalam keadaan seperti ini, kesesuaian rekomendasi pialang dapat dianalisis berdasarkan portofolio pelanggan secara keseluruhan, dengan mempertimbangkan perubahan portofolio yang mengalir dari rekomendasi broker, sesuai dengan profil investasi pelanggan. 29 Seperti disebutkan di atas dalam jawaban atas FAQ 3.3, bagaimanapun, broker tidak dapat membuat asumsi tentang kepemilikan pelanggan lainnya. 30 Perusahaan harus memberi bukti persetujuan pelanggan terhadap pialang menggunakan analisis berbasis portofolio mengenai kesesuaian rekomendasi pialang. 31 Beberapa pelanggan, misalnya, mungkin menginginkan semua rekomendasi agar sesuai dengan toleransi risiko, cakrawala waktu investasi, atau kebutuhan likuiditas mereka yang dinyatakan. Oleh karena itu, seorang broker mungkin tidak menggunakan pendekatan portofolio untuk menganalisis kesesuaian rekomendasi spesifik ketika: pelanggan menginginkan setiap rekomendasi individu agar konsisten dengan profil investasinya atau faktor-faktor tertentu dalam profil tersebut sehingga broker tidak mengetahui keseluruhan portofolio pelanggan atau Bendera merah ada yang menunjukkan bahwa informasi broker tentang pelanggan kepemilikan lainnya mungkin tidak akurat. Tidak ada satu pun panduan ini, apalagi, mengurangi perusahaan karena harus memastikan bahwa profil investasi pelanggan atau faktor dalam profil tersebut secara akurat mencerminkan keputusan pelanggan. Q3.12. Jika pengalaman investasi dari wali, wali amanat, wali amanat atau pihak ketiga yang sama mengelola rekening dipertimbangkan saat membuat rekomendasi rekening Perhatikan 12-25 (FAQ 20) A3.12. Dalam banyak keadaan, jawabannya adalah ya. Dalam kasus kepercayaan yang diadakan di akun perantara, misalnya, perusahaan harus mempertimbangkan pengalaman investasi wali amanat dengan, dan pengetahuan tentang, berbagai investasi dan strategi investasi. Perusahaan, bagaimanapun, juga harus mempertimbangkan faktor-faktor seperti tujuan investasi trust, horizon waktu dan toleransi risiko untuk menyelesaikan analisis kesesuaian. Penting juga untuk dicatat bahwa, di mana pelanggan institusi telah mendelegasikan wewenang pengambilan keputusan kepada agen, seperti penasihat investasi atau departemen kepercayaan bank, Peraturan 2111 (b) memperjelas bahwa faktor-faktor yang relevan untuk menentukan apakah pelanggan memenuhi kriteria Untuk pembebasan institusional-konsumen akan diterapkan ke agen. Strategi Investasi Q4.1. Apa cakupan istilah strategi seperti yang digunakan dalam FINRA Rule 2111 Notice 11-25 (FAQ 7) A4.1. Aturan tersebut secara eksplisit menyatakan bahwa istilah strategi harus ditafsirkan secara luas. 32 Aturan tersebut akan mencakup strategi investasi yang disarankan terlepas dari apakah hasil rekomendasi dalam transaksi efek atau bahkan referensi mengenai keamanan atau sekuritas tertentu. Misalnya, aturan tersebut akan mencakup rekomendasi untuk membeli sekuritas dengan menggunakan margin 33 atau ekuitas rumah yang dicairkan 34 atau untuk terlibat dalam perdagangan sehari, 35 terlepas dari apakah hasil rekomendasi dalam transaksi atau referensi sekuritas tertentu. Istilah ini juga akan menangkap rekomendasi eksplisit untuk memegang sekuritas atau sekuritas. 36 Sementara keputusan untuk memegang dapat dianggap sebagai strategi pasif, sebuah rekomendasi eksplisit untuk dipegang merupakan jenis nasihat yang dapat diharapkan oleh konsumen untuk diandalkan. Rekomendasi eksplisit untuk dipegang sama saja dengan ajakan bertindak dalam artian saran bahwa pelanggan tetap mengikuti investasi. Aturan tersebut akan berlaku, misalnya, ketika orang yang terkait bertemu dengan pelanggan selama tinjauan investasi triwulanan atau tahunan dan secara eksplisit menyarankan pelanggan untuk tidak menjual sekuritas apa pun atau membuat perubahan pada akun atau portofolio. Aturan tersebut, bagaimanapun, tidak akan mencakup rekomendasi implisit untuk dipegang. 37 Aturan tersebut, misalnya, tidak akan berlaku jika orang yang bersangkutan tetap diam mengenai, atau menahan diri untuk tidak merekomendasikan penjualan, surat berharga yang disimpan dalam rekening. Itu benar terlepas dari apakah orang yang terkait sebelumnya merekomendasikan pembelian sekuritas, pelanggan membelinya tanpa rekomendasi, atau pelanggan mengalihkan mereka ke akun dari perusahaan lain di mana orang yang sama atau orang terkait yang berbeda menangani akun tersebut. Q4.2. Aturan kesesuaian yang baru mensyaratkan bahwa strategi investasi yang direkomendasikan yang melibatkan keamanan atau sekuritas harus sesuai. Dapatkah Anda memberikan beberapa contoh tentang apa yang akan dan tidak akan dianggap sebagai strategi investasi berdasarkan peraturan Perhatikan 12-55 (FAQ 7) A4.2. Aturan 2111 menyatakan bahwa istilah strategi investasi harus ditafsirkan secara luas. 39 Namun, FINRA tidak akan mempertimbangkan broker-dealer atau rekomendasi perwakilan terdaftar yang biasanya diinvestasikan oleh investor di ekuitas atau efek pendapatan tetap menjadi strategi investasi yang tercakup dalam peraturan tersebut, kecuali jika rekomendasi tersebut merupakan bagian dari rencana alokasi aset yang tidak memenuhi syarat untuk Ketentuan pelabuhan aman dalam Peraturan 2111.03 (dibahas di bawah dalam FAQ 4.7). 40 Bahasa strategi investasi akan berlaku untuk rekomendasi kepada pelanggan untuk berinvestasi pada jenis sekuritas yang lebih spesifik, seperti perusahaan dengan dividen tinggi atau Anjing Dow, 41 atau di sektor pasar, terlepas dari apakah rekomendasi tersebut mengidentifikasi sekuritas tertentu. 42 Hal ini juga berlaku untuk rekomendasi kepada pelanggan pada umumnya untuk menggunakan tangga obligasi, perdagangan hari, ekuitas rumah yang dicairkan, strategi margin atau 43 yang mencakup sekuritas, terlepas dari rekomendasi yang menyebutkan sekuritas tertentu. Selain itu, istilah tersebut akan menangkap rekomendasi eksplisit untuk memegang sekuritas atau sekuritas atau terus menggunakan strategi investasi yang melibatkan sekuritas atau sekuritas. 44 Aturan tersebut akan berlaku, misalnya, ketika perwakilan yang terdaftar memenuhi (atau berkomunikasi) dengan pelanggan selama tinjauan investasi triwulanan atau tahunan dan secara eksplisit menyarankan pelanggan untuk tidak menjual sekuritas apa pun atau membuat perubahan pada akun atau portofolio atau Untuk terus menggunakan strategi investasi. Namun, seperti yang dijelaskan di FAQ 1.2, peraturan tersebut tidak mencakup rekomendasi implisit untuk dipegang. Penting untuk ditekankan, terlebih lagi, bahwa peraturan tersebut berfokus pada apakah rekomendasi tersebut sesuai bila dibuat. Rekomendasi untuk memegang sekuritas, mempertahankan strategi investasi yang melibatkan sekuritas atau menggunakan strategi investasi lain yang melibatkan sekuritas dengan rekomendasi untuk membeli, menjual atau menukar sekuritas secara tidak sengaja membuat kewajiban untuk memantau dan membuat rekomendasi selanjutnya. Q4.3. Apakah aturan baru strategi investasi bahasa mencakup rekomendasi perwakilan terdaftar yang melibatkan keamanan dan investasi non-keamanan Pemberitahuan 12-55 (FAQ 10 (a)) A4.3 Aturan kesesuaian yang baru akan terus mencakup broker atau dealer yang terdaftar. Rekomendasi perwakilan dari strategi investasi yang melibatkan keamanan dan investasi non-keamanan. 45 Kewajiban kelayakan berlaku, misalnya kepada broker-dealer atau rekomendasi perwakilan terdaftar dari strategi investasi untuk menggunakan ekuitas rumah untuk membeli sekuritas 46 atau untuk melikuidasi sekuritas untuk membeli produk yang berkaitan dengan investasi yang bukan merupakan jaminan. 47 Namun, di mana broker atau dealer rekomendasi perwakilan terdaftar tidak mengacu pada sekuritas atau sekuritas, peraturan kesesuaian tidak berlaku. Aturan kesesuaian tidak akan berlaku, misalnya, jika perwakilan yang terdaftar merekomendasikan investasi non-keamanan sebagai bagian dari aktivitas bisnis di luar dan pelanggan secara terpisah memutuskan untuk melikuidasi posisi sekuritas dan menerapkan hasilnya ke lembaga non - Investasi keamanan 48 Apabila seorang pelanggan, tidak mendapat rekomendasi dari perwakilan yang terdaftar, memutuskan untuk membeli investasi non-keamanan dan kemudian meminta perwakilan terdaftar tersebut untuk merekomendasikan sekuritas yang harus dijualnya untuk mendanai pembelian barang tak aman tersebut. Investasi, aturan kesesuaian akan berlaku untuk rekomendasi perwakilan yang terdaftar mengenai sekuritas yang akan dijual namun tidak pada keputusan konsumen untuk membeli investasi non-keamanan. Q4.4. Apa sifat dari kewajiban berdasarkan peraturan kesesuaian yang dibuat oleh rekomendasi pemuatan Perhatikan 11-25 (FAQ 8) A4.4. Aturan baru tidak mengubah aplikasi aturan kelayakan yang telah berjalan lama berdasarkan rekomendasi berdasarkan rekomendasi. Secara umum, fokusnya tetap pada rekomendasi apakah sesuai pada saat pembuatannya. Tidak ada kesepakatan, tindakan baik atau pola fakta yang tidak biasa yang mungkin mengubah hubungan broker-pelanggan normal, sebuah rekomendasi terus tidak akan membuat tugas yang sedang berlangsung untuk memantau dan membuat rekomendasi selanjutnya. 49 Q4.5. Apakah peraturan baru mencakup rekomendasi terus mengenai sekuritas yang broker awalnya tidak merekomendasikan Apakah broker, misalnya, bertanggung jawab atas rekomendasi terus yang melibatkan saham blue chip bahwa pelanggan ditransfer ke rekening di broker-dealer Notice 12-25 (FAQ 11) A4.5. Jika seorang broker tidak merekomendasikan pembelian asli dari sebuah keamanan namun secara eksplisit merekomendasikan agar pelanggan kemudian memegang keamanan tersebut, peraturan kesesuaian yang baru akan berlaku. Namun, seperti yang dibahas di sini, sebuah perusahaan dapat mengambil pendekatan berbasis risiko untuk membuktikan kepatuhan terhadap peraturan tersebut. Rekomendasi terus-menerus yang melibatkan saham saham blue chip biasanya tidak akan menyajikan jenis risiko, tidak ada fakta yang tidak biasa, yang memerlukan analisis atau dokumentasi terperinci. Bila rekomendasi terus melibatkan posisi yang terlalu terkonsentrasi dalam keamanan, dokumentasi biasanya diperlukan, bahkan jika broker awalnya tidak merekomendasikan pembelian keamanan. Q4.6. Berapa cakupan ketentuan dalam Bahan Pelengkap .03 yang tidak termasuk dalam peraturan mencakup jenis komunikasi strategi tertentu yang bersifat pendidikan 50 Pemberitahuan 11-25 (FAQ 9) A4.6. Apa yang bisa dianggap sebagai persediaan pelabuhan aman di Bahan Pelengkap .03 terbatas cakupannya. Firms seeking to rely on the provision should take a conservative approach to determining whether a particular communication is eligible for such treatment. Any significant variation from the list in the safe-harbor provision would be subject to regulatory scrutiny. It is important to note, however, that the suitability rule would not apply to a firms explanation of a strategy falling outside the safe-harbor provision if a reasonable person would not view the communication as a recommendation. Accordingly, the suitability rule would cover a firms recommendation that a customer purchase securities using margin, whereas the rule generally would not cover a firms brochure that simply explains the risks and benefits of margin without suggesting that the customer take action. 51 Q4.7. What is the scope of the safe-harbor provision in Rule 2111.03 regarding a firms use of an asset allocation model Notice 12-25 (FAQ 8) A4.7. Rule 2111.03 excludes from the suitability rules coverage various types of communications that are educational in nature even though they could be considered investment strategies involving securities. The rule states that certain communications are excluded from the coverage of Rule 2111 as long as they do not include (standing alone or in combination with other communications) a recommendation of a particular security or securities. 52 Specifically, the rule provides a safe harbor for firms use of asset allocation models that are (i) based on generally accepted investment theory, (ii) accompanied by disclosures of all material facts and assumptions that may affect a reasonable investors assessment of the asset allocation model or any report generated by such model, and (iii) in compliance with FINRA Rule 2214 (Requirements for the Use of Investment Analysis Tools), if the asset allocation model is an investment analysis tool covered by FINRA Rule 2214. 53 Under this provision, the suitability rule would not apply, for example, to a general recommendation that a customers portfolio have certain percentages of investments in equity securities, fixed-income securities and cash equivalents, if the recommendation is based on an asset allocation model that meets the above criteria and the firm does not recommend a particular security or securities in connection with the allocation. The suitability rule also would not apply to a firms allocation recommendation regarding broad-based market sectors (e. g. agriculture, construction, finance, manufacturing, mining, retail, services, transportation and public utilities, and wholesale trade). 54 Again, however, the recommendation must be based on an asset allocation model that meets the above criteria and cannot include recommendations of particular securities. In this regard, firms should note that, as an allocation recommendation becomes narrower or more specific, the recommendation gets closer to becoming a recommendation of particular securities and, thus, subject to the suitability rule, depending on a variety of factors (including the number of issuers that fall within the broker-dealers allocation recommendation). 55 Accordingly, broker-dealers should assess whether allocation recommendations involving certain types of sub-categories of broader market sectors or even more limited groupings are so specific or narrow that they constitute recommendations of particular securities. 56 Q4.8. Would a recommendation to maintain an asset mix that was based on an asset allocation model that meets the criteria described in the rule fall within the safe-harbor provision in Rule 2111.03 Notice 12-25 (FAQ 9) A4.8. Yes. 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. Reasonable-Basis Suitability Q5.1. 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 Notice 12-25 (FAQ 22) A5.1. Yes. The reasonable-basis obligation has two components: a broker must (1) perform reasonable diligence to understand the nature of the recommended security or investment strategy involving a security or securities, as well as the potential risks and rewards, and (2) determine whether the recommendation is suitable for at least some investors based on that understanding. 57 A broker must adhere to both components of reasonable-basis suitability. A broker could violate the obligation if he or she did not understand the recommended security or investment strategy, even if the security or investment strategy is suitable for at least some investors. A broker must understand the securities and investment strategies involving a security or securities that he or she recommends to customers. 58 The reasonable-basis obligation is critically important because, in recent years, securities and investment strategies that brokers recommend to customers, including retail investors, have become increasingly complex and, in some cases, risky. Brokers cannot fulfill their suitability responsibilities to customers (including both their reasonable-basis and customer-specific obligations) when they fail to understand the securities and investment strategies they recommend. Firms supervisory policies and procedures must be reasonably designed to ensure that their brokers comply with this important requirement. 59 Q5.2. For purposes of compliance with the reasonable-basis obligation, 60 is it sufficient that a firms product committee, which conducts due diligence on products, has approved a product for sale Notice 11-25 (FAQ 11) A5.2. Although due diligence reviews by such committees can be extremely beneficial, 61 a firms approval of a product for sale does not necessarily mean that an associated person has complied with the reasonable-basis obligation. Reasonable-basis suitability has two main components: a broker must (1) perform reasonable diligence to understand the potential risks and rewards associated with a recommended security or strategy and (2) determine whether the recommendation is suitable for at least some investors based on that understanding. A broker can violate reasonable-basis suitability under either prong of the test. That is, even if a firms product committee has approved a product for sale, an individual brokers lack of understanding of a recommended product or strategy could violate the obligation, notwithstanding that the recommendation is suitable for some investors. 62 A firm should educate its associated persons on the potential risks and rewards of the products that the firm permits them to recommend. In general, an associated person may rely on a firms fair and balanced explanation of the potential risks and rewards of a product. However, if the associated person remains uncertain about the potential risks and rewards of a product or has reason to believe that the firm failed to address a particular issue or has done so in an incomplete or inaccurate manner, then the associated person would need to engage in further inquiry before recommending the product. Quantitative Suitability Q6.1. Is the quantitative suitability obligation under the new rule any different from the excessive trading line of cases under the predecessor rule Notice 12-25 (FAQ 23) A6.1. No. The quantitative suitability obligation under the new rule simply codifies excessive trading cases. Quantitative suitability requires a broker who has actual or de facto control 63 over a customer account to have a reasonable basis for believing that, in light of the customers investment profile, a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer. 64 Factors such as turnover rate, 65 cost-to-equity ratio, 66 and use of in-and-out trading 67 in a customers account may provide a basis for finding that the activity at issue was excessive. Acting in a Customers Best Interests Q7.1. Regulatory Notice 11-02 and a recent SEC staff study on investment adviser and broker-dealer sales-practice obligations cite cases holding that brokers recommendations must be consistent with their customers best interests. 68 What does it mean to act in a customers best interests Notice 12-25 (FAQ 1) A7.1. In interpreting FINRAs suitability rule, numerous cases explicitly state that a brokers recommendations must be consistent with his customers best interests. 69 The suitability requirement that a broker make only those recommendations that are consistent with the customers best interests prohibits a broker from placing his or her interests ahead of the customers 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: A broker whose motivation for recommending one product over another was to receive larger commissions. 71 A broker whose mutual fund recommendations were designed to maximize his commissions rather than to establish an appropriate portfolio for his customers. 72 A broker who recommended that his customers purchase promissory notes to give him money to use in his business. 73 A broker who sought to increase his commissions by recommending that customers use margin so that they could purchase larger numbers of securities. 74 A broker who recommended new issues being pushed by his firm so that he could keep his job. 75 A broker who recommended speculative securities that paid high commissions because he felt pressured by his firm to sell the securities. 76 The requirement that a brokers recommendation must be consistent with the customers 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 customers interests. Some of the cases in which FINRA and the SEC have found that brokers placed their interests ahead of their customers interests involved cost-related issues. The cost associated with a recommendation, however, ordinarily is only one of many important factors to consider when determining whether the subject security or investment strategy involving a security or securities is suitable. The customers investment profile, for example, is critical to the assessment, as are a host of product - or strategy-related factors in addition to cost, such as the products or strategys investment objectives, characteristics (including any special or unusual features), liquidity, risks and potential benefits, volatility and likely performance in a variety of market and economic conditions. These are all important considerations in analyzing the suitability of a particular recommendation, which is why the suitability rule and the concept that a brokers recommendation must be consistent with the customers best interests are inextricably intertwined. 77 Institutional-Customer Exemption Q8.1. Some third-party vendors have created Institutional Suitability Certificates to facilitate firms compliance with the new institutional-customer exemption in Rule 2111(b). Has FINRA endorsed or approved any of these certificates Notice 12-25 (FAQ 24) A8.1. No. By way of background, the new suitability rule modifies the institutional-customer exemption that existed under the predecessor rule (NASD IM-2310-3). Rule 2111(b) replaces the previous rules definition of institutional customer with the more common definition of institutional account in FINRAs books and records rule, Rule 4512(c). 78 Institutional account means the account of a bank, savings and loan association, insurance company, registered investment company, registered investment adviser or any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least 50 million. 79 In regard to the other person category, the monetary threshold generally changed from at least 10 million invested in securities andor under management used in the predecessor rule to at least 50 million in assets in the new rule. 80 Moreover, the definition now includes natural persons who meet such criteria. In addition to the definitional change, the new institutional-customer exemption focuses on two factors: (1) whether a broker has a reasonable basis to believe the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities (a factor used in the predecessor rule), and (2) whether the institutional customer affirmatively indicates that it is exercising independent judgment (a new requirement). 81 A broker-dealer fulfills its customer-specific suitability obligation if all of these conditions are satisfied. 82 Some third-party vendors have created and aggressively marketed proprietary Institutional Suitability Certificates to facilitate compliance with the new institutional-customer exemption. 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 FINRAs behalf. FINRA also emphasizes that broker-dealers are not required to use such certificates to comply with the new institutional-customer exemption. As discussed below in the answer to FAQ 8.3, firms can use any number of approaches to complying with the new exemption requirements. Q8.2. Some of the Institutional Suitability Certificates that are being marketed do not identify an institutional customers experience with particular asset classes or types of securities or investment strategies involving a security or securities. Does FINRA expect broker-dealers or institutional customers to provide more specificity Notice 12-25 (FAQ 25) A8.2. Firms should understand that the use of any such Institutional Suitability Certificate in no way constitutes a safe harbor from the rule. As noted above in the answer to FAQ 8.1, FINRA has not endorsed or promoted any certificate. What further action a broker-dealer will need to take will depend on the facts and circumstances of the particular case. In general, however, when there is an indication that the institutional customer is not capable of analyzing, or does not intend to exercise independent judgment regarding, all of a broker-dealers recommendations, the broker-dealer necessarily will have to be more specific in its approach to ensuring that it complies with the exemption. A broker-dealer need not automatically use a detailed approach when no such indication exists, although providing at least some level of specificity (even if not required) may help eliminate misunderstandings. FINRA previously issued written guidance on a customers capability of analyzing risks (a factor used in both the predecessor and new suitability rules). 83 FINRA stated that a broker-dealer may conclude in some cases that a customer is not capable of making independent investment decisions in general. In other cases, the institutional customer may have general capability, but may not be able to understand a particular type of instrument or its risk. If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product or investment strategy that is the subject of a recommendation, the scope of a brokers customer-specific obligations under the suitability rule would not be diminished by the fact that the broker was dealing with an institutional customer. However, the fact that a customer initially needed help understanding a potential investment or investment strategy need not necessarily imply that the customer did not ultimately develop an understanding. As to an institutional customers 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. 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. 84 Q8.3 Does the suitability rule require a broker-dealer to have a hard copy agreement on file reflecting an institutional customers affirmative indication that it intends to exercise independent judgment Notice 12-25 (FAQ 26) A8.3. As discussed below in the answer to FAQ 9.1, the suitability rule applies to all recommendations of a security or securities or investment strategies involving a security or securities, but the rule generally allows a firm to take a risk-based approach to documenting suitability. In relation to a customer affirmatively indicating the intention to exercise independent judgment, negative consent will not suffice, but the affirmative indication does not necessarily have to be in writing. A firm may use a risk-based approach to documenting compliance with this provision. A firm could comply with this requirement, for example, by having an institutional customer indicate in a signed customer agreement or other document that the institutional customer will be exercising independent judgment in evaluating recommendations or a firm could call its institutional customer, have that discussion, and (if it chooses or circumstances require) document the conversation to evidence the institutional customers affirmative indication. Documentation and Supervision Regarding Suitability Obligations Q9.1. For purposes of using a risk-based approach to documenting compliance with suitability obligations, what types of recommendations does FINRA generally consider complex or potentially risky Notice 12-25 (FAQ 12) A9.1. 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 FINRAs suitability 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 customers 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) andor the risks involved. 86 The recommendation of a large-cap, value-oriented equity security usually would not require documentation. Conversely, the recommendation of a complex andor potentially risky security or investment strategy involving a security or securities usually would require documentation. Numerous Regulatory Notices and cases discuss various types of complex andor potentially risky securities and investment strategies involving a security or securities. Firms and brokers may want to consult those Regulatory Notices 87 and cases 88 when considering the types of recommended securities and investment strategies involving securities that they should document. Q9.2. What types of hold recommendations should firms consider documenting Notice 12-25 (FAQ 13) A9.2. For hold recommendations, as discussed below in FAQ 9.3, a firm may want to focus on 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 a products character over time that are particularly susceptible to changes in market conditions or that are otherwise potentially risky or problematic to hold at the time the recommendations are made. 89 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 customers investment profile. Q9.3. For purposes of the suitability rule, how should a firm document recommendations to hold in particular and recommendations of strategies more generally Notice 11-25 (FAQ 10) A9.3. As discussed above, aside from the instances when a firm determines not to seek certain information (addressed in FAQ 3.4), FINRA Rule 2111 does not impose explicit documentation requirements. Each firm has a general obligation to evidence compliance with applicable FINRA rules. A firm may use a risk-based approach to evidencing compliance with the suitability rule. 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 products 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. 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 customers account has a heavy concentration in a particular security or industry sector or the security or securities in question are inconsistent with the customers investment profile. 90 The same approach applies to other recommended strategies. In general, the more complex and risky the strategy, the more the firm using a 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 the discussions above, however, the complexity of and risks associated with a particular security or strategy likely will impact the level of documented analysis that is appropriate. Q9.4. How should a firm document hold recommendations Notice 12-25 (FAQ 14) A9.4. The suitability rule does not prescribe the manner in which a firm must document hold recommendations when documentation may be necessary. Some firms may create hold tickets and some may add hold sections to existing order tickets. Other firms may require emails or memoranda to supervisors or emails or letters to customers copying supervisors. Still other firms may create data fields for entering such information into automated supervisory systems. These are only examples of how some firms may document hold recommendations if necessary. Firms do not have to document or individually approve every hold recommendation. 91 As with recommendations of other types of investment strategies or of purchases, sales or exchanges of securities, firms may use a risk-based approach to documenting and supervising hold recommendations. 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. Q9.5 What are a broker-dealers supervisory responsibilities for a registered representatives recommendation of an investment strategy involving both a security and a non-security investment Notice 12-55 (FAQ 10(b) A9.5. FINRAs supervision rules do not dictate the exact manner in which a broker-dealer must supervise its registered representatives recommendations of investment strategies involving a security and a non-security investment. A broker-dealers supervisory system must be reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules. 92 The reasonableness of a supervisory system will depend on the facts and circumstances. As FINRA has stated previously, FINRA appreciates that no two broker-dealers are exactly alike. Broker-dealers have different business models offer divergent 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 to identifying and supervising its registered representatives recommendations of investment strategies involving both a security and a 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 and non-security component. For instance, as long as the supervisory system is reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules, a firm could focus on the detection, investigation and follow-up of red flags indicating that a registered representative may have recommended an unsuitable investment strategy with both a security and non-security component. 94 A registered representatives recommendation that a customer with limited means purchase a large position in a security might raise a red flag regarding the source of funds for such a purchase. Similarly, a registered representatives recommendation that a buy and hold customer with an investment objective of income liquidate large positions in blue chip stocks paying regular dividends might raise a red flag regarding whether that recommendation is part of a broader investment strategy. Once a broker-dealer identifies a recommended investment strategy involving both a security and a non-security investment, the broker-dealers suitability obligations apply to the security component of the recommended strategy 95 but its suitability analysis also must be informed by a general understanding of the non-security component of the recommended investment strategy. In the context of a recommended investment strategy involving a security and an outside business activity, the broker-dealers general understanding of the outside business activity would be based on the information and considerations required by FINRA Rule 3270. 96 Finally, broker-dealers must keep in mind that, in addition to suitability and supervisory responsibilities, firms have other regulatory obligations to investigate unusual activity. 1 See, e. g. Regulatory Notice 11-02. at 2-3 (discussing FINRAs guiding principles that firms and brokers should consider when determining whether a particular communication could be 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 networking websites) Notice to Members 01-23 (announcing the guiding principles and providing examples of communications that likely do and do not constitute recommendations) Michael F. Siegel, Exchange Act Rel. No. 58737, 2008 SEC LEXIS 2459, at 21-27 (Oct. 6, 2008) (applying the guiding principles to the facts of the case to find a recommendation), affd in relevant part, 592 F.3d 147 (D. C. Cir.), cert. denied, 130 S. Ct. 333 (2010). 2 See, e. g. SEC Adoption of Rules Under Section 15(b)(10) of the Exchange Act, 32 Fed. Reg. 11637, 11638 (Aug. 11, 1967) (noting that the SECs 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. Reg. 6693, 6696 (Feb. 14, 1989) (stating that proposed SEA Rule 15c2-6, which would have required documented suitability determinations for speculative securities, would not apply to general advertisements not involving a direct recommendation to the individual) DBCC v. Kunz, No. C3A960029, 1999 NASD Discip. 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), affd, 55 S. E.C. 551, 2002 SEC LEXIS 104 (2002) FINRA Interpretive Letter, Mar. 4, 1997 (The 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.). 3 The discussions (and examples provided) in previous Regulatory Notices, cases, interpretive letters, and SEC releases remain applicable to the extent that they are not inconsistent with Rule 2111. 4 See, e. g. Rafael Pinchas, 54 S. E.C. 331, 341 n.22, 1999 SEC LEXIS 1754, at 20 n.22 (1999) (Transactions that were not specifically authorized by a client but were executed on the clients behalf are considered to have been implicitly recommended within the meaning of FINRAs suitability rule.) Paul C. Kettler, 51 S. E.C. 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). 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 stated that, to the extent that a customer account at a broker-dealer can be discretionary under applicable federal securities laws, the suitability rule generally would not apply where a firm refrains from selling a security. See infra note 38 (emphasis in original). 6 Pub. L. No. 112-106, 126 Stat. 306 (2012). 7 See supra note 2. 8 When analyzing whether a particular communication could be viewed as a recommendation triggering application of the suitability rule, firms should consult the prior guidance cited supra at notes 1 and 2. 9 See FINRA Rule 0160(b)(4) (Definition of Customer). 10 See Notice to Members 04-72. at 846 (The BD of record refers to the broker-dealer identified on a customers account application for accounts held directly at a mutual fund or variable insurance product issuer. Accounts 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 trusts (REITs) are referred to as investment programs). 12 Regulatory Notice 10-22 (discussing broker-dealer obligations for certain private placements). 13 Nothing in this guidance shall be construed as altering a broker-dealers obligations under applicable federal 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 the Securities Act of 1933, the Bank Secrecy Act, 31 U. S.C. 5311, et seq. and the implementing regulations promulgated thereunder by the Department of the Treasury SEA Rules 17a-3 and 17a-4 and FINRA Rules 14 FINRA reiterates that the suitability rule applies only if a broker-dealer or registered representative makes a recommendation. 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. See, e. g. . FAQ 1.1 (discussing the term recommendation and citing various resources that explain the guiding principles that firms could use when analyzing whether a communication constitutes a recommendation) Regulatory Notice 11-02. at 2-3 (discussing FINRAs guiding principles) Regulatory Notice 10-06. at 3-4 (providing guidance on recommendations made on blogs and social networking websites ) Notice to Members 01-23 (announcing the guiding principles and providing examples of communications that likely do and do not constitute recommendations) Michael F. Siegel . Exchange Act Rel. No. 58737, 2008 SEC LEXIS 2459, at 21-27 (Oct. 6, 2008) (applying the guiding principles to the facts of the case to find a recommendation), affd in relevant part . 592 F.3d 147 (D. C. Cir.), cert. denied . 130 S. Ct. 3333 (2010). 15 In the example above regarding a recommendation to a potential investor . suitability obligations attach when the transaction occurs, but the suitability of the recommendation is evaluated based on the circumstances that existed at the time the recommendation was made. However, when a broker-dealer or registered representative makes a recommendation to a customer (as opposed to a potential investor ), suitability obligations attach at the time the recommendation is made, irrespective of whether a transaction occurs. See FAQ 4.1, Regulatory Notice 11-02. at 3. 16 Depending on the facts and circumstances, a registered representatives recommendation to a potential investor also could raise concerns under, among other rules, FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) FINRA Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices) Rule 2210 (Communications with the Public) and NASD Rule 3040 (Private Securities Transactions of an Associated Person) see also Dept of Enforcement v. Salazar . No. 20100224056, 2012 FINRA Discip. LEXIS 22 (Mar. 12, 2012) (finding that registered representative violated NASD Rules 2310 and 3040 when he recommended unsuitable private securities transactions to investors who were not his firms customers, received compensation in relation to the transactions and failed to notify his firm of such activity) Maximo J. Guevara . 54 S. E.C. 655, 2000 SEC LEXIS 986 (2000) (holding that registered representative violated NASD Rules 2310 and 3040 where he recommended unsuitable securities that were sold away from the firm with which he was associated without providing his firm prior notice of such activities). 17 See FINRA Rule 2111(a). 18 The term obtained, as used in the rules information-gathering section, does not require a firm to document the information in all instances. 19 See FINRA Rule 2111.04 (explaining that a firm that decides not to seek to obtain and analyze information about a customer-specific factor must document its reasonable basis for believing that the factor is not a relevant consideration). 20 FINRA notes that there are 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 for certain account information, including, among other things, date of birth, employment status, annual income, net worth and investment objectives, regarding an account with a natural person as a customer). See also Regulatory Notice 11-25. at 9 n.6. 21 For an expanded discussion of this issue, see FAQ 3.4. See also Regulatory Notice 12-25. at 18 n.3. 22 See DBCC v. Hurni, No. C07960035, 1997 NASD Discip. LEXIS 15, at 9 (NBCC Mar. 7, 1997) (A broker has a duty to make recommendations based upon the information he has about his customer, rather than 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 supply information, a broker must make recommendations only on the basis of the concrete information that the customer did supply and not on the basis of guesswork) David J. Dambro, 51 S. E.C. 513, 516-17, 1993 SEC LEXIS 1521, at 9-10 (1993) (same). 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. FINRA emphasizes, however, that a high level of liquidity does not, in and of itself, mean that the recommended product is suitable for all customers. For instance, some relatively liquid products can be complex andor risky and therefore unsuitable for some customers. See, e. g. Regulatory Notice 09-31 ( reminding firms of their sales-practice obligations relating to leveraged and inverse exchange-traded funds). 29 FINRA also previously stated that a customer with multiple accounts at a single firm could have different investment profiles or investment-profile factors (e. g. objectives, time horizons, risk tolerance) for those different accounts. FINRA cautioned, however, that a firm should evidence a customers intent to use different investment profiles or factors for the different accounts. In addition, FINRA explained that, where a firm allows a customer to use different investment profiles or factors for different accounts rather than using a single customer profile for all of the customers accounts, a firm could not borrow profile factors from the different accounts to justify a recommendation that would not be appropriate for the account for which the recommendation was made. See FAQ 3.10. 30 See supra note 22 and cases cited therein. 31 Firms should note, however, that SEA Rule 17a-3 requires that, for each account with a natural person as a customer or owner, a broker-dealer generally must create a record that includes, among other things, the accounts investment objectives. See SEA Rule 17a-3(a)(17)(i). See also infra note 86 Regulatory Notice 12-25 , at 19 n.12. 32 See FINRA Rule 2111.03. 33 For certain requirements related to margin, see FINRA Rule 2264. 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). 35 For certain requirements 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 and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. For example, FINRA and the SEC have held that associated persons who effect transactions on a customers behalf without informing the customer have implicitly recommended those transactions, thereby triggering application of the suitability rule. See, e. g. Rafael Pinchas, 54 S. E.C. 331, 341 n.22 (1999) (Transactions that were not specifically authorized by a client but were executed on the clients behalf are considered to have been implicitly recommended within the meaning of the NASD rules.) Paul C. Kettler, 51 S. E.C. 30, 32 n.11 (1992) (stating that transactions a broker effects for a discretionary account are implicitly recommended). Although such holdings continue to act as precedent regarding those issues, the new rule does not broaden the scope of implicit recommendations. The new rule does not apply to implicit recommendations to hold. 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. To the extent that a customer account at a broker-dealer can be discretionary under applicable federal securities laws, the suitability rule generally would not apply where a firm refrains from selling a security. The rule states that it applies to explicit recommendations to hold. See FINRA Rule 2111.03. Unless the facts indicate that an associated persons 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 persons inaction or silence in such circumstances as a recommendation to hold the securities for purposes of the suitability rule. 39 See FINRA Rule 2111.03. 40 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. 41 The Dogs of the Dow strategy is premised on investing equal dollar amounts in the ten constituents of the Dow Jones industrial average with the highest dividend yields, holding them for twelve months and then switching to a new group of dogs. Vincent Apicella, Stock Focus: Dogs of the Dow Companies . Forbes (May 29, 2001). 42 The rule would apply, for instance, to a registered representatives recommendation to a customer to purchase shares of high dividend companies even though the registered representative does not mention a particular high dividend company. 44 See FINRA Rule 2111.03. 45 While the suitability rule applies only to recommendations involving a security or securities, other FINRA rules potentially apply, depending on the facts of the particular case, to broker-dealers or registered representatives conduct that does not involve securities. 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. 98-70854, 1999 U. S. App. LEXIS 10362, 4-5 (9th Cir. May 20, 1999) (holding that FINRAs requirement that registered representatives act in a manner consistent with just and equitable principles of trade applies to all unethical business conduct, regardless of whether the conduct involves securities) Vail v. SEC . 101 F.3d 37, 39 (5th Cir. 1996) (same) Robert L. Wallace . 53 S. E.C. 989, 995, 1998 SEC LEXIS 2437, at 13 (1998) (emphasizing, in an action involving viatical settlements, that Rule 2210 is not limited to advertisements for securities, but provides standards applicable to all broker-dealer communications with the public). 46 FINRA made similar points regarding recommended investment strategies on several occasions under the predecessor suitability rule. FINRA explained in one instance under the predecessor rule that recommending liquefying home equity to purchase securities may not be suitable for all investors. Broker-dealers or registered representatives should consider not only whether the recommended investments are suitable, but also whether the strategy of investing liquefied home 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 to ten customers, many of whom were nearing retirement, that they obtain home equity loans and use the proceeds to purchase securities, without considering whether such recommendations were suitable for such customers in light of their financial situation 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 customers use liquefied home equity to purchase mutual fund shares) Steve C. Morgan . AWC No. C3A040016 (Mar. 9, 2004) (suspending registered representative for six months and ordering him to pay restitution of more than 15,000 for recommending that a retired couple use liquefied home equity to purchase a variable annuity). 47 See Notice to Members 05-50. at 5 (Recommendations to liquidate or surrender a registered security such as a mutual fund, variable annuity, or variable life contract must be suitable, including where such liquidations or surrenders are for the purpose of funding the purchase of an unregistered equity indexed annuity.). 48 FINRA Rule 3270.01 (Outside Business Activities of Registered Persons) requires a broker-dealer, upon receipt of a registered persons written notice of a proposed outside business activity, to consider whether the proposed activity will interfere with or otherwise compromise the registered persons responsibilities to the broker-dealer or the broker-dealers customers or be viewed by customers or the public as part of the broker-dealers business. Id. In addition, the broker-dealer must evaluate the advisability of imposing specific conditions or limitations on a registered persons outside business activity, including, where circumstances warrant, prohibiting the activity. Id. A broker-dealer also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirement of NASD Rule 3040 (Private Securities Transactions of an Associated Person). Id. Furthermore, a broker-dealer must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1). Id. 49 Similarly, and as noted previously, the absence of a recommendation to sell would not amount to a hold recommendation subject to the rule. 50 See 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 that the safe-harbor provision would be strictly construed. See FAQ 4.6. 53 FINRA Rule 2111.03. FINRA Rule 2214 replaced NASD IM-2210-6 (Requirements for the Use of Investment Analysis Tools). See 77 Fed. Reg. 20452 (Apr. 4, 2012). As discussed above in the answer to FAQ 4.7, Rule 2111.03 provides a safe harbor for firms use of asset allocation models that are, among other things, based on generally accepted investment theory. These models often take into account the historic returns of different asset classes over defined periods of time. FINRA expects a firm to be capable of explaining how an asset allocation model that it uses is consistent with generally accepted investment theory. 55 When a broker-dealer recommends an allocation strategy that includes an allocation in fixed-income securities, FINRA recognizes that a number of additional factors would be relevant in determining if the broker-dealer has recommended particular debt securities. A firms 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. 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. Moreover, the relative importance of the issuers to other factors in making fixed-income investment decisions varies depending on the total mix of the relevant facts and circumstances. Thus, identifying a more limited universe of debt issuers may not constitute a recommendation if 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 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. Id. at 6 n.15. Firms should use a similar approach to analyzing whether particular recommendations are eligible for the Rule 2111.03 safe-harbor provision. 57 FINRA Rule 2111.05(a). The new rule explains that, in general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the broker-dealers familiarity with the security or investment strategy. A broker-dealers reasonable diligence must provide it with an understanding of the potential risks and rewards associated with the recommended security or strategy. Id. 58 That is true under case law addressing the predecessor suitability rule as well. See Richard G. Cody, Exchange Act Rel. No. 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) affd . 693 F. 3d 251 (1st Cir. 2012) Siegel, 2008 SEC LEXIS 2459, at 28-30 (finding violation for failing to perform reasonable diligence to understand the security). See also Notice to Members 04-30. at 341 (discussing broker-dealers reasonable-basis obligations regarding bonds and bond funds) Notice to Members 03-71. at 767 (The reasonable-basis suitability analysis can only be undertaken when a broker-dealer understands the investment products it sells. Accordingly, a firm must perform appropriate due diligence to ensure that it understands the nature of the product, as well as the potential risks and rewards associated with the product.). 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 firms product committee, which conducts due diligence on products, has approved a product for sale. FINRA explained that, although due diligence reviews by such committees can be extremely beneficial (see, e. g. Notice to Members 05-26 ), a firms approval of a product for sale does not necessarily mean that an associated person has complied with the reasonable-basis obligation. That is, even if a firms product committee has approved a product for sale, an individual brokers lack of understanding of a recommended product or strategy could violate the obligation, notwithstanding that the recommendation is suitable for some investors. FAQ 5.2. 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. In general, an associated person may rely on a firms fair and balanced explanation of the potential risks and rewards of a product. Id. FINRA cautioned, however, that, if the associated person remains uncertain about the potential risks and rewards of a product, or has reason to believe that the firm failed to address a particular issue or has done so in an incomplete or inaccurate manner, then the associated person would need to engage in further inquiry before recommending the product. Id. 60 See FINRA Rule 2111.05(a). 61 See, e. g. Notice to Members 05-26 (recommending best practices for reviewing new products). 62 See FINRA Rule 2111.05(a). This position is consistent with requirements under the previous suitability rule. In Dept of Enforcement v. Siegel, for instance, FINRAs National Adjudicatory Council explained that a recommendation may lack reasonable-basis suitability if the broker: (1) fails to understand the transaction, which can result from, among other things, a failure to conduct a reasonable investigation concerning the security or (2) recommends a security that is not suitable for any investors. Dept of Enforcement v. Siegel, No. C05020055, 2007 NASD Discip. LEXIS 20, at 38 (NAC May 11, 2007), affd, Exchange Act Rel. No. 58737, 2008 SEC LEXIS 2459 (Oct. 6, 2008), affd in relevant part, 592 F.3d 147 (D. C. Cir. 2010), cert. denied, 2010 U. S. LEXIS 4340 (May 24, 2010). 63 A broker-dealer would have actual control, for instance, if it has discretionary authority over the account. See Peter C. Bucchieri, 52 S. E.C. 800, 805 n.11, 1996 SEC LEXIS 1331, at 12 n.11 (1996). A broker-dealer would have de facto control over an account if the customer routinely follows the broker-dealers advice because the customer is unable to evaluate the brokers recommendations and to exercise independent judgment. Harry Gliksman, 54 S. E.C. 471, 475, 1999 SEC LEXIS 2685, at 7 (1999). 64 FINRA Rule 2111.05(c). 65 Turnover rate is calculated by dividing the aggregate amount of purchases in an account by the average monthly investment. The average monthly investment is the cumulative total of the net investment in the account at the end of each month, exclusive of loans, divided by the number of months under consideration. Pinchas, 54 S. E.C. at 339-40 n.14, 1999 SEC LEXIS 1754, at 17 n.14. Turnover rates between three and six may trigger liability for excessive trading. See Cody, 2011 SEC LEXIS 1862, at 48 (finding turnover rate of three provided support for excessive trading) Dept of Enforcement v. Stein, No. C07000003, 2001 NASD Discip. LEXIS 38, at 17 (NAC Dec. 3, 2001) (Turnover rates between three and five have triggered liability for excessive trading). A turnover rate greater than six creates a presumption that the trading was excessive. See Craighead v. E. F. Hutton amp Co. 899 F.2d 485, 490 (6th Cir. 1990) Arceneaux v. Merrill Lynch, Pierce, Fenner amp Smith, Inc. 767 F.2d 1498, 1502 (11th Cir. 1985). 66 The cost-to-equity ratio represents the percentage of return on the customers average net equity needed to pay 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 been considered indicative of excessive trading, and ratios above 12 generally are viewed as very strong evidence of excessive trading. See Cody, 2011 SEC LEXIS 1862, at 49 amp 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 commission to equity ratio ranging between 12.1 and 18.0.). 67 In-and-out trading refers to the sale of all or part of a customers portfolio, with the money reinvested in other securities, followed by the sale of the newly acquired securities. Costello v. Oppenheimer amp Co. 711 F.2d 1361, 1369 n.9 (7th Cir. 1983). A brokers use of in-and-out trading ordinarily is a strong indicator of excessive trading. Id. 68 See Regulatory Notice 11-02. at 7 n.11 SEC Staff Study on Investment Advisers and Broker-Dealers as Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 . at 59 (Jan. 2011) (IABD 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, Exchange Act Rel. No. 54722, 2006 SEC LEXIS 2572, at 21 (Nov. 8, 2006) , affd . 304 F. Appx 883 (D. C. Cir. 2008) see also Scott Epstein, Exchange Act Rel. No. 59328, 2009 SEC LEXIS 217, at 40 n.24 (Jan. 30, 2009) (In interpreting the suitability rule, we have stated that a brokers recommendations must be consistent with his customers best interests.), affd . 416 F. Appx 142 (3d Cir. 2010) Dane S. Faber, 57 S. E.C. 297, 310, 2004 SEC LEXIS 277, at 23-24 (2004) (stating that a brokers recommendations must be consistent with his customers best interests and are not suitable merely because the customer acquiesces in them) Wendell D. Belden, 56 S. E.C. 496, 503, 2003 SEC LEXIS 1154, at 10-11 (2003) (As we have frequently pointed out, a brokers recommendations must be consistent with his customers best interests.) Daniel R. Howard, 55 S. E.C. 1096, 1100, 2002 SEC LEXIS 1909, at 5-6 (2002) (same), affd, 77 F. Appx 2 (1st Cir. 2003) Powell amp McGowan, Inc. 41 S. E.C. 933, 935, 1964 SEC LEXIS 497, at 3-4 (1964) (same) Dept of Enforcement v. Evans, No. 20006005977901, 2011 FINRA Discip. LEXIS 36, at 22 (NAC Oct. 3, 2011) (same) Dept of Enforcement v. Cody, No. 2005003188901, 2010 FINRA Discip. LEXIS 8, at 19 (NAC May 10, 2010) (same), affd, Exchange Act Rel. No. 64565, 2011 SEC LEXIS 1862 (May 27, 2011) Dept of Enforcement v. Bendetsen, No. C01020025, 2004 NASD Discip. LEXIS 13, at 12 (NAC Aug. 9, 2004) (A brokers recommendations must serve his clients best interests, and the test for whether a brokers recommendations are suitable is not whether the client acquiesced in them, but whether the brokers recommendations were consistent with the clients financial situation and needs.) IABD Study, supra note 68, at 59 (A central aspect of a broker-dealers duty of fair dealing is the suitability obligation, which generally requires a broker-dealer to make recommendations that are consistent with the best interests of his customer.). 70 See Epstein, 2009 SEC LEXIS 217, at 42 (stating that the brokers mutual fund switch recommendations served his own interest by generating substantial production credits, but did not serve the interests of his customers and emphasizing that the broker violated the suitability rule when he put his own self-interest ahead of the interests of his customers). 71 See Belden, 56 S. E.C. at 504-05, 2003 SEC LEXIS 1154, at 14. 72 Epstein, 2009 SEC LEXIS 217, at 72 see also Sathianathan, 2006 SEC LEXIS 2572, at 23. 73 Robin B. McNabb, 54 S. E.C. 917, 928, 2000 SEC LEXIS 2120, at 24 (2000), affd, 298 F.3d 1126 (9th Cir. 1990). 74 See Stephen T. Rangen, 52 S. E.C. 1304, 1311, 1997 SEC LEXIS 762, at 19 (1997). 75 See Curtis I. Wilson, 49 S. E.C. 1020, 1022, 1989 SEC LEXIS 25, at 6-7 (1989), affd, 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 that, in addition 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 its business, shall observe high standards of commercial honor and just and equitable principles of trade) FINRA Rule 2020 (prohibiting use of manipulative, deceptive or other fraudulent devices) FINRA Rule 2090 (effective July 9, 2012) (requiring broker-dealers to use reasonable diligence, in regard to the opening and maintenance of every account, to know and retain the essential facts concerning every customer to effectively service customer accounts, act in accordance with any special handling instructions, understand the authority of each person acting on behalf of customers, and comply with applicable laws, regulations, and rules) FINRA Rule 2330 (imposing heightened suitability, disclosure, supervision, and training obligations regarding variable annuities) FINRA Rule 2360 (requiring heightened account opening and suitability obligations regarding options) FINRA Rule 2370 (requiring heightened account opening and suitability obligations regarding securities futures) NASD Rule 2210 (recently approved 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 material information, be free from exaggerated, false or misleading statements or claims, and, as to certain communications, be approved prior to use by a principal andor filed with FINRA) NASD Rule 3010 (imposing supervisory obligations) FINRA Rule 5310 (requiring broker-dealers to provide best execution). 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. See, e. g. NASD Rules 1014, 1021 and 1031, and FINRA Rule 1250. These (and many other) FINRA rules provide broad and significant protections to investors. FINRA BrokerCheck . moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online. 78 See FINRA Rule 2111(b). 79 See FINRA Rule 4512(c). 80 Compare FINRA Rules 2111(b) and 4512(c) with NASD IM-2310-3. 81 FINRA Rule 2111(b). 82 FINRA Rule 2111(b). The institutional-customer exemption does not apply to reasonable-basis and quantitative suitability. See id. Regulatory Notice 11-02. at 4-5. Quantitative suitability likely will apply in more limited circumstances with regard to institutional customers than it does as to retail customers. The factors that must exist for an institutional customer to qualify for the exemption may, depending on the facts, negate some of the elements relevant to a showing of a brokers control over the account. That will not always be the case, however. See Pryor, McClendon, Counts amp Co. Exchange Act Rel. No. 45402, 2002 SEC LEXIS 284, at 20-21 amp n.10 (Feb. 6, 2002) (holding that the defendant broker controlled the account because he essentially was a co-conspirator with the institutional customers investment officer, who was authorized to place orders for the institutional customers account). 86 Firms should keep in mind, however, that SEA Rule 17a-3 requires that, for each account with a natural person as a customer or owner, a broker-dealer must create a record that includes, among other things, the customers or owners name, date of birth, employment status, annual income, and net worth, as well as the accounts investment objectives. See SEA Rule 17a-3(a)(17)(i)(A). SEA Rule 17a-3 also states that the broker-dealer must furnish such customer or owner a copy of the required account record information or alternative document with all information required by SEA Rule 17a-3(a)(17)(i)(A), including an explanation of any terms regarding investment objectives, for verification within 30 days of account opening and at least once every 36 months thereafter. See SEA Rule 17a-3(a)(17)(i)(B)(1). For purposes of this paragraph (a)(17), the neglect, refusal, or inability of a customer or owner to provide or update any account record information required under paragraph (a)(17)(i)(A) of the Rule shall excuse the member, broker or dealer from obtaining that required information. SEA Rule 17a-3(a)(17)(i)(C). The account record requirements in paragraph (a)(17)(i)(A) of the Rule apply only to accounts for which the broker or dealer is, or within the past 36 months has been, required to make a suitability determination. See SEA Rule 17a-3(a)(17)(i)(D). 87 See, e. g. Regulatory Notice 12-03 (providing guidance to broker-dealers on supervision and suitability obligations for various complex products) Regulatory Notice 11-15 (providing guidance on low-priced equity securities in customer margin and firm proprietary accounts) Regulatory Notice 10-51 (reminding broker-dealers of their sales practice obligations for commodity futures-linked securities) Regulatory Notice 10-22 (discussing broker-dealer obligations when participating in private offerings) Regulatory Notice 10-09 (reminding broker-dealers of sales practice obligations with reverse exchangeable securities or reverse convertibles) Regulatory Notice 09-73 (reminding broker-dealers of their sales practice obligations relating to principal-protected notes) Regulatory Notice 09-31 (reminding broker-dealers of sales practice obligations relating to leveraged and inverse exchange-traded funds) Regulatory Notice 08-81 (reminding broker-dealers of their obligations regarding the sale of securities i n a high yield environment) Notice to Members 05-59 (providing guidance to broker-dealers on the sale of structured products) Notice to Members 05-18 (issuing guidance on section 1031 tax-deferred exchanges of real property for certain tenants-in-common interests in real property offerings) Notice to Members 03-71 (reminding broker-dealers of obligations when selling non-conventional investments) Notice to Members 03-07 (reminding broker-dealers of their obligations when 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 SEC LEXIS 1862, at 36-40 (discussing non-investment grade securities) Wells Fargo Invs. LLC, AWC No. 2008015651901 (Dec. 15, 2011) (stating that reverse convertibles are complex structured products that combine a debt instrument and put option into one product, the repayment of principal is linked to the performance of an underlying asset, such as a stock, a basket of stocks or an index, which is generally unrelated to the issuer of the note, and at maturity, if the value of the underlying asset has fallen below a certain level, the investor may receive less than a full return of principal) Chase Invs. Servs. Corp. AWC No. 2008015078603 (Nov. 15, 2011) (discussing the potential risk of floating rate loan funds, if substantially invested in secured senior loans that are extended to entities whose credit quality is generally unrated or rated non-investment grade, and the risks of a unit investment trust, if substantially invested in speculative instruments such as 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 risks associated with investment in bonds and bond funds, and 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 of recommendations to certain municipalities to engage in a trading strategy involving buying and selling the same long-term, zero-coupon United States Treasury Bonds (also known as Separate Trading of Registered Interest and Principal of Securities or STRIPS) within the same day or days using repurchase agreements (repos) to finance such purchases, which significantly increased the risks. as repos effectively allowed the accounts to borrow large amounts of money in order to hold larger positions of STRIPS) Siegel, 2008 SEC LEXIS 2459, at 30-32 (holding that recommendations of a private placement were unsuitable where the offering documents contained conflicting and confusing information and there was no other information on which a prospective investor could rely to make an investment decision) Ronald Pellegrino, Exchange Act Rel. 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, at 25 (discussing speculative nature of the security of a company that had no revenues 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 risks of using margin) James B. Chase, 56 S. E.C. 149, 153 amp 156-157, 2003 SEC LEXIS 566, at 7-8 amp 13 (2003) (discussing speculative nature of the security of a start-up company whose business consisted of manufacturing and selling a single product that was new and had no established or tested market and emphasizing the 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 associated with certain foreign currency debt securities) Clinton H. Holland, Jr. 52 S. E.C. 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. 513, 515, 1993 SEC LEXIS 1521, at 5 (1993) (discussing risky nature of investing in a company that had a history of operating losses and concentrated its assets in illiquid holdings in other 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 in a company when that company was losing money, had never paid a dividend, and its prospects were totally speculative) Patrick G. Keel, 51 S. E.C. 282, 284, 1993 SEC LEXIS 41, at 5 (1993) (Options transactions involve a high degree of financial risk. Only investors who understand those risks, and who are able to sustain the costs and financial losses that may be associated with options trading should participate in the listed options markets.) F. J. Kaufman and Co. 50 S. E.C. 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.). 90 As discussed in FAQ 4.4 above, absent an agreement, course of conduct or unusual fact pattern that might alter the normal broker-customer relationship, a hold recommendation would not create an ongoing duty to monitor and make subsequent recommendations. 91 Firms are reminded, however, that copies of all communications relating to their business as such and memoranda of brokerage orders are required to be preserved for three years. See SEA Rules 17a-3(a)(6) and 17a-4(b)(1) and (b)(4). 92 See NASD Rule 3010 (Supervision). 94 In Notice to Members 99-45. FINRA said that the supervision rule requires that a firms supervisory system be reasonably designed to achieve compliance with applicable laws and regulations. This standard recognizes that a supervisory system cannot guarantee firm-wide compliance with all laws and regulations. However, this standard does require that the system be a product of sound thinking and within the bounds of common sense, taking into consideration the factors that are unique to a members business. Id. at 295. 95 For example, in supervising an identified recommended investment strategy involving a security and a non-security component, a broker-dealer may need to consider, in addition to the customers investment profile, whether a recommended securities liquidation causes an overconcentration in particular securities or types of securities remaining in the account, changes the composition of the customers remaining securities investments to an extent that the customers portfolio no longer matches his or her investment profile, subjects the customer to early withdrawal fees or penalties, exposes the customer to losses because of the lack of a ready market for the securities at the time of the liquidation, or results in potential adverse tax treatment. 96 See also supra note 48 and discussion therein. Note: With this guidance, FINRA attempts to present information in a format that is easily understandable. However, please be aware that, in case of any misunderstanding, the rule language prevails. Trading Tools Software Look for your next great investment opportunity using our powerful trading tools. Our sophisticated set of tools has been developed to help you find the best available trading opportunities in the stock market on a daily basis. Use our tools to help you evaluate stock picks, analyze company fundamentals, forecast market moves using technical analysis, locate valuable option trades including covered call opportunities. Not only do our tools help you find these opportunities but they can also help you execute effective trading strategies at the right time to profit from market dynamics. Our proven tools include the following plus a whole lot more: Stock Market Ranking amp Scoring System Dont ever let an opportunity pass you by. Create watch lists for stocks that you are eager to trade that arent quite ready to enter. 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Bullish, Bearish, amp Stagnant Stock Research Scans Find stocks that have great opportunities. These scans will show you what stocks are trending up, down, or sideways. ValuationProject Price Calculator Never overpay for a stock again Use this calculator to know what price you should be willing to pay for your favorite stock. Option Strategy Scans Locate option trading opportunities using our option strategy scans. These scans look for stocks upon which specific option strategies can be initiated. DISCLAIMER: We provide stock and futures education and training. We do not sell a business opportunity. We make no earnings or return on investment claims. Additionally, we do not offer any tax, accounting, financial, or legal advice. Marketing services provided by EvTech Media, real estate services provided by BuyPD, and education support and fulfillment services provided by Response Marketing Group, LLC these businesses are strategic partners. 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In EmpireOption withdrawals are subject to our Account policy: Waiting Period: 7 working days Cost: 25 USD Maximum withdrawal: 2000 units per month Minimum Withdrawal: 100 units Minimum number of operations: 15 Cost of closing account: 50 units Waiting Period: 5 working days Cost: 20 USD Maximum withdrawal: 3500 units per month Minimum Withdrawal: 100 units Minimum number of operations: 10 Cost of closing account: 150 units For Classic Accounts, Plus Accounts, Preferential and Empire Vip, the first withdrawal each month is free of charge. The following withdrawals will have the mentioned cost above. For any type of withdrawal in our platform users must perform a minimum of monthly operations (based on the type of account they have). Such operations are open trades, in the traditional binary operations mode with a minimum investment of 25 (dollarseuros) each. This operations cannot be sold or cancelled before their original closure. 11.B. 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Secure trades Secure trades are a part of promotions program of EmpireOption, and they have same conditions and requirements of granted bonus. As bonus, secure trades are accepted by the customer and are subject to the terms of operations performance for a volume equal or more than 30 times of assured operation accredited. Secure trades are granted on customer conformity, not automatically, so the customer acknowledges this procedure. 11.C. Invite to a friend EmpireOption offers all its active clients (Inviter) the possibility of inviting a friend or friends (inviteeinvitees) to register on the platform through various means (link, email, twitter, Facebook), which will be at the clients disposal. With such motive, a one time 10 bonus based on the new clients (invitee) first deposit is offered, given that the invitee registered via one of the means previously specified. This bonus will be granted by adding credit to the account of the referent with a bonus worth 10 of the invitees first deposit. Said bonus will have a turnover requirement of 1 (In order to withdraw the earnings or any available funds from the account, the client must make operations that represent a volume equal to the value of the granted bonus.), being valid only Traditional Binary operations, which were not cancelled or sold before expiry. A bonus of these characteristics will be given to the Inviter, for each Invitee that registers and makes his first time deposit, and meets all specified requirements. There is no limit to the amount of friends a person can invite. For such a benefit to become effective, the Inviter must claim his bonus by sending an e-mail to accountingempireoption. This bonus will be credited once EmpireOption confirms that the Invitee has opened an account and deposited the minimum amount required, and complied with all the requirements for promotion and customers general conditions. The Invitee must have opened the account only using the aforementioned means, comply with the customers general conditions and have made a deposit within two (2) months of opening the account. After this time, the promotion will be deemed void. Any indication of fraud, manipulation or other forms of fraudulent activity based on the provision of a bonus will result in the nullification of the accounts and any gain or loss generated therein. If the Inviter has already acquired bonuses offered in other existing promotions, all capital present in the account will be subject to the conditions established by the bonus policy, mentioned above. 11.D. Wire Transfer deposits EmpireOption will add founds to your account only after deducting all expenses incidental to the transfer. The remaining balance will be credited to your account. 12. Requirements to withhold Accounts EmpireOption requests its users to comply with certain requirements to maintain the level of their personal accounts. All the new users or users who change their account level after making one or more deposits, will have a period of 1 month maintaining the same account to which they have accessed. To maintain the account level, customers must fulfill the following requirements: The accounts will be analyzed monthly, and the user must fulfill the following monthly averages in their balance and open trades: Micro Account: it has no special requirements Classical Account: 500 units 20 open trades. Plus Account: 1000 units 50 open trades. Preferencial Account . 2500 100 units open trades. Empire VIP: 10000 200 units open trades. The failure to comply with any of these conditions will determine the change of the account level at 1 (one) level per month down to Micro Account. No person shall abuse this site for the purpose of money laundering. EmpireOption employs best-practice anti-money laundering (AML) procedures. EmpireOption reserves the right to refuse to do business with, to discontinue to do business with, and to reverse the transactions of, customers who do not accept or conform to the following AML requirements and policies: Supporting proof of the origin of the funds deposited. Proof of monthly income of the account owner or family. A recent extract from the bank balance of the account holder in EO. Live traders must provide all requested information upon registration. Winnings will only be paid to the individual who initially registered to open a live account. When a customer maintains an account by means wire transfer deposits, winnings will only be distributed to the holder of the originating bank account. When making deposits in this manner, it is the responsibility of the live trader to ensure that the traders account number and registered name of the account owner accompany all transfers to EmpireOption. When a customer funds an account by means of creditdebit card deposits, winnings will only be distributed to the individual whose name appears on the card used to make the deposit and only be paid back to the same card. Only one account is allowed per person. No winnings may be collected on accounts opened in false names or on multiple accounts opened by the same person. EO may, from time to time, at its sole discretion, require a customer to provide additional proof of identity such as notarized copy of passport or other means of identity verification as it deems required under the circumstances and may at its sole discretion suspend an account until such proof has been provided to its satisfaction. EO reserves the right to request documentation not described in this section, but of future importance to recognize the origin of deposited funds. EmpireOption has the highest standards in money-laundering prevention and identification of its clients. Every client that transfers funds to our company must provide personal proof of id such as: identity document, proof of address, and in the case of transferring funds via credit or debit card, copy of front and back (last 4 digits uncovered) of the card, a signed purchase history of your online transactions to be able to operate, apply for bonuses and request withdrawals. 14. Intellectual Property All content, trademarks, services marks, trade names, logos and icons are the property of EO or its affiliates or agents and are protected by copyright laws and international treaties and provisions. You agree not to delete any copyright notices or other indications of protected intellectual property rights from materials that you print or download from the Site. You will not obtain any intellectual property rights in, or any right or license to use such materials or the Site, other than as set out in this Agreement. Images displayed on the Site are either the property of EmpireOption or used with permission. You agree not to upload, post, reproduce or distribute any information, software or other material protected by copyright or any other intellectual property right (as well as rights of publicity and privacy) without first obtaining the permission of the owner of such rights and the prior written consent of EmpireOption. 15. Communication policy EmpireOption uses a mailing system SMS (mobile messaging), retargeting in social net and display (cookies), system of banners and layers with the objective of informing its clients about changes, special offers and benefits. In case the user decides to unsubscribe from any of these communication channels, Empire Option doesnb4t take responsibility on the information that the user didnt receive. You agree to defend and indemnify EmpireOption and its officers, directors, employees, and agents and to hold them harmless from and against any and all claims, liabilities, damages, losses, and expenses, including without limitation reasonable attorneys fees and costs, arising out of or in any way connected with (i) your access to or use of the Site or Services (ii) your violation of any of the terms of this Agreement or (iii) your breach of any applicable laws or regulations. 17. Term and Termination The term of the Agreement shall be unlimited, however EmpireOption will be allowed to terminate this Agreement at any time by notice to you. As of termination, you shall not be able to carry out new transactions. 18. Outside Execution System Non authorized Automatic or semi automatic trading mechanism integrated by the client on the browser or client side, that does not involve human execution, will be considered back door API or system abuse that may result to an account suspension andor position cancellation. Positions that were taken in this way are resulted in prices that wouldnt have been accepted or filled in the general market therefore will be consider as an off market transactions which will be resulted in cancellation. Processing provided by Brighton Digital Services Ltd with registered address 1A, Arcade House, Temple Fortune, London, NW11 7TL, United Kingdom. EmpireOption will not be liable in any way to any persons in the event of force majeure, or for the act of any government or legal authority. In the event that any provision in this Agreement is held to be invalid or unenforceable, the remaining provisions will remain in full force and effect. The failure of a party to enforce any right or provision of this Agreement will not be deemed a waiver of such right or provision. EmpireOption may assign this Agreement or any rights andor obligations hereunder without your consent. EmpireOption may amend the terms of this Agreement from time to time by posting the amended terms on the Site. You are responsible for checking whether the Agreement was amended. Any amendment shall come into force as of the day it was published on the Site. If you do not agree to be bound by the changes to the terms and conditions of this Agreement, do not use or access our Services, and inform us in writing immediately. To participate on this competition you must log in EmpireOption ist die intuitiv zu bedienende, sichere und revolutionre Plattform fr binre Optionen am Online-Finanzmarkt. Werden Sie Hndler von binren Optionen und handeln Sie Aktien, Rohstoffe, Indizes und Whrungen. Werden Sie Teil unseres Broker Academy-Programms und lernen Sie die beste Strategie zum Trading von binren Optionen. EmpireOption will, dass Kunden bei jedem Trade erfolgreich sind. Aus diesem Grund haben wir das Kundensupport-Team mit der grten Erfahrung, das rund um die Uhr an sieben Tagen die Woche zur Verfgung steht, sowie die fortschrittlichste Plattform auf dem Markt. Traden Sie online, ohne jegliche Software auf Ihren Computer, Ihr Smartphone oder Ihr Tablet herunterladen zu mssen. Beginnen Sie mit dem Trading an den Finanzmrkten der Welt, erstellen Sie Ihr eigenes Investment-Portfolio und profitieren Sie von unserer einzigartigen Plattform fr binre Optionen, um Ihre Ziele zu erreichen. Binre Optionen sind der einfachste Weg, in die Welt der globalen Finanzmrkte einzusteigen. Erstellen Sie Ihr eigenes Investment-Portfolio und nutzen Sie unsere Plattform, um Ihre Ziele zu erreichen. Binre Optionen sind sehr einfach zu nutzen: Whlen Sie einen Asset, prognostizieren Sie, ob der Kurs hher oder niedriger sein wird, whlen Sie die Ablaufzeit Ihrer Wahl und investieren Sie den von Ihnen gewnschten Betrag. Die Erffnung eines Kontos bei EmpireOption ist kostenlos, und es fallen keine monatlichen Kosten jeglicher Art an. Kein von Ihnen auf der Plattform erffneter Trade zieht irgendwelche Gebhren oder Provisionen nach sich. Wichtiger Risikohinweis: Empire Option bietet Zugang zu einer internationalen Trading-Plattform, die den Handel mit digitalen Optionen ermglicht. Der Handel mit digitalen Optionen kann zum teilweisen oder vollstndigen Verlust der Investition des Kunden fhren. Es wird empfohlen, die Nutzungsbedingungen sorgfltig zu lesen, bevor Sie bei EmpireOption traden. Die auf der Trading-Plattform von EmpireOption angezeigten Assetpreise stellen den Kurs dar, zu dem das Unternehmen an einem bestimmten Zeitpunkt eine Option verkauft. Dieser Kurs kann vom Wert des Assets in Echtzeit oder zu dessen Verkaufspunkt abweichen. Kunden, die mit dem Trading von digitalen Optionen Gewinne erzielen wollen, mssen sich dieser Tatsache bewusst sein. Jeder Kunde muss die Steuergesetze des Landes kennen, in welchem er seinen Wohnsitz hat. ELIGIBILITY: The Services are available to and may only be used by individuals or companies who can form legally binding contracts under the law applicable to their country of residence. Without limiting the foregoing, our Services are not available to persons under the age of 18 andor USA residents. Please be aware that laws regarding financial contracts may vary throughout the world, and it is your entire responsibility to ensure that you fully comply with any law, regulation or directive, relevant to your country of residency to the use of this website.
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