NASAA Series 63Ethical Practices and ObligationsMedium
A client approaches their registered agent, Jane, with an opportunity to invest in a private startup company that Jane's brother-in-law is launching. The client is enthusiastic and asks Jane to facilitate the investment. Jane reviews the private placement memorandum and finds it to be a legitimate, albeit high-risk, venture. Jane's broker-dealer does not offer this private placement, and she would not be compensated for this transaction. Jane assists the client by directly sending the client's investment funds to her brother-in-law's company, bypassing any firm procedures. This action is a clear instance of:
- AMarket Timing
- BChurning
- CTouting
- DSelling Away
Show answer & explanationAnswer & explanation
Correct answer: D. Selling Away
Selling away occurs when an agent executes securities transactions for a client outside the normal course of their employment with their broker-dealer. In this scenario, Jane facilitated an investment not offered by her firm and outside of its supervision, even without compensation.
Why the other options are wrong
- A. Market timing involves frequent short-term trading to profit from price fluctuations.
- B. Churning involves excessive trading to generate commissions.
- C. Touting refers to recommending a security for compensation without disclosing the compensation.
Selling Away
The act of an agent executing securities transactions for a client outside the regular course or scope of their employment with their broker-dealer, without the firm's knowledge and approval.
- Prohibited practice.
- Firm loses supervisory control, increasing risk for client and firm.
- Applies even if no compensation is received by the agent.
Memory trick: Don't sell outside the firm's walls, or you'll be on the outside looking in.