A client informs their registered representative that they are an officer of a publicly traded company and wish to open a new brokerage account to trade shares of their company stock. Which of the following is required for handling this client's account?
- AThe firm must obtain duplicate statements and trade confirmations if the client's employer requests them.
- BThe account must be approved by a municipal securities principal.
- CThe firm must obtain written consent from the client's employer.
- DThe client is prohibited from trading their company stock due to insider status.
Show answer & explanationAnswer & explanation
Correct answer: A. The firm must obtain duplicate statements and trade confirmations if the client's employer requests them.
FINRA Rule 3210 (formerly NASD Rule 3050) requires that if an associated person of another member firm (or certain other financial entities, including officers of publicly traded companies) opens an account, the executing firm must, if requested by the employer, provide duplicate statements and confirmations. Written consent from the employer is required for associated persons of other FINRA members, but not necessarily for all officers of publicly traded companies unless they are also associated persons of another member firm.
Why the other options are wrong
- B. A municipal securities principal approves municipal bond transactions; this is not the primary requirement for an insider account with company stock.
- C. Written consent is usually required for associated persons of other FINRA member firms, not necessarily for all officers of publicly traded companies.
- D. Officers are not prohibited from trading their company stock, but they are subject to insider trading rules and reporting requirements.
Insider Account Compliance (FINRA Rule 3210)
When a client who is an officer or director of a public company opens an account, the executing firm must comply with specific rules, including providing duplicate statements/confirmations to the employer if requested.
- FINRA Rule 3210 (formerly NASD Rule 3050) applies.
- Applies to associated persons of other member firms and certain other individuals (e.g., officers/directors of public companies).
- Executing firm must notify employer if requested.
- Executing firm must send duplicate confirmations/statements to employer if requested.
Memory trick: Officers need duplicate statements to prevent insider 'secrets'.