FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProfessional Conduct and Ethical ConsiderationsEasy
A registered representative is preparing for an annual compliance meeting. They are reviewing the firm's policies on 'selling away'. Which of the following best describes 'selling away'?
- ASelling a security to a client without obtaining their explicit permission for the trade.
- BEngaging in private securities transactions without providing prior written notice to their firm.
- CEncouraging clients to transfer their accounts to another brokerage firm.
- DRecommending securities that are not listed on a major exchange.
Show answer & explanationAnswer & explanation
Correct answer: B. Engaging in private securities transactions without providing prior written notice to their firm.
'Selling away' refers to a registered representative selling securities to clients outside the scope of their employment with their firm, without the firm's knowledge and approval. This is a serious violation of FINRA rules, specifically Rule 3280 (Private Securities Transactions of an Associated Person).
Why the other options are wrong
- A. Selling without permission is unauthorized trading, a different prohibited practice.
- C. Encouraging transfers might be unethical depending on context, but it's not 'selling away'.
- D. Selling unlisted securities is not inherently 'selling away' if done through the firm.
Selling Away (Private Securities Transactions)
Engaging in private securities transactions (selling securities outside the regular course of employment with the firm) without prior written notice to, and in some cases, approval from, the employing member firm.
- Violates FINRA Rule 3280.
- Requires written notice to the firm.
- If compensation is received, firm approval is required.
- Can lead to severe disciplinary action, including bar from the industry.
Memory trick: Selling away is a secret deal, without firm's say, it's a financial ordeal.