All RRs must report outside business activities and accounts, in accordance with FINRA Rule 3050. The first thing this rule calls for is an assurance that you do not have an "adverse interest" that could cause loss to your employer. Although you can knowingly execute a trade for the account of someone at another firm, or for someone who has discretion over an account at another firm, you must use "reasonable diligence" to ensure this trade will not adversely affect your own firm.

Outside Business Activities That Need to Be Disclosed
Second, the rule specifies what you need to disclose to your boss. Everyone knows why you got into this business, and nobody expects you to live a life of poverty. Almost everyone in the industry trades on his or her own accounts. What matters most to the SEC, the SROs and the states is ensuring that your trading does not have a negative impact on your firm or your clients.

If you find yourself in a position where you do have, or might have, a financial interest in or discretionary authority over a trading account at another firm, that other firm must do three things:

  1. Notify your employer in writing, prior to the execution of a transaction for the account, of your intention to open or maintain that account.
  2. Upon written request by your employer, the firm must transmit duplicate copies of confirmations, statements or other information with respect to the account.
  3. Notify you of its intention to provide the notice and information required by 1 and 2.

Before opening an account or placing an initial order for the purchase or sale of securities with another firm, you have to notify your employer about the brokerage where you have your account and notify the brokerage where you have your account about your employer. This must all be done in writing. It is very possible that your account with the one brokerage could pre-date your employment at another brokerage. In that situation, you would have to notify both members, in writing, promptly after taking your new job.

If you open a securities account or place an order for the purchase or sale of securities with a futures dealer, an investment advisor, a bank or some other financial institution other than a FINRA-member firm, you must do the following:

  • Notify your employer in writing, prior to the execution of any initial transactions, of the intention to open the account or place the order.

  • Upon written request by your employer, request in writing and assure that the other financial institution provides your employer with duplicate copies of confirmations, statements or other information concerning the account or order.

  • If the account pre-dates your employment as an RR, you must notify both your employer and the other institution in writing promptly after taking your new job.

There are two big exceptions to this rule: mutual funds and pensions, known in industry jargon as "investment company shares" and "unit investment trusts". It is easy to understand why these ubiquitous investment options are exempt. The securities held in these funds churn so frequently and the shares themselves are generally held for such a long time that it would not make any sense to require disclosure under FINRA Rule 3050.

Sanctions for the violation of rules regulating the conduct of FINRA members include these:

  • Censure
  • Fine
  • Suspension
  • Expulsion of a firm from FINRA membership
  • Suspension or revocation of a person's license to sell securities.


Investment Advisors

Related Articles
  1. Financial Advisor

    What Advisors Need to Know About Rule 3210

    Here's what advisors and brokers need to know about FINRA Rule 3210.
  2. Trading

    Basics Of The Mechanics Behind Electronic Trading

    What was once associated with shouting traders and wild hand gestures has now become more closely associated with statisticians and computer programmers.
  3. Investing

    Opening Your First Brokerage Account

    Learn what steps you should take before you open your first brokerage account.
  4. Personal Finance

    2 Statements to Help You Understand Your Finances

    A balance sheet and cash flow statement will help you understand where you stand financially.
  5. Retirement

    What Happens to a 401(k) After You Leave Your Job?

    Find out what happens to your 401(k) after you leave your job. Learn about your five primary options, including cashing out and rolling over to a new plan.
  6. Small Business

    4 Steps To Creating A Stellar Business Plan

    If you're going into business, you must have a plan. Find out how to put this important document together.
  7. Trading

    Introduction to Margin Accounts

    Find out what your broker is doing with your securities when you invest on margin.
Frequently Asked Questions
  1. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center