A church that a registered representative (RR) attends plans to raise the funds necessary to complete a new building project by offering “church bonds.” What requirements must the RR fulfil in order to participate, without payment, in the sale of these bonds?
a) Church bonds are only registered with the state and so long as the RR is registered in the state and the church reports the sales, there are no other requirements.
b) The RR must have written permission from the broker-dealer in all cases.
c) The registered representative must notify his firm in writing.
d) Since church bonds are exempt from registration there are no requirements for the RR.
Answer: The correct answer is c)
Although church bonds are normally considered to be exempt securities, the RR is obligated, by NASD Rule 3040, to notify his firm in all securities transactions not sponsored by the firm. Failing to do so is called “selling away” a violation of NASD rules. If the RR is being compensated, the firm must approve, and the compensation must go across the firm’s books.