Other Regulated Areas

Advertising, sales literature, business cards, e-mail, communications with the public (such as seminar announcements), and most print and electronic correspondence in the securities industry are subject to regulatory review and approval. Some items may require scrutiny by your compliance officer or even advance filing with FINRA. Other items require formal recordkeeping. Always have your supervisor approve any written material you prepare or wish to use before delivering it to your customer or prospect.

 

Never use the Internet or other electronic means to solicit or conduct any securities-related activities unless your member firm grants its prior approval to do so.

 

Microcap fraud has been an area of increased regulatory, enforcement, and rulemaking efforts. The issuers of microcap securities are generally thinly capitalized, and there may be little information available about these issuers' financial results and business operations. These securities are not listed on a registered exchange or The Nasdaq Stock Market. They trade on the OTC Bulletin Board,® in the "Pink Sheets" published by The National Quotation Bureau, and in other over-the-counter quotation media where there are no qualitative or quantitative listing standards. As in all recommended transactions, prior to recommending a purchase of these securities, ensure that you have adequate information about the issuer to form a reasonable basis for your recommendation and ensure that the recommended purchase is suitable for your customer. Proposed rules, if adopted, will require the review of specific information prior to such recommendations.

 

"Penny stock" fraud in also an area of regulatory focus, and there are a number of very specific federal laws and regulations that are applicable. Transactions in certain "designated" low-priced securities may require special account documentation, customer disclosure, and suitability review. Stocks not listed on The Nasdaq Stock Market or a national securities exchange and selling for less than $5 per share may fall into this category.

 

Before recommending microcap or penny stock securities to customers, ask your supervisor whether specific sales practice requirements apply.