Regulatory Notice 09-05

FINRA Reminds Firms of Their Obligations to Determine Whether Securities are Eligible for Public Sale

Executive Summary

FINRA reminds firms1 of their responsibilities to ensure that they comply with the federal securities laws and FINRA rules when participating in unregistered resales of restricted securities. These responsibilities are particularly important in situations where the surrounding circumstances place the firm on notice that it may be participating in illegal, unregistered resales of restricted securities, such as when a customer physically deposits certificates or transfers in large blocks of securities and the firm does not know the source of the securities.

 

Recent FINRA investigations have revealed instances in which firms failed to recognize certain "red flags" that signaled the possibility of an illegal, unregistered distribution. This Notice identifies situations in which firms should conduct a searching inquiry to comply with their regulatory obligations under the federal securities laws and FINRA rules. FINRA also has reviewed procedures provided by a number of large, medium and small firms that are designed to address compliance. This Notice describes and discusses those procedures.

 

1 This Notice refers to broker-dealers and their associated persons collectively as "firms" unless otherwise specified.