Prohibited Conduct
Certain types of conduct in the securities industry are prohibited, including the following:
- Recommending to a retail customer a securities transaction, investment strategy or type of account that is not in the best interest of that customer, given the customer's age, financial situation, investment objective, risk tolerance, liquidity needs and investment experience. Investment in a particular type of security may not be in the best interest of the retail customer, or the amount or frequency of transactions may be excessive and therefore not be in the best interest for a given retail customer.
- Purchasing or selling securities in a customer's account without first contacting the customer and receiving the customer's authorization to make the sale or purchase, unless the broker has received from the customer written discretionary authority to effect transactions in the account or the broker was given discretion as to price and time.
- Switching a customer from one mutual fund to another when there is no legitimate investment purpose for the switch.
- Misrepresenting or failing to disclose material facts concerning an investment. Examples of information that may be considered material and that should be accurately presented to customers include: the risks of investing in a particular security; the charges or fees involved; company financial information; and technical or analytical information, such as bond ratings.
- Removing funds or securities from a customer's account without the customer's prior authorization.
- Charging a customer excessive markups, markdowns or commissions on the purchase or sale of securities.
- Guaranteeing customers that they will not lose money on a particular securities transaction, making specific price predictions or agreeing to share in any losses in the customer's account.
- Private securities transactions between a broker and a customer that may violate FINRA rules, particularly where the transactions are done without the knowledge and permission of the sales representative's firm.
- "Trading ahead," which involves placing an order for the firm's account before entering a customer's limit order, without having a valid exception.
- Failure by a market maker to display a customer limit order in its published quotes, without a valid exception.
- Failing to use reasonable diligence to see that a customer's order is executed at the best possible price, given prevailing market conditions.
- Purchasing or selling a security while in possession of material, non-public information about an issuer.
- Using manipulative, deceptive or other fraudulent methods to effect a transaction in, or induce the purchase or sale of, a security.
