New Consolidated Rule for Personal Trading Accounts

April 3, 2017, is the effective date of FINRA’s new consolidated Rule 3210, Accounts at Other Broker/Dealers and Financial Institutions. This rule consolidation replaces NASD Rule 3050 and incorporates NYSE Rules 407 and 407A as well as NYSE Rule Interpretations 407/01 and 407/02.

When an associated person of a FINRA member firm (the employer member) wants to open a trading account at another member firm (the executing member), he or she must obtain prior written consent from the employer member. The new consolidated rule also specifies the conditions with which the associated person is deemed to have a beneficial interest, and therefore must apply the obligations of the new rule.

Per Rule 3210, what are the associated person’s obligations?

When an associated person (AP) or registered representative wants to open a trading account at another FINRA member firm, or any financial institution (even a nonmember firm) in which securities transactions can be effected:

  • The AP must obtain prior written consent from the employing member firm, for an account established after the new rule’s effective date of April 3, 2017.
  • The AP must notify the executing member firm that he or she is an associated person of the employer member.
  • For accounts opened prior to being associated with a member firm, the associated person has 30 calendar days from the date they become an associated person to obtain consent from the employer member and give notification to the executing member. This includes accounts opened prior to the effective date of the new rule.

Per Rule 3210, are all accounts subject to this requirement?

The rule applies to all accounts where the associated person has a beneficial interest, such as the right to share in profits and losses. In addition to any individual or joint accounts held in the name of the associated person, the rule also applies to accounts held by:

  • The associated person’s spouse
  • The child or stepchild of the associated person, provided the child lives in the same house as the associated person, or is financially dependent on the associated person
  • Any relative in which the associated person has control over the account
  • Any other person in which the associated person has control over the account, and where the associated person contributes to that person’s financial support

The beneficial interest presumption in a spouse or child’s account could be rebutted if the associated person can demonstrate to the employer member that they derive no economic benefit from, and exercise no control over, the account.

The rule does not apply to accounts that are limited to the purchase of:

  • Unit investment trusts
  • Municipal fund securities
  • Qualified tuition programs (529 plans)
  • Variable annuities
  • Redeemable securities of an investment company (mutual fund)
  • Monthly investment plan accounts

What are the obligations of the executing member firm?

Upon written request from the employer member, the executing member must transmit duplicate copies of confirmations and statements via reasonable means — hard copy or electronically — that would provide the employer member with all transactional data.

What are the obligations of the employer member firm?

  • Through the review of duplicate confirmations and statements, the employer member firm can satisfy its obligation to monitor personal trading accounts of its associated persons. Supervising principals must review transactional data to identify possible violations regarding:
    • Insider trading
    • Fraud
    • Manipulative and deceptive devices
    • Conflicts of interest
  • If an associated person wishes to open an account at a non-FINRA member financial institution to effect securities transactions, the employer member must consider if it will be able to obtain duplicate copies of confirmation and statements. The ability to obtain transactional data, directly from the nonmember, should be a factor when determining whether to consent to the AP opening the account.

How can I get a copy of the new rule?

For a copy of FINRA Rule 3210, please refer to Regulatory Notice 16-22, Attachment A.

http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-22.pdf

How can I educate my representatives and supervisory team about this?

To maintain the most current educational materials in the industry, FIRE Solutions has updated the follow Firm Element courses to include this new rule change:

  • Registered Representative Obligations
  • Outside Business and Personal Trading Accounts
  • Hiring Successful Securities Professionals
  • General Securities Supervision
  • Supervising Associated Persons
  • Supervision — Hiring Practices and Registration Requirements
  • Exam Preparation Courses — Series 6, 7, and 10