Question

Should a registered representative enter into a private securities transaction that would entail earning compensation, the employing member will?

1) provide all execution services for the transaction.
2) not require any notification because the compensation makes the transaction the responsibility of the accommodating firm.
3) have the opportunity to approve or disapprove of the associated person's participation.
4) require a compensation split of least 50-50 with the associated person.

Answer 1

Under FINRA Rule 3280, a registered representative must provide prior written notice of a private securities transaction to their employing firm, which then has the right to approve or disapprove of their participation; there is no mandated compensation split.

Step-by-step explanation:

Registered representatives must navigate a strict regulatory environment, particularly when dealing with private securities transactions. If a representative seeks to earn compensation from such transactions independently of their employing broker-dealer, FINRA Rule 3280 comes into play. This rule requires the representative to provide their employer with prior written notice of the proposed transaction and the role they will play. The employer then has the right to approve or disapprove of the registered person's participation in the transaction. Crucially, this oversight mechanism helps to ensure that all securities activities conducted by a representative are within regulatory bounds and that the reputational and legal interests of the employing firm are protected.

Approval or disapproval by the employing broker-dealer is pivotal, reflecting the firm's responsibility to oversee the professional conduct of its affiliated persons. Contrary to one possible misconception, the rule does not accommodate a compensation arrangement between the employer and the employee for a non-approved transaction, and thus the suggestion of a mandated 50-50 compensation split is incorrect.