Question

If a registered representative (RR) participates in private securities transactions, then the broker-dealer:

A) Is not affected by the RR's private securities transactions.
B) Must be notified, and the RR can proceed without further action.
C) Must approve the RR's participation in writing before the transactions.
D) Has no regulatory obligations regarding the RR's private securities transactions.

Answer 1

The broker-dealer must approve the RR's participation in private securities transactions in writing before the transactions take place.

Step-by-step explanation:

When an RR engages in private securities transactions, the broker-dealer must be informed and give written approval before the transactions occur. This is to ensure compliance with regulations and to protect investors' interests. The broker-dealer needs to assess whether the proposed transactions might conflict with the firm's policies or potentially harm clients. Failure to seek approval or proceeding without it could lead to regulatory issues for both the RR and the broker-dealer.

This requirement aims to maintain transparency and oversight, preventing conflicts of interest and safeguarding investors from potentially risky or unsuitable investments. Even though the RR is involved in private transactions outside the scope of their broker-dealer responsibilities, the firm remains responsible for overseeing and approving these activities to maintain regulatory compliance.

Correct Answer: C) Must approve the RR's participation in writing before the transactions.