Sales and Trading

Sales Practice

Alternative Mutual Funds

Recently, FINRA took enforcement action against several firms for failing to establish or maintain a reasonably designed supervisory system for recommendations of alternative mutual funds, also sometimes referred to as “alt funds” or “liquid alts”. FINRA is continuing to note such deficiencies in its examinations and communications reviews of such products.

 This Notice reminds member firms of their sales practice and supervisory obligations for such funds, and, to that end:


  • describes frequent findings in recent examinations and enforcement matters;
  • shares effective practices FINRA observed at member firms; and
  • notes considerations member firms may wish to take into account to improve their supervisory and compliance programs.

• FINRA Regulatory Notice 22-11 (April 19, 2022): FINRA Reminds Firms of Their Sales Practice Obligations for Alternative Mutual Funds


Rules to Address Brokers with a History of Misconduct

FINRA has adopted new rules to address firms with a significant history of misconduct. New Rule 4111 (Restricted Firm Obligations) requires member firms that are identified as “Restricted Firms” to deposit
cash or qualified securities in a segregated, restricted account; adhere to specified conditions or restrictions; or comply with a combination of such obligations. New Rule 9561 (Procedures for Regulating Activities Under Rule 4111) and amendments to Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series) establish a new expedited proceeding to implement Rule 4111. The new rules and rule amendments became effective on January 1, 2022. The first “Evaluation Date” for Rule 4111 was June 1, 2022.

• FINRA Information Notice February 1, 2022: FINRA Announces Rule 4111 (Restricted Firm Obligations) Evaluation Date

• FINRA Regulatory Notice 21-32 (September 28, 2021): FINRA Adopts Rules to Address Firms with a Significant History of Misconduct

• FINRA Regulatory Notice 21-09 (March 10, 2021): FINRA Adopts Rules to Address Brokers with a Significant History of Misconduct


Prearranged Trading & Signaling of Imminent Orders

Various national securities exchanges have recently issued notices to their members cautioning them that, among other things, the use of orders or quotes to signal the arrival of an order or otherwise to coordinate order flow with another market participant may violate applicable Exchange Rules, as well as various provisions of the Securities Exchange Act of 1934, as amended and rules thereunder.


Options Customer Account Approval and Supervision

Cboe reminds Trading Permit Holders and Members (collectively “Members”) of the approval requirements for customers seeking to trade options in their account. Members are prohibited from accepting orders from a customer to purchase or write an option contract unless the customer’s account has been approved for options transactions in accordance with the provisions set forth in the Exchanges’ rules governing the opening of accounts.

• CBOE Regulatory Circular 22-007 (March 15, 2022): Option Customer Account Approval and Supervision

Municipal Securities

MSRB Applies Regulation Best Interest to Bank-Dealers and Amends the Quantitative Suitability Standard for Institutional SMMPs

The Municipal Securities Rulemaking Board (MSRB) received approval from the SEC on June 23, 2022, for amendments to MSRB Rule G-19, on suitability of recommendations and transactions, and MSRB Rule G-48, on transactions with sophisticated municipal market professionals (SMMPs). The amendments align Rule G-19 to the Commission’s Rule 15l-1 under the Exchange Act (“Regulation Best Interest”) for certain municipal securities activities of bank dealers (the “Bank Dealer Amendment”). The approved amendments to Rule G-48 modify the quantitative suitability obligation of brokers, dealers, and municipal securities dealers (collectively, “dealers”) for certain institutional SMMP customers (the “Quantitative Suitability Amendment”). The compliance date for the Quantitative Suitability Amendment was August 1, 2022. The compliance date for the Bank Dealer Amendment is August 1,

MSRB Regulatory Notice 2022-04 (June 24, 2022): MSRB Applies regulation Best Interest to Bank -Dealers and Amends the Quantitative Suitability Standard for Institutional SMMPs