SEC Rules For Losses Caused by Stock Brokers

On behalf of the Public Investors Arbitration Bar Association (PIABA), I am pleased to comment on the above-referenced proposed changes to the Suitability Rule and the Know Your Customer Rule, FINRA Rules 2111 and 2090. PIABA generally supports this rule proposal, which arose out of the need to harmonize NASD and NYSE rules pertaining to recommendations by registered representatives to public customers. however, PIABA also believes some revisions are necessary to ensure the protection of public customers.

We•support the retention of the "fair dealing" language in Section .01 of the Supplementary Material.

We also support the three components of suitability identified in Supplementary Material 2111,01 In particular, it is appropriate to emphasize that the suitability obligation must encompass having a reasonable basis to recommend the security in question. We support the rule clarifying that members have a due diligence requirement, and we agree that the level of required due diligence will be dependent upon the facts and circumstances of each case. The customer-specific obligation is properly identified and defined. Finally, though we have proposals below for revisions, we support the identification of "quantitative suitability" as a category of unsuitable recommendations. We believe that the term is an improvement over words previously used, such as "churning."

Finally, we support the addition of Supplementary Material 2111.03,

We are especially concerned about the omission of an important word in transforming NYSE Rule 405 into FINRA Rule 2090. Rule 405 requires firms to know essential facts relating to every "order." Owing to the use of the word "order" the NYSE Rule recognizes the obligation of a firm to not only "Know Your Customer," but to "Know Your Security,"

We also note that the current version of NYSE Rule 405 requires a member firm to learn the essential facts relative to "every person holding a power of attorney over any account" carried by the firm. In short, the current rule requires the firm to "know the cu

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Published In: Administrative Agency Updates, Alternative Dispute Resolution (ADR) Updates, Business Torts Updates, Consumer Protection Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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