FINRA NASD & NYSE Rule Quick Guide - Common Litigation Topics

The Securities Rule QuickGuide is intended to help you quickly find selected FINRA or NASD Rules related to common securities litigation topics. This guide does not include all FINRA or NASD Rules, sections or regulatory notices and is not intended to be a substitute for the FINRA or NASD Rulebook. Information in this guide may become outdated as new rules are adopted. See the FINRA Manual for the most complete and current information. www.finra.org

NASD rules were adopted by FINRA in the late 2000s. While the substance of the rules is mostly unchanged, they have been re-numbered and modernized. Securities Litigation Support created the first FINRA Rule QuickGuide in 2008. Now in 2015, we have created a second Securities Rule QuickGuide that reflects the rules are they are today.

Click here to download the 2015 Securities Rule QuickGuide
Click here to download the 2019 Securities Rule QuickGuide

2019 Securities Rule QuickGuide

This QuickGuide is intended to help you quickly find selected FINRA Rules related to common securities litigation topics. This guide does not include all FINRA Rules, sections or regulatory notices and is not intended to be a substitute for the FINRA Manual. Information in this guide may become outdated as new rules are adopted. See the FINRA Manual for the most complete and current information. www.finra.org

FINRA Rule 2010 – Standards of Commercial Honor and Principles of Trade
“A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade”
Selected Notices: 96-44, 08-57. Note: This is an ethics rule.

FINRA Rule 2020 – Use of Manipulative, Deceptive or Other Fraudulent Devices
“No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.”
Selected Notice: 08-57.

FINRA Rule 2040 – Payments to Unregistered Persons
“No member or associated person shall, directly or indirectly, pay any compensation, fees, concessions, discounts, commissions or other allowances to:
(1) any person that is not registered as a broker-dealer under Section 15(a) of the Exchange Act but, by reason of receipt of any such payments and the activities related thereto, is required to be so registered under applicable federal securities laws and SEA rules and regulations; or
(2) any appropriately registered associated person unless such payment complies with all applicable federal securities laws, FINRA rules and SEA rules and regulations.”
Selected Notices: 95-37, 15-07 Note: This rule also covers Retiring Representatives and Nonregistered Foreign Finders.

FINRA Rule 2080 – Obtaining Expungement of Customer Dispute Information from the CRD System
“(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
(b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.”
Selected Notices: 04-16, 09-33. . Note: Also see FINRA Rule 2081

FINRA Rule 2090 – Know Your Customer
Selected Notices: 11-02, 11-25, 12-25
“Every member shall use reasonable diligence, regarding the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.”

FINRA Rule 2111 – Suitability (See FINRA Rule 2100 for All Transactions with Customers Rules)
Selected Notices: 11-02, 11-25, 12-25, 12-55
“A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.”

FINRA Rule 2114 – Recommendations to Customers in OTC Equity Securities
“Preliminary Note: The requirements of this Rule are in addition to other existing member obligations under FINRA rules and the federal securities laws, including obligations to determine suitability of particular securities transactions with customers and to have a reasonable basis for any recommendation made to a customer. This Rule is not intended to act or operate as a presumption or as a safe harbor for purposes of determining suitability or for any other legal obligation or requirement imposed under FINRA rules and the federal securities laws.”
Selected Notices: 02-66, 09-20.

FINRA Rule 2120 – Commissions, Markups and Charges
See FINRA Rules 2121 (Fair Prices and Commissions), 2122 (Charges for Services) and 2124 (Net Transactions)

FINRA Rule 2130 – Approval Procedures for Day-Trading Accounts
“No member that is promoting a day-trading strategy, directly or indirectly, shall open an account for or on behalf of a non-institutional customer, unless, prior to opening the account, the member has furnished to the customer the risk disclosure statement set forth in Rule 2270”
Selected Notices: 00-62, 09-72 Note: See FINRA Rule 2270

FINRA Rule 2140 – Interfering with the Transfer of Customer Accounts in the Context of Employment Disputes
“No member or person associated with a member shall interfere with a customer’s request to transfer his or her account in connection with the change in employment of the customer’s registered representative where the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. Nothing in this Rule shall affect the operation of Rule 11870.”
Selected Notices: 02-07, 09-20

FINRA Rule 2150 – Improper Use of Customers’ Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts
Selected Notices: 83-74, 86-74, 88-55, 01-24, 03-21, 09-60

FINRA Rule 2165 – Financial Exploitation of Specified Adults
“For purposes of this Rule, the term “Specified Adult” shall mean: (A) a natural person age 65 and older; or (B) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.”
Selected Notice: 17-11

FINRA Rule 2210 – Communications with the Public (See FINRA Rule 2200 For All Communications)
“For purposes of this Rule and any interpretation thereof:
(1) “Communications” consist of correspondence, retail communications and institutional communications.
(2) “Correspondence” means any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
(3) “Institutional communication” means any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include a member’s internal communications.”
Selected Notices: 98-83, 99-16, 00-15, 00-22, 03-38, 04-36, 04-64, 06-48, 07-02, 07-47, 09-10, 12-29, 14-30, 15-50, 16-41
This rule pertains to “Communications”, “Correspondence” and “Institutional communication”

FINRA Rule 2211 – Communications with the Public About Variable Life Insurance and Variable Annuities
“The standards governing communications with the public are set forth in Rule 2210. In addition to those standards, the following guidelines must be considered in preparing retail communications and correspondence, as defined in Rule 2210, about variable life insurance and variable annuities.”
Selected Notice: 03-38

FINRA Rule 2212 – Use of Investment Companies Rankings in Retail Communications
“Members may not use investment company rankings in any retail communication other than (1) rankings created and published by Ranking Entities or (2) rankings created by an investment company or an investment company affiliate but based on the performance measurements of a Ranking Entity. Rankings in retail communications also must conform to the following requirements.”
Selected Notices: 86-41, 92-59, 93-18, 93-73, 93-76, 93-85, 93-87, 94-16, 94-25, 94-36, 94-60, 95-49, 95-74, 95-80, 12-29

FINRA Rule 2213 – Requirements for the Use of Bond Mutual Fund Volatility Ratings
“Members and persons associated with a member may distribute a retail communication that includes a bond mutual fund volatility rating only when the following requirements are satisfied:
(1) The rating does not identify or describe volatility as a “risk” rating.
(2) The retail communication incorporates the most recently available rating and reflects information that, at a minimum, is current to the most recently completed calendar quarter ended prior to use.
(3) The criteria and methodology used to determine the rating must be based exclusively on objective, quantifiable factors. The rating and the disclosure that accompanies the rating must be clear, concise, and understandable.
(4) The retail communication conforms to the disclosure requirements described in paragraph (c).
(5) The entity that issued the rating provides detailed disclosure on its rating methodology to investors through a toll-free telephone number, a website, or both.”
Selected Notices: 96-84, 00-17, 00-23, 12-29, 16-41

FINRA Rule 2215 – Communications with the Public Regarding Security Futures
“As set forth in paragraph (c)(2) of Rule 2210, a member must submit all retail communications concerning security futures to FINRA’s Advertising Regulation Department at least 10 business days prior to first use.”
Selected Notice: 12-29

FINRA Rule 2216 – Communications with the Public About Collateralized Mortgage Obligations (CMOs)
“All retail communications and correspondence concerning CMOs:
(A) must include within the name of the product the term “Collateralized Mortgage Obligation”;
(B) may not compare CMOs to any other investment vehicle, including a bank certificate of deposit;
(C) must disclose, as applicable, that a government agency backing applies only to the face value of the CMO and not to any premium paid; and
(D) must disclose that a CMO’s yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO and changes in current interest rates.”
Selected Notice: 12-29

FINRA Rule 2220 – Options Communications
“For purposes of this Rule and any interpretation thereof:
(1) “Options communications” consist of:
(A) “Correspondence.” Any “Correspondence” as defined in Rule 2210(a)(2) concerning options.
(B) “Institutional Communication.” Any “Institutional Communication” as defined in Rule 2210(a)(3) concerning options.
(C) “Retail Communication.” Any “Retail Communication” as defined in Rule 2210(a)(5) concerning options including worksheet templates.
(2) “Standardized option” means any option contract issued, or subject to issuance, by The Options Clearing Corporation, that has standardized terms for the strike price, expiration date, and amount of the underlying security, and is traded on a national securities exchange registered pursuant to Section 6(a) of the Exchange Act.
(3) “Option” as defined in Rule 2360(a).
(4) “Options disclosure document” has the same meaning as the term “disclosure document” as defined in Rule 2360(a).”
Selected Notices: 85-69, 86-68, 87-24, 87-43, 88-20, 88-52, 88-65, 89-11, 91-26, 91-62, 92-56, 99-16, 04-36, 08-28, 08-73, 09-60

FINRA Rule 2230 – Customer Account Statements and Confirmations
Selected Notices: 10-62, 17-08, 17-24

FINRA Rule 2251 – Processing and Forwarding of Proxy and Other Issuer-Related Materials
A member shall process and forward promptly all information as required by this Rule and applicable SEC rules regarding a security to the beneficial owner (or the beneficial owner’s designated investment adviser) if the member carries the account in which the security is held for the beneficial owner and the security is registered in a name other than the name of the beneficial owner.”
Selected Notices: 85-26, 86-35, 86-46, 91-57, 92-17, 95-45, 02-33, 03-26, 09-72, 14-03

FINRA Rule 2260 – Disclosures – Rules 2261 Through 2269 Cover Required Disclosures

FINRA Rule 2264 – Margin Disclosure See also Margin Accounts and Requirements
“(a) No member shall open a margin account, as specified in Regulation T of the Board of Governors of the Federal Reserve System, for or on behalf of a non-institutional customer, unless, prior to or at the time of opening the account, the member has furnished to the customer, individually, in paper or electronic form, and in a separate document (or contained by itself on a separate page as part of another document), the margin disclosure statement specified in this paragraph (a). In addition, any member that permits non-institutional customers either to open accounts online or to engage in transactions in securities online must post such margin disclosure statement on the member’s Web site in a clear and conspicuous manner.”
Selected Notices: 01-31, 02-35, 09-60.

FINRA Rule 2270 – Day-Trading Risk Disclosure Statement
“(a) Except as provided in paragraph (b), no member that is promoting a day-trading strategy, directly or indirectly, shall open an account for or on behalf of a non-institutional customer unless, prior to opening the account, the member has furnished to each customer, individually, in paper or electronic form, the disclosure statement specified in this paragraph (a). In addition, any member that is promoting a day-trading strategy, directly or indirectly, must post such disclosure statement on the member’s Web site in a clear and conspicuous manner.”
Selected Notices: 00-62, 02-35, 09-72 . Note: See also FINRA Rule 2130

FINRA Rule 2300 – Special Products

FINRA Rule 2310 – Direct Participation Programs
“Direct participation program (program) — a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. A program may be composed of one or more legal entities or programs but when used herein and in any rules or regulations adopted pursuant hereto the term shall mean each of the separate entities or programs making up the overall program and/or the overall program itself. Excluded from this definition are real estate investment trusts, tax qualified pension and profit sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code and individual retirement plans under Section 408 of that Code, tax sheltered annuities pursuant to the provisions of Section 403(b) of the Internal Revenue Code, and any company including separate accounts, registered pursuant to the Investment Company Act.”
Selected Notices: 73-50 , 77-03 , 78-12 , 81-34 , 82-14 , 82-50 , 82-51 , 82-52 , 83-13 , 84-28 , 84-64, 85-17 , 85-29 , 86-66 , 86-81 , 88-88 , 89-16 , 91-56 , 91-78 , 93-15 , 93-44 , 94-24 , 94-70 , 95-63 , 95-64 , 08-35, 09-33, 15-02.

FINRA Rule 2320 – Variable Contracts of an Insurance Company
“The term “variable contracts” shall mean contracts providing for benefits or values which may vary according to the investment experience of any separate or segregated account or accounts maintained by an insurance company.”
Selected Notices: 75-68, 88-17, 91-25, 91-68, 94-67, 95-56, 96-52, 96-86, 97-27, 97-48, 97-50, 98-75, 99-35, 99-55, 99-103, 00-44, 01-63, 09-5

FINRA Rule 2330. Members’ Responsibilities Regarding Deferred Variable Annuities
“This Rule applies to recommended purchases and exchanges of deferred variable annuities and recommended initial subaccount allocations. This Rule does not apply to reallocations among subaccounts made or to funds paid after the initial purchase or exchange of a deferred variable annuity. This Rule also does not apply to deferred variable annuity transactions made in connection with any tax-qualified, employer-sponsored retirement or benefit plan that either is defined as a “qualified plan” under Section 3(a)(12)(C) of the Exchange Act or meets the requirements of Internal Revenue Code Sections 403(b), 457(b), or 457(f), unless, in the case of any such plan, a member or person associated with a member makes recommendations to an individual plan participant regarding a deferred variable annuity, in which case the Rule would apply as to the individual plan participant to whom the member or person associated with the member makes such recommendations.”
Selected Notices: 07-53, 09-32, 09-72..

FINRA Rule 2342 – “Breakpoint” Sales
“No member shall sell investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions so as to share in the higher sales charges applicable on sales below the breakpoint.”
Selected Notices: 98-98, 00-53, 09-33.

FINRA Rule 2360 – Options
Selected Notices: 76-8, 76-24, 76-31, 77-5, 78-50, 78-54, 79-41, 79-42, 79-43, 80-22, 80-23, 80-29, 80-36, 80-46, 80-55, 81-04, 82-42, 85-18, 86-74, 89-64, 93-15, 94-24, 94-46, 95-25, 95-47; 96-15, 99-20; 01-01, 05-06, 06-54, 07-03, 07-11, 07-37, 08-04, 08-28, 08-78, 10-36, 13-39.

FINRA Rule 2510 – Discretionary Accounts
(a) Excessive Transactions.
(b) Authorization and Acceptance of Account
(c) Approval and Review of Transactions
(d) Exceptions
Selected Notices: 75-33, 76-30, 91-39, 91-80, 92-25, 93-1, 04-71

FINRA Rule 3000 – Supervision and Responsibilities Relating to Associated Persons

FINRA Rule 3240 – Borrowing from or Lending to Customers
No person associated with a member in any registered capacity may borrow money from or lend money to any customer of such person unless certain conditions are met.
Selected Notice: 10-21

FINRA Rule 3270 – Outside Business Activities of Registered Persons
“No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of Rule 3280 shall be exempted from this requirement.”
Selected Notices: 88-5, 88-45, 88-86, 89-39, 90-37, 94-44, 94-93, 96-33, 01-79, 10-49 Note: Works with FINRA Rule 3280

FINRA Rule 3280 – Private Securities Transactions of an Associated Person
“No person associated with a member shall participate in any manner in a private securities transaction except in accordance with the requirements of this Rule.”
“Private securities transaction” shall mean any securities transaction outside the regular course or scope of an associated person’s employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of Rule 3210, transactions among immediate family members (as defined in FINRA Rule 5130), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded.”
Selected Notices: 75-34, 80-62, 82-39, 85-21, 85-54, 85-84, 91-32, 94-44, 96-33, 01-79, 03-79. . Note: Works with FINRA Rule 3270

FINRA RULE 5300 – 5300. Handling of Customer Orders

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