Solicited Vs. Unsolicited Trades: FINRA's Trading Rules
Before registering a complaint against your stockbroker, you should understand the difference between solicited and unsolicited trade. You need to understand whether your broker suggested the investment to you (solicited) or if you chose it yourself (unsolicited). Suppose your stockbroker advised or recommended the acquisition. In that case, the Financial Industry Regulatory Authority (FINRA) rules require the investment to be suitable and safe for your financial goals—contact Veach Legal for consultation regarding solicited trades and unsolicited trades.
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What Is Solicited Trade
A solicited trade is a securities transaction started by a broker-dealer. It is based on a certain type of request or recommendation initiated by a customer. In demanded trade, the customer seeks advice from the broker, who then provides the customer with recommendations. The trade is implemented with the customer's consent.
What Is Unsolicited Trade
Unsolicited trades, as the name indicates, are securities transactions that the customer initiates without any advice or recommendation by the broker. In unsolicited trades, the customer sells or purchases security, and they are responsible for the outcome of the trade. The brokers are not asked for advice, so they will not be reasonable for the results. Therefore, the broker has no influence or input on the security selling or buying.
Unfortunately on too many occasions unscrupulous brokers recommend risky stocks to clients, but then mark the trad as unsolicited. If you have lost money in your investment portfolio do to losses in risky investments, Veach Legal can bring a claim on your behalf notwithstanding that the trades were marked unsolicited.
How Do I Know If a Trade Is Solicited or Unsolicited?
If you need clarification on whether a trade is solicited or unsolicited, you can review and assess any documentation or communication with your financial advisor or stockbroker. Look for cases where your financial advisor or stockbroker provided investment recommendations or where you made decisions without seeking their guidance or advice. If you still have confusion or doubts, consider contacting them directly to clarify the nature of the trade.
FINRA Rules For Solicited & Unsolicited Trades
FINRA has specific rules and regulations regarding solicited and unsolicited trades to protect you and your investments and ensure fair and unbiased investment practices in the financial industry. Let's discuss the main points of FINRA rules and regulations regarding solicited and unsolicited trades.
Know Your Customer
Brokers must gather client information through a KYC process, as this information is essential and helps them understand the client's financial situation, objectives, risk tolerance, and investment experience. It also allows brokers to make suitable investment recommendations and financial advice.
Check Financial Suitability
By suitability, it means checking and verifying the financial suitability of the investing client. FINRA rule is that the broker must know the investor's financial situation, risk tolerance, and investment objectives before they start investing. This information is essential for safe and secure trade and must be done to avoid any financial challenges in the future. This is applicable in solicited trade, and it is necessary to know that The broker's recommendation should align with the investor's needs and goals.
Disclose Risks & Benefits To Clients
FINRA rule is that the brokers must disclose an investment's potential risks and benefits to the client before initiating a solicited trade. This ensures the client is well aware of all the possible outcomes of solicited trade. This is also important to keep everyone financially secure and to avoid any conflicts in the future. The disclosure rule ensures that the investor can make an informed decision.
Record Keeping For Safety
FINRA has another vital rule, record keeping, in which Broker-dealers must maintain detailed records of all client communications and transactions. This rule is helpful because it helps in case of any disputes or regulatory inquiries and keeps the entire process secure for investors and brokers.
Excessive Trading or Churning
FINRA also has rules against excessive trading, known as “churning.” Excessive trading is when brokers excessively trade in a client's account to generate commissions without regard to the client's interests. This gives the client and the system negative financial outcomes and benefits the broker because they make good commissions from these transactions. This is prohibited and considered a violation.
Unsolicited Trades
Unsolicited trades do not require the same level of suitability as solicited trades. But it is suggested that brokers still ensure the transactions are done legally and correctly and are appropriate for the client based on their investment knowledge and experience. Again, this is important for a safe and secure process flow.
Supervision Requirements
Stockbrokers must follow the rules of FINRA, and brokerage firms must also follow regulations to know any inappropriate trades they advise or recommend to potential investors. FINRA Rule 3110 requires brokerage firms and brokers to have appropriate systems to identify unsuitable trading practices suggested to clients. It is essential, especially if those trades and transactions involve risky or low investments. Let's discuss an example of a company called StockCross.
In StockCross, representatives suggested trades worth a lot of money, but the company needed to review whether these suggestions suit the investors. They supervised the trading process, but the company needed to know if those trades suited the clients. As a result, FINRA alleges that StockCross should have realized that neither of the supervisors assessed and verified any of the solicited trades. This example shows the significance of the FINRA rules and the importance of supervision for an effective trading process.
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Brokerage Firm's & Commercial Honor
A brokerage firm plays a significant role in guiding clients and investors through an investment strategy involving various financial products. The brokerage firm and its brokers ensure that clients' choices meet and align with equitable principles. It is also assured that taking into consideration fair practices while providing helpful advice and services for their client's benefit.
Moreover, brokerage firms and brokers must uphold commercial honor when facing investment losses. This is a practice they can do by providing accurate and transparent trade confirmations to all their clients. Trade confirmations are essential documentation that assures investors of the transactions and helps maintain trust in the financial system and markets.
Commercial honor is essential in these financial practices and can significantly foster trustworthy relationships between brokerage firms and their clients, even during investment losses.
This strengthens the overall financial system and protects brokerage firms and investors from potential financial losses. Brokerage firms must uphold commercial honor by giving accurate information, especially in solicited trades where brokers recommend clients to make investments. Contact Veach Legal today to learn more about commercial honor and
its relation with Solicited and Unsolicited Trades.
How Can I Check for Stock Broker Misconduct?
There are various ways to check for stockbroker misconduct which include
● Using FINRA broker check.
● Regularly reviewing account statements.
● Watch for excessive trading.
● Verify the broker's credentials.
All these ways are effective and are in practice. You should seek explanations for unclear investments and immediately report any concerns to the brokerage firm. It is also important to consider filing a complaint with FINRA or the SEC if necessary. Moreover, you can always consult a securities attorney who can also help in case of financial losses. In the end, you should always be proactive to protect your investments.
Contact Veach Legal Today!
Veach Legal is an experienced and professional financial law firm that helps clients with stockbroker misconduct cases and will defend your case most professionally. Our other services include broker misconduct, securities fraud, fraud investigations, class actions, and arbitrations. Call today to learn more about the services that we offer.