Day Trading Suitability and Appropriateness

Posted over 1 year ago. Applies to Las Vegas, NV, 3 helpful votes

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If broker-dealers recommend that their customers buy or sell specific securities, they must ensure that the security is suitable

The SEC focused on whether customer-based day-trading broker-dealers were recommending the purchase, sale, or exchange of specific securities to their customers. Most of the firms examined represented to the Staff that they were discount brokerage firms, did not make "recommendations", and accepted and executed only unsolicited orders from their customers. Therefore, the firms reviewed generally did not believe they had any duty to determine the suitability of any customer transactions with the firm.76 The Staff did not find indications that firms were recommending specific securities. If broker-dealers recommend that their customers buy or sell specific securities, they must ensure that the security is suitable for the customerGenerally, if a broker-dealer makes a recommendation to a customer, it must have a reasonable basis for believing that the recommendation is suitable for the customer.

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whether day trading is an "appropriate" strategy based on the customer's financial background and investment goals.

The NASD requires broker-dealers that promote day trading to their non-institutional customers to determine, prior to opening an account for the customer, whether day trading is an "appropriate" strategy based on the customer's financial background and investment goals. In making this determination, the broker-dealer would be required to exercise reasonable diligence to ascertain the essential facts relative to the customer, including his/her financial situation, tax status, employment status, prior investment and trading experience and investment objectives.77 The proposed day-trading rule, which builds upon established NASD account approval guidelines, would require firms that recommend a day-trading strategy to an individual to approve the account for day trading. Prior to opening an account, firms also would be required to provide a disclosure statement to the customer describing the risks of day trading .

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In general, a firm would be "promoting" a day-trading strategy if it affirmatively promoted day trading

In general, a firm would be "promoting" a day-trading strategy if it affirmatively promoted day trading through advertising, training seminars, or direct outreach programs. If a firm's customers were generally engaged in day trading, it would reinforce a determination that the firm had affirmatively promoted day trading. However, merely providing access to research or to trading mechanisms that allow for intra-day trading would not necessarily constitute "promotion" of a day-trading strategy under the proposed rule.

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Howard Roitman 8921 W. Sahara Ave Las Vegas, NV (702) 631-5650

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