Solicited vs. Unsolicited Trades: FINRA’s Strict Rules for Marking Trades
Before you decide to pursue a claim against your stockbroker, you need to know: Was the investment solicited or unsolicited? If a trade is solicited, it means that your stockbroker recommended the investment. Unsolicited trades are investments that you pick on your own. The Financial Industry Regulatory Authority (FINRA) has strict rules surrounding solicited trades. They must meet suitability requirements—i.e., they must suit the investor’s financial goals and not pose too much risk.
Marking the Trade
When stockbrokers enter a trade, they must mark the trade as solicited or unsolicited. That way firms can more easily identify trades they should evaluate for suitability. Stockbrokers can get into trouble when they mark trades incorrectly. They might mark a trade as unsolicited to avoid the brokerage firm’s scrutiny of an unsuitable investment.
Furthermore, FINRA Rule 4511 states that investors must maintain accurate records. If they do not mark trades correctly, they may be fined or suspended. One broker was recently fined $15,000 after allegedly marking 100 trades as unsolicited when they were solicited, among other allegations.
How Do I Know if a Trade is Solicited or Unsolicited?
Solicited trades form the basis of a significant number of disputes between investors and brokerage firms. Even if you agreed to a solicited trade, you may still have a case for a securities lawyer. It is not unusual for investors to rely on their stockbrokers for advice. Investors can show that their stockbroker had de facto control over their account if they relied on their stockbroker for recommendations. Speaking with a securities attorney is the best way to determine if you have a case for FINRA arbitration.
Stockbrokers who are exercising discretion in an account—that is, executing trades using their own judgment without input from the investor—must mark the trades as solicited. One investor was recently fined $17,500 following allegations that he marked trades as unsolicited even though they were solicited due to the discretionary nature of his trading.
FINRA Rules for Solicited and Unsolicited Trades
Stockbrokers may be tempted to recommend a security for the sake of earning a commission. If your broker solicited an investment but did not fully disclose the risks involved, you may be able to prove a claim for unsuitability or misrepresentation, both prohibited forms of misconduct under FINRA rules.
Here are a few FINRA rules designed to protect investors from solicited trades that are too risky:
- FINRA Rule 2111 states that stockbrokers must only recommend investments that fit their investor’s needs. Stockbrokers have a duty to understand their investor’s financial goals and risk tolerance. They should also know their investor’s age and how long they plan to hold their investments.
- FINRA Rule 2020 prohibits investors from using manipulative or deceptive devices to induce you to agree to a transaction. They may not misrepresent investments or omit important information that could affect your decision to invest.
- FINRA Rule 2010 requires stockbrokers to uphold high standards of commercial honor.
Besides the rules regulating stockbroker conduct, brokerage firms must also meet regulatory standards to catch unsuitable solicited trades. FINRA Rule 3110 requires brokerage firms to have systems in place to catch unsuitable solicited trades, especially if the trades are for low-priced securities that are especially concentrated in the investor’s portfolios, or if the solicited trades are high risk.
Firms are supposed to review solicited trades for suitability. One FINRA Acceptance, Waiver, and Consent agreement (AWC) alleged that StockCross representatives solicited equity transactions worth $230 million and options transactions worth $8.7 million. FINRA alleged that StockCross never took any steps to review these unsolicited transactions for suitability. The firm delegated supervisors but did not ensure that those supervisors performed their duties. As a result, FINRA alleges that StockCross did not know that neither of the designated supervisors reviewed any of the solicited trades.
How Can I Check for Stockbroker Misconduct?
When you receive trade confirmations, look at the ticket to make sure your stockbroker accurately marked the trade as unsolicited or solicited. If you discover your ticket was marked incorrectly, you may want to consider if your trades were suitable for your profile. Did you recently lose money on an incorrectly marked trade? If so, it is time to get in touch with a securities lawyer.