As provided for in FINRA Notice to Member (NTM) 09-63, the following rules currently apply to discretionary brokerage accounts:
FINRA Rule 2510
FINRA Rule 2510 addresses the obligations of members that have discretionary power over a customer’s account.
Rule 2510(a) (excessive transactions/excessive trading) prohibits members and their agents or employees that have discretionary power over a customer’s account from effecting any excessive transactions in view of the financial resources and character of such discretionary account.
Rule 2510(b) (authorization and acceptance of account) provides that a member or registered representative may not exercise any discretionary power in such account unless the customer has given prior written authorization to a stated individual, and the account has been accepted in writing by the member or a designated partner, officer or manager of the member.
Rule 2510(c) (approval and review of transactions) requires that a member or a designated partner, officer or manager of the member approve promptly in writing each discretionary order entered and review all discretionary accounts at frequent intervals to detect and prevent excessive transactions.
NYSE Rule 408
NYSE Rule 408(a) prohibits members and their employees from exercising discretionary power in a customer’s account without first obtaining: (1) the customer’s written authorization (substantially similar to FINRA Rule 2510(b)); (2) the signature of the person authorized to exercise discretion in the account (similar to FINRA Rule 3110(c)(3)(A)); and (3) the date such discretionary authority was granted (similar to FINRA Rule 3110(c)(3)(B)).
NYSE Rule 408(b) requires that: (1) employees notify a supervisor and obtain his or her prior approval before exercising discretionary power in a customer’s account; (2) the supervisor frequently reviews the account; and (3) members maintain a written statement of the supervisory procedures governing such accounts. The rule further requires that an order entered on a discretionary basis by an employee be identified as discretionary on the order ticket (similar to SEA Rule 17a-3(a)(6)(i)).
FINRA proposed to transfer FINRA Rule 2510 into the Consolidated FINRA Rulebook as FINRA Rule 3260 with certain changes that take into account requirements under NYSE Rule 408. Please see NTM 09-63 for the specifics on the proposed changes.
If you have questions about discretionary accounts, or if you believe that you have been the victim of a securities fraud, the Law Offices of David A. Carter, P.A. may be able to help. The Law Offices of David A. Carter, P.A. is a South Florida securities fraud, securities arbitration, investor protection, and Chapter 7 bankruptcy law firm based in Boca Raton. David Carter is a securities attorney that reviews securities fraud cases throughout the country and Florida, including securities fraud cases in Tallahassee, Jacksonville, Sarasota, Tampa, Orlando, Daytona Beach, Naples, Fort Myers and Port Charlotte. To contact the Law Offices of David A. Carter, P.A., please call 561-750-6999, or email us at contact@carterpa.com. For more information about the Law Offices of David A. Carter, P.A., you can also visit our website at www.carterpa.com.