Investor Ed Crossword Puzzles: Prohibited Conduct

All forms of investing carry some degree of risk. Brokers must be diligent in protecting their customers from additional, unnecessary risk. Brokers must never guarantee market or product performance. Unless a customer has given discretionary authority to trade on a consumer’s account, a broker must obtain authorization  or permission before conducting transactions. It is important to always read all documents before signing so you know whether your permission is required before a trade or if a broker can make a trade without express permission. Brokers should never recommend unsuitable securities, nor should they ever misrepresent a material fact about the product.

FINRA’s Best Execution and Interposition Rule 5310 requires a broker to use reasonable diligence in ensuring a customer’s transaction is executed at the best possible price available. A Broker should never charge excessive commissions or mark-ups on the purchase or sale of a security.

Furthermore, a broker engages in prohibited conduct if he or she engages in the switching of one mutual fund for another without a legitimate purpose. A broker should not remove a customer’s funds or securities from the customer’s account without the customer’s prior authorization. FINRA also prohibits brokers from trading ahead. FINRA Rule 5320 states a broker should never trade ahead by placing an order for the firm’s account before entering a customer’s order.

Test out your knowledge with this crossword puzzle:

Across
4. ___ ____, involves placing an order for the firm’s account before entering a customer’s limit order, without having a valid exception. (2 Words)
5. ___ customers that they will not lose money on a particular securities transaction, making specific price predictions, or agreeing to share in any losses in the account.
6. ___ a customer excessive markups, markdowns, or commissions on the purchase or sale of securities.
7. ___ to a customer the purchase/sale of a security that is unsuitable for the customer’s age, financial situation, investment objective, or investment experience.
8. ___ funds or securities from a customer’s account without the customer’s prior authorization.
9. Purchasing or selling securities in a customer’s account without receiving the customer’s ___ to make the sale/purchase, unless the broker has received written discretionary authority from the customer.
10. Using ___ or fraudulent methods to effect a transaction, or induce the purchase or sale of a security.
Down
1. ___ a customer from one mutual fund to another with no legitimate investment purpose for the switch.
2. ___ to use reasonable diligence to see that a customer’s order is executed at the best possible price, given prevailing market conditions.
3. ___ or failing to disclose material facts concerning an investment (ex. risk, charges/fees, company financial information, analytical information).