The Ins And Outs Of FINRA Suitability Rule 2111

Law360, New York (July 24, 2012, 12:04 PM EDT) -- FINRA Suitability Rule 2111 became effective July 9, 2012, expanding prior suitability obligations found in its predecessor, National Association of Securities Dealers and New York Stock Exchange rules, and imposing new requirements for brokers-debtors. The new rule requires a "reasonable basis" to believe a recommendation is "suitable for the customer" based on consideration of customer-specific facts obtained through "reasonable diligence." Rule 2111 expands the scope of suitability determinations to include broadly defined "investment strategies" and explicit hold recommendations.

In addition, it articulates three explicit obligations on brokers: (1) a reasonable basis obligation that includes both individual brokers and firms; (2) a...

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