What is FINRA Rule 2010?
The Financial Industry Regulatory Authority (FINRA) sets and enforces rules, such as Rule 2010, that govern the activities of its members, which include most of the securities firms doing business in the US. FINRA is a private, not-for-profit organization that acts as a self-regulatory organization (SRO) for the securities industry in the United States. FINRA is authorized by the US Congress to oversee the activities of broker-dealers, investment advisers, and other financial institutions in order to protect investors and ensure market integrity.
FINRA Rule 2010, Short and Sweet
One of the shortest FINRA regulations but arguably the most important, Rule 2010 is a broad ethical principle that requires all FINRA member firms and their associated persons to observe high standards of commercial honor and just and equitable principles of trade. It is known as the “Standards of Commercial Honor and Principles of Trade” rule.
The rule is designed to promote ethical conduct and fair dealing in the securities industry. It covers a wide range of activities, including the solicitation, sale, and execution of securities transactions, as well as the handling of customer accounts and the dissemination of investment recommendations.
Under FINRA Rule 2010, member firms and their associated persons must act in the best interests of their customers and avoid any activity that would compromise their integrity or impartiality. The rule requires firms and individuals to maintain high standards of professional conduct, and to avoid any conduct that could be detrimental to the interests of investors or the securities markets.
FINRA Rule 2010 also provides a framework for dealing with conflicts of interest. It requires firms to disclose any conflicts of interest that could affect their ability to provide unbiased advice or recommendations to their customers. Firms must also take steps to manage and mitigate conflicts of interest, such as establishing internal controls and supervisory procedures.
Examples of FINRA Rule 2010 Violations
There have been numerous cases of broker misconduct that involve violations of FINRA Rule 2010. Here are a few examples:
- Churning: This is a type of misconduct in which a broker engages in excessive trading in a customer’s account for the purpose of generating commissions. Churning is often detected when a customer’s account shows a high volume of trades that do not correspond to their investment objectives.
- Unauthorized Trading: When a broker executes trades in a customer’s account without the customer’s knowledge or consent, it is considered unauthorized trading. This violates FINRA Rule 2010, which requires brokers to obtain the customer’s authorization before executing trades in their account. Unauthorized trading is often detected when a customer receives confirmations for trades they did not authorize.
- Failure to Disclose Conflicts of Interest: When a broker fails to disclose a conflict of interest, it could affect their ability to provide unbiased advice or recommendations to their customers. FINRA Rule 2010 requires brokers to disclose conflicts of interest and take steps to manage and mitigate them. Failure to disclose conflicts of interest is often detected when a customer receives biased advice or recommendations.
- Misrepresentations: This is a type of misconduct in which a broker makes false or misleading statements to a customer about an investment product or service. Misrepresentations are often detected when a customer suffers losses as a result of relying on false or misleading information provided by the broker.
Broker misconduct involving FINRA Rule 2010 can have serious consequences for customers and the securities industry as a whole. By ensuring that member firms and their associated persons adhere to high standards of commercial honor and just and equitable principles of trade, the rule helps to protect investors and promote confidence in the financial system.
FINRA Arbitration Attorneys for Securities Disputes
A FINRA arbitration attorney is a lawyer who specializes in representing clients in disputes that are subject to arbitration under the rules of the Financial Industry Regulatory Authority (FINRA).
When disputes arise between investors and securities firms or brokers, they may be required to resolve their differences through FINRA arbitration. FINRA arbitration is a process in which an impartial arbitrator or panel of arbitrators is appointed to hear the dispute and render a decision.
A FINRA arbitration attorney can help clients navigate the arbitration process and represent their interests throughout the proceedings. This can include preparing and filing the initial claim, conducting discovery, presenting evidence and arguments at the hearing, and appealing the decision if necessary.
In addition to their knowledge of FINRA rules and procedures, FINRA arbitration attorneys also typically have experience in securities law and litigation. They can provide valuable guidance to clients on the strengths and weaknesses of their case, the likelihood of success, and the potential risks and rewards of pursuing arbitration.
If you have a securities related dispute, the FINRA attorneys at the White Law Group may be able to help you. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.
For a free consultation with a securities attorney, please call the offices at 888-637-5510 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on The White Law Group, and its representation of investors, please visit WhiteSecuritiesLaw.com.
Tags: Financial Industry Regulatory Authority, finra arbitration attorneys, FINRA oversight, FINRA Rule 2010, FINRA Rules, Standards of Commercial Honor and Principles of Trade Last modified: March 21, 2023