The Cornell Securities Law Clinic has filed a Comment Letter supporting a proposal by the Financial Industry Regulatory Authority (FINRA) to expand the scope of the "suitability rule" applicable to public investors.
The proposal, contained in a Request for Comment, sought input to assist FINRA in formulating a rule proposal which would be sent to the Securities and Exchange Commission for final approval. The proposal concerns the "suitability" conduct rule, which requires that broker-dealers and registered representatives recommend purchases and sales of securities only when such transactions are suitable for the investor.
The proposal significantly expands the suitability rule, among other ways, by including recommendations of "investment strategies" within the scope of the rule.
The Clinic supported this change because the new rule "effectively addresses a loophole that member firms have used in the past to escape the suitability obligations. Firms that recommended a strategy arguably could have escaped the suitability obligations if they were not recommending a particular transaction."
Securities Law Clinic summer intern Sang Joon Kim ('11) was responsible for researching and drafting the Comment Letter.
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