What is FINRA Rule 2150?

FINRA Rule 2150, titled "Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts", safeguards investors by prohibiting unethical behavior involving their securities and funds. Here's a breakdown of its key points:

Improper Use Prohibition:

• No FINRA member firm or associated person can misuse a customer's securities or funds. This includes unauthorized borrowing, pledging, or using them for personal gain.

• Examples of improper use include:

  • Borrowing customer funds without permission.

  • Trading in a customer's account without their authorization.

  • Pledging customer securities as collateral for personal loans.

• The rule aims to ensure fiduciary responsibility and prevent abuse of entrusted assets.

Guarantee Prohibition:

• No member firm or associated person can guarantee a customer against loss in any securities transaction or account.

• This prohibits false assurances of returns or promises to cover investment losses.

• The rule recognizes the inherent risks in investing and ensures transparency about potential outcomes.

Account Sharing Prohibition:

• No member firm or associated person can share their interest in a customer's account.

• This prevents conflicts of interest where the representative's financial incentives clash with the customer's best interests.

Significance:

• FINRA Rule 2150 plays a crucial role in protecting investors from unethical practices that could jeopardize their assets and investments.

• It fosters trust and transparency in the financial industry by setting clear ethical standards for member firms and individuals.

Additional notes:

• FINRA provides interpretive guidance and resources to further clarify the rule's application.

• Violations of the rule can result in disciplinary actions, including fines, suspensions, or bars from the industry.