In discussing FINRA rules, one would be remiss to omit a discussion one of the simplest, yet most powerful rules in FINRA’s book – FINRA Rule 2010. This rule was formerly NASD Rule 2110 and before that was called Article III, Section 1 of the NASD Rules of Fair Practice. Yes, it literally was the first rule.
This rule is simply titled, “Standards of Commercial Honor and Principals of Trade.” And it literally reads one sentence, “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principals of trade.” This rule is sometimes referred to as FINRA’s “J and E” rule – for the “just and equitable” language that appears above. That’s it. One line. Simply put, it says do the right thing.
One need only look at the Monthly FINRA Disciplinary Actions to find that this rule is frequently cited. That is because FINRA’s practice is to cite this rule in virtually every case it brings. That is because it views a violation of any of its other rules as a violation of this one. And violation of other regulators’ rules can also be viewed by FINRA as a violation of its “J&E” rule. FINRA has been known to bring enforcement actions against individuals for any type of lying, cheating (literally test cheating), or stealing and to include this rule in those charged.
FINRA has said (in NASD Notice to Members 96-44) that, “it is inherent in and implied by the provisions of Rule 2110 [now 2010] that members and their associated persons shall not engage in communications with customers that constitute threats, intimidation, the use of profane or obscene language, or calling a person repeatedly on the telephone to annoy, abuse or harass the called party.”
And the fact is, FINRA wins the vast majority of the cases it brings, under this and other rules. So if you have been cited by FINRA for a violation of Rule 2010, consider that FINRA has broad authority under this rule to bring actions based on its members doing any number of bad things.
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