Solicited vs. Unsolicited Trades

15 February, 2024

If your broker has contacted you to recommend a transaction or to get you to place a trade, it is known as a solicited transaction. If so, a stronger set of rules will apply to the trade, and the broker can be liable if they violate the guidelines.

A broker needs to properly record that the trade was solicited. If you have lost money on a solicited trade because the broker recommended an unsuitable transaction, you may be entitled to financial compensation. Contact a broker misconduct attorney at Rikard & Protopapas to learn whether you may have a case against the broker in FINRA arbitration.

The Difference Between a Solicited and Unsolicited Trade

Broker-dealers will execute trades under two circumstances:

Unsolicited trade

The client will place an order with the broker-dealer to execute a trade that is their own idea. This transaction is called unsolicited because the broker did not do anything to generate the order.

Solicited trade

The broker-dealer may contact a client to recommend a certain transaction to get the client to place an order. The broker may want to be helpful by providing a trade idea that could make the client money. The firm may have an inventory of a security that they want to move and place with their customers. This type of transaction is called solicited because the broker-dealer sought to have the customer place the transaction.

Brokers May Violate Suitability Obligations with Improper Solicited Trades

A broker has a much higher obligation to the client on a solicited trade. After all, they were the one who recommended it to the client. These higher obligations reflect the fact that the customer places their trust in the broker when they act on a recommendation.

One of the core FINRA rules is that the broker-dealer must only recommend trades that are suitable for their client. The FINRA suitability rules apply to recommended securities, regardless of whether the investor is a customer or a potential customer.

There are three levels of suitability analysis that a broker must perform for a recommended trade:

  • The broker must have a reasonable basis to believe that the security is suitable for any investor.
  • The broker must then perform an analysis whether the security is suitable for this particular customer.
  • Finally, the broker must perform a quantitative suitability analysis to determine whether the trade “is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile.”

The Broker Must Record Whether a Trade Was Solicited, and Keep Proper Records

Under FINRA rules, the broker must keep accurate records of its trades. The broker has a legal obligation to properly mark the trade as solicited or unsolicited when it enters an order ticket. The broker must also maintain a blotter of all its trades. The broker further has an obligation to retain the blotter for six years and trade tickets for up to three years under FINRA Rule 4511 and SEC Rule 17a-3.

Brokers do not always mark trades correctly. Some reasons that brokers have given for mismarking trades include:

  • They had technological issues that caused mass mismarking of trades.
  • They did not believe that they had to report the trade as solicited because the trades were pursuant to verbal discretionary authority.
  • They wanted to get around restrictions on their ability to solicit trades in certain transactions.

Some brokers intentionally mismark trades because they believe that they can escape some of the higher requirements that go along with solicited trades. They think that, if they can show a record of the trade as unsolicited, they may be able to defeat claims that they recommended an unsuitable security.

FINRA often catches brokers mismarking trades when they do enforcement sweeps. For example, FINRA was very focused on the issue in 2018, and they fined several brokerages for mismarking transactions, even barring some associated persons for periods of time.

What Evidence Can Prove a Broker Mismarked Your Trade?

Whether a broker properly marked a transaction becomes an issue in suitability cases. If the broker has recommended an unsuitable transaction, you may be able to obtain financial compensation in FINRA arbitration. The broker may need to pay for your losses. They could even be assessed punitive damages.

You must show that the broker solicited the trade to have FINRA suitability rules apply. If these rules do not apply, you may not be able to recover financial compensation for unsuitable recommendations.

The good news is that the broker’s marking of the trade is not the final word. When you file an arbitration claim, the broker is required to provide you with certain information, before you even request any information from them. The broker must maintain records of communications with customers about trades.

You Can “Go to the Tape” to Learn the Details of the Transaction

If you spoke with the broker over the phone, they would be obligated to keep a recording of the conversation. FINRA Rule 3170 requires the taping of conversations. The broker must properly maintain accurate books and records under FINRA rules. They must keep recording for three years.

If there is any dispute over whether the trade was unsolicited or solicited, the broker would have to provide the recording. You should be able to tell whether you directed the trade or your own, or whether it was done after the broker contacted you. If the broker has mismarked the trade, they could face additional penalties from FINRA, including punitive damages.

Contact a Securities Fraud Lawyer to Learn More About Solicited and Unsolicited Trades

If you have lost money on an unsuitable trade recommended by your broker, you may be able to take legal action. You cannot sue them, but you can file a FINRA arbitration claim to potentially recover some or all of the money that you lose.

Contact the attorneys at Rikard & Protopapas online or call us today at (803)-805-7546 to learn more about your legal rights. You owe us nothing unless we help you obtain some type of financial recovery for your losses.

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