MSRB Requests Comment on Revisions to Suitability Rule

The MSRB announced that it is seeking comments on proposed revisions to MSRB Rule G-19 ("Suitability of Recommendations and Transactions; Discretionary Accounts"). The proposed revisions seek to harmonize Rule G-19 with FINRA's suitability rule. As proposed, the rule's suitability analysis is threefold: reasonable-basis suitability, customer-specific suitability, and quantitative suitability.

(i) The reasonable-basis inquiry requires a broker-dealer to have a reasonable basis that the recommendation is suitable for at least some investors, after reasonable diligence.

(ii) The customer-specific suitability analysis requires the broker-dealer to have a reasonable basis in believing that the recommended investment or strategy would be suitable for a customer, based on his or her investment profile. A customer's investment profile includes the customer's age, financial situation, tax status, investment objectives, and risk tolerance.

(iii) Finally, the quantitative suitability inquiry seeks to prevent churning, requiring a broker-dealer to have a reasonable basis for believing that a series of transactions is not unsuitable or excessive in view of the customer's investment profile.

The proposed revisions also adopt FINRA's broad definition of investment strategy as including a recommendation that a customer hold securities currently owned.

Comments Due: May 6, 2013.

See: Regulatory Notice 2013-07 (links externally to MSRB website).