BROKER-DEALER BASICS

Rainmaker Securities, LLC is a FINRA registered broker-dealer

  • a registered representative is NOT a broker-dealer
  • rather, a registered representative is an agent of the broker-dealer
  • REMEMBER: UNLESS YOU ARE TRADING FOR YOUR PERSONAL ACCOUNT, ONLY A REGISTERED BROKER-DEALER MAY LEGALLY RECEIVE A FEE THAT IS CONTINGENT UPON A TRANSACTION FOR SECURITIES

What is a security? The following is a general guideline:

  • any shares of equity in an entity
  • any debt instrument or note, EXCEPT:
    • consumer financing loans
    • a note secured by a mortgage on a home
    • a short term note secured by lien on assets of a business
    • a character loan to a bank customer
  • if you are in doubt, contact the General Counsel for an in-depth analysis

 


SECURITIES TRANSACTIONS OUTSIDE OF THE BROKER-DEALER

Selling Away

Engaging in securities-related activity outside of the broker-dealer ("Selling Away") is a violation of FINRA rules and subject to harsh government sanctions, unless the activity falls under the following exceptions:

  1. firm approved Private Securities Transactions; or

  2. transactions in a firm approved Personal Brokerage Account.

Private Securities Transactions (PST)

Approval Process

  • provide prior written notice to the firm via OBA/PST Disclosure Form
  • describe transaction and whether or not you will receive direct or indirect compensation
  • if compensation is received, firm must record transaction on its books and records

No PST Approval Needed for:

  • transactions in a firm approved Personal Brokerage Account
  • transactions among immediate family where no selling compensation is received
  • personal transactions in an investment company or variable annuity securities

Personal Brokerage Accounts

  • must provide notice to RMS of any trading account with an outside brokerage in which you have a beneficial interest via the Personal Brokerage Account Disclosure Form
  • must also provide notice to financial institution holding the account of RMS association
  • When do you have a  beneficial interest in an account?
    • your own account
    • your spouse's account
    • your child's account, if child resides in same household
    • any account in which you have discretionary authority

OUTSIDE BUSINESS ACTIVITIES

You must receive firm approval prior to engaging in certain activities:

  • any activity in which you receive compensation
  • any activity in which you participate in management or control assets (even if non-compensated)

Use the Outside Business Activities Disclosure Form to initiate a review of the activity for approval. Must also be disclosed annually, even if previously disclosed on the Form U4.


FORM U4 MAINTENANCE

  • update RMS within 30 days of a change
  • late updates will leave you and RMS vulnerable to FINRA sanctions (e.g. suspension of license and fines of up to $1,750)
  • Changes/Amendments that must be reported:
    • Change of residence address
    • Outside business activities
    • Investment-related litigation or securities arbitration
    • Customer complaints
    • Bankruptcy, tax liens, or compromises with creditors
    • violation of any law or regulation
  • All firm U4s subject to annual internal auditing and review
  • periodic FINRA audits will select from a sample of firm U4s to scrutinize for missing disclosures

GIFTS & GRATUITIES

  • Disclose via online Gifts and Gratuities Form
  • limited to $100 annually
  • Must keep a record of all recipients
  • Exceptions:
    • If Rainmaker Securities staff accompanies client to an event, it is not a gift subject to the $100 limit.
    • occasional meals
    • tickets to sporting events or theater, which are not frequent or excessive

COMMUNICATIONS

Communications with the Public

  • Includes: advertising, websites, publications, radio, television, signs, sales literature, public speaking engagements, etc.
  • ALL public communications must be submited for approval by the firm via the Advertising Materials Submission Form.

Types of Public Communication

  1. Institutional Communications
    • any written/electronic communications distributed only to institutional investors
    • does not include firm's internal communications
    • does not need to be filed with FINRA Advertising Regulation Department
    • Who is an Institutional Investor?
      • a bank
      • savings and loan association
      • insurance company
      • investment company registered under the Investment Company Act of 1940
      • registered investment advisor
      • a FINRA registered broker-dealer
      • any person (whether a natural person, corporation, partnership, trust or otherwise) with
        total assets of at least $50 million
      • Governmental entity or subdivision.
      • Employee benefit plan.
      • Qualified plan, as defined in Section 3(a)(12)(C) of the Securities Exchange Act of 1934
  2. Retail Communications
    • any written/electronic communications distributed or made available to more than 25 retail investors within 30 days
    • any person that is NOT an institutional investor is a retail investor
    • must be filed with FINRA Advertising Regulation Department
  3. Correspondence
    • any written/electronic communications distributed or made available to 25 or fewer retail investor within 30 days
    • does not need to be filed with FINRA Advertising Regulation Department

Internal Firm Communications

  • may use rrlist@rainmakersecurities.com for firm wide email distribution
  • any offering discussed on rr-list must be approved for solicitation by the firm

Prohibited Communications Mediums

When discussing broker-dealer or securities-related matters, you are prohibited from using the following mediums of communication:

  • Email from domains/addresses that are not archived and monitored by the firm
  • Blogs, blog posts
  • Electronic bulletin boards
  • Chatrooms
  • Instant messaging
  • Social networking sites (LinkedIn, Twitter, etc.)
    • Social media profiles must be limited to: firm affiliation, title, contact information and employment dates, and a link to the firm’s website
    • Soliciting or displaying recommendations, endorsements, or other similar features that are in any way related to their work or performance at the firm is prohibited
       

SUITABILITY

When to establish Suitability

The suitability rule applies to a broker-dealer's or registered representative's "recommendation" of a security or investment strategy involving a security to a "customer."

  1. When is there a "recommendation"?
    • it depends on the facts and circumstances. In short, if there is any doubt in your mind whether there was a recommendation, you should establish suitability to be safe and avoid liability.
    • Distribution of marketing materials or offering materials, by itself, does not constitute a recommendation
  2. Who is a "customer"?
    • a "customer" includes anyone (except another broker-dealer) from whom the firm receives compensation

How to Establish Suitability?

There are three aspects of suitability. However, only two of which are applicable to this firm.

  1. Reasonable Basis Suitability
    • requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors.  Reasonable diligence must provide the firm or associated person with an understanding of the potential risks and rewards of the recommended security or strategy.
    • The firm establishes Reasonable Basis Suitability via its tiered due diligence process conducted on the issuer and/or seller of the securities
  2. Customer-Specific Suitability
    • requires that a broker, based on a particular customer’s investment profile, has a reasonable basis to believe that the recommendation is suitable for that customer. The broker must attempt to obtain and analyze a broad array of customer-specific factors to support this determination.
    • The firm establishes Customer-Specific Suitability via review of each customers completed Suitability Form.
    • Analyze the following factors from the completed Suitability form:
      • customer liquidity needs
      • time horizon for financial goals
      • risk tolerance - willingness to lose some or all of investment

Institutional Customers

  • an institutional customer is a customer which meets one of the following criteria:
    • a bank
    • savings and loan association
    • insurance company
    • registered investment company
    • registered investment advisor
    • any person (natural or entity) with at least $50 million in assets
  • a customer is exempt from suitability requirements under the institutional customer exemption if:
    1. the customer meets the above requirements for an institutional customer
    2. the customer attests that it "exercises independent judgement for all potential transactions"
  • qualifications for the institutional customer exemption should be documented via the online Suitability Form

 


ANTI-MONEY LAUNDERING

Firm Anti-Money Laundering Review

  1. ALL Buyers and Sellers of securities are subject to the firm's AML review.
  2. For Sellers/Issuers of securities, initiate an AML review by the firm compliance team by submitting a Due Diligence Checklist Form.
  3. For Buyers of securities, initiate an AML review by the firm compliance team by submitting (or instructing the customer to submit) a Suitability Form.

Suspicious Behavior Warranting Heightened Scrutiny

  • The customer exhibits unusual concern about the Firm’s compliance with government reporting requirements and the Firm’s AML policies (particularly concerning his or her identity, type of business and assets), or is reluctant or refuses to reveal any information concerning business activities, or furnishes unusual or suspicious identification or business documents.
  • The customer wishes to engage in transactions that lack business sense or an apparent investment strategy, or are inconsistent with the customer’s stated business or investment strategy.
  • The customer engages in transactions involving cash or cash equivalents that appear to be unstructured to avoid the $10,000 government Currency Transaction Reporting. 

Anti-Money Laundering Reporting

  • Contact the AML Compliance Officer (Amy Boyet) if you have any  suspicions an investor is seeking to participate in money laundering.
  • Do NOT inform the investor.
  • The AML Officer will investigate and file a Suspicious Activity Report (SAF-SR) within 30 days of identifying the suspicious activity. 

Government-Issued Photo Identification Required

  • for natural persons and entities, the signatory on the subscription agreement must provide a copy of a non-expired photo-ID
  • for entity subscribers, the subscriber must provide evidence of entity existence (e.g. certificate of formation, articles of incorporation, certificate of good standing, etc.)

INSIDER TRADING

  • “Insider trading” is buying or selling a security while having material, non-public information about the issuer security.

What qualifies as "material" information?

  • Increases or decreases in dividends
  • Declarations of stock splits or stock dividends
  • Mergers, acquisitions, or takeovers
  • Significant changes in operations
  • Changes in previously disclosed financial information
  • Changes in backlog orders, award or loss of significant contract(s)
  • Significant new products to be introduced or new discoveries
  • Extraordinary borrowings
  • Major litigation
  • Liquidity problems
  • Significant changes in management
  • Significant regulatory actions

What qualifies as "non-public" information?

  • Non-public: information that has not been effectively communicated to the market place. 
  • information is public if it has been published and is in general circulation

Penalties for Insider Trading Violations

  • Civil injunctions
  • Disgorgement of profits
  • Criminal prosecution and possible jail time
  • Fines up to 3x profit gained or loss avoided regardless of whether the person benefited
  • Firm penalties up to and including termination of employment