Selling away (also called "private securities transactions") occurs when a registered representative engages in a securities transaction outside the regular course or scope of their association with their member firm — without the firm's knowledge or approval.
Regulatory basis: FINRA Rule 3280 — prohibits registered persons from participating in private securities transactions without prior written notice and, if compensation is involved, prior written approval from the firm.
Why it's prohibited: - The broker-dealer bears legal responsibility for the conduct of its registered representatives. - Private transactions that bypass the firm circumvent the firm's supervision, compliance procedures, and customer protection mechanisms. - Customers may not realize the firm is not involved and not protected by the firm's SIPC coverage or supervision.
Required notice to firm: - Must describe the transaction, compensation involved, and role in the transaction. - If the rep will be compensated: firm must approve or deny AND supervise the transaction as if it were its own. - If no compensation: firm must acknowledge the notice; rep can proceed only if firm doesn't prohibit it.
Common selling away scenarios: - Promoting a private placement the firm doesn't carry. - Introducing clients to a friend's startup investment. - Recommending a relative's real estate syndication.
Consequences: - Termination and FINRA disciplinary action. - Fines and suspension or bar. - Personal liability if investors suffer losses.
> Exam tip: Selling away = registered rep conducting transactions outside the firm without approval. It is different from "outside business activity" (OBA) in that selling away involves securities transactions specifically. FINRA Rule 3280 governs.