Selling Away

Moving from market-level violations to individual agent conduct, selling away is one of the most common compliance violations that agents commit, and one the Series 63 tests frequently.

Definition

Selling away occurs when an agent effects securities transactions that are not recorded on the regular books or records of the broker-dealer the agent represents.

This means the agent is conducting securities business outside the supervision of their employing broker-dealer.

When It Is Permitted

Selling away is permitted only when the transactions are authorized in writing by the broker-dealer prior to execution.

• The broker-dealer must give written authorization
• Authorization must come before the trade is executed
• Without prior written authorization, selling away is a prohibited practice under the North American Securities Administrators Association (NASAA) Dishonest Practices statement (Agent Section 2.b)

Why It Is Prohibited

• Transactions off the books escape supervisory review and compliance oversight
• Customers lose the protections that come with proper record-keeping and broker-dealer supervision
• Selling away is a common vector for fraud; agents may steer customers into unregistered or unsuitable investments
• The employing broker-dealer cannot monitor for suitability, conflicts of interest, or other violations if it doesn't know about the transactions

Exam Tip: Gotchas

The exam may test whether verbal authorization from a supervisor is sufficient for an agent to participate in a private securities transaction. It is not. Written authorization from the broker-dealer is required before execution. An agent who obtains verbal permission but not written approval before the trade has sold away, even if the supervisor said "go ahead."