Understanding who initiated a trade matters because it determines the level of regulatory responsibility the firm carries. This distinction directly affects suitability and best interest obligations.
Definitions
- A solicited order is one where the registered representative recommends the trade to the customer
- An unsolicited order is initiated entirely by the customer without a recommendation from the rep
Exam Tip: Gotchas
The trigger is who made the recommendation, not who placed the order. A rep who recommends buying XYZ creates a solicited order even if the customer hangs up, thinks it over, and calls back the next day to place the order themselves.
Why It Matters: Regulatory Obligations
| Aspect | Solicited Order | Unsolicited Order |
|---|---|---|
| Who initiated? | The rep recommended it | The customer requested it |
| Suitability obligation | Full suitability obligation applies | Reduced suitability obligation |
| Reg BI | Best interest standard applies for retail customers | Does not trigger Reg BI |
| Firm responsibility | Firm is directly responsible for the recommendation | Firm has less liability for the trade |
- The suitability rule requires that solicited recommendations be suitable for the customer based on their investment profile
- Regulation Best Interest (Reg BI) is the SEC's enhanced standard for broker-dealers making recommendations to retail customers; it requires acting in the customer's best interest
Think of it this way: The chain of responsibility flows naturally. A rep recommends a trade, so the order is solicited, which triggers suitability and Reg BI obligations. The order ticket is marked accordingly, and the firm bears responsibility for the recommendation.
Exam Tip: Gotchas
Solicited orders trigger both the suitability rule and SEC Reg BI for retail customers. Unsolicited orders do not trigger Reg BI.
Order Ticket Marking
Every order ticket must be marked as either solicited or unsolicited under FINRA's authorization records rule:
- The marking must accurately reflect who initiated the trade
- Mismarking an order ticket is a serious violation
- Reps sometimes improperly mark solicited trades as "unsolicited" to avoid suitability scrutiny; this is a regulatory violation
Exam Tip: Gotchas
Mismarking an order ticket is itself a violation, independent of whether the trade is suitable. The marking rule comes from FINRA's authorization records rule.
The Limits of "Unsolicited"
Even unsolicited orders have boundaries:
- A rep cannot hide behind "the customer asked for it" if the activity is obviously inappropriate
- Unsolicited orders must still be accepted in good faith
- If a pattern of unsolicited trades appears clearly unsuitable or indicative of manipulation, the rep has an obligation to flag it
Exam Tip: Gotchas
Even unsolicited orders must be flagged if they are clearly unsuitable or indicative of manipulation. A rep cannot simply claim the customer initiated the trade to avoid responsibility for obviously inappropriate activity.