Quick Answer
Registered persons must give their firm written notice before working for or being paid by anyone outside the firm, an outside business activity; firms may approve, restrict, or prohibit it. Securities deals done away from the firm ("selling away") also require notice; with compensation, the firm must approve or disapprove in writing. Skipping notice is itself a violation.
Securities professionals sometimes conduct business outside their firm, whether non-securities business activities or securities transactions done away from the firm. FINRA has specific rules governing both situations.
Outside Business Activities (OBAs)
- Registered persons must provide written notice to their firm BEFORE engaging in an outside business activity
- An activity outside the scope of the person's relationship with the firm is an OBA when the person:
- Is an employee, independent contractor, sole proprietor, officer, director, or partner of another person or business, or
- Is compensated, or reasonably expects compensation, from anyone else for the activity
- The firm can then approve, restrict, or prohibit the activity
- Passive investments, such as owning stocks or rental property, are exempt
Examples of Outside Business Activities
- Working as a real estate agent
- Serving on a corporate board of directors
- Running a paid side business, such as consulting or coaching for a fee
- Driving part time for a rideshare company (paid independent contractor work)
- Teaching at a university
Think of it this way: If you work at a securities firm and want to moonlight as a real estate agent on weekends, your firm needs to know. The firm may worry that your side job creates conflicts of interest or takes time away from your duties. That is why prior written notice is required.
Exam Tip: Gotchas
- Written notice must come BEFORE the activity begins, not after. The exam tests timing. Notifying the firm after you have already started the activity is a violation.
- Unpaid volunteering in no covered role is not an OBA. Coaching a youth soccer team for free involves no pay and no employee, contractor, officer, director, or partner role, so no notice is required. An unpaid officer, director, or partner seat is different: the role alone requires prior written notice. Paid gig work, such as driving for a rideshare company on weekends, is an OBA and needs prior written notice.
Private Securities Transactions: "Selling Away"
- Associated persons must provide written notice to their firm BEFORE participating in any private securities transaction
- The notice must describe the proposed transaction and the person's role in it, and state whether the person has received or may receive selling compensation
- A private securities transaction is any securities transaction outside the regular course of the person's employment with the firm
The Compensation Distinction
| Scenario | Firm's Obligation |
|---|---|
| Compensation received (or expected) | The firm must tell the person in writing whether it approves or disapproves. If it approves, it records the transaction on its books and supervises it as if done through the firm. If it disapproves, the person may not participate |
| No compensation | The firm must acknowledge the written notice (but does not need to supervise) |
Exam Tip: Gotchas
- If compensation is involved, simple acknowledgment is NOT enough. The firm must decide in writing whether to approve and, if it approves, record and supervise the transaction. The exam frequently tests whether students know the difference between the "compensation" and "no compensation" paths.
What Is "Selling Away"?
- Selling away is conducting private securities transactions away from the firm without giving it prior written notice, or, when compensated, without its approval
- Even if the investment is legitimate and profitable for the customer, failing to notify the firm is itself a violation
- Selling away exposes customers to unsupervised transactions with no firm oversight or investor protections
Think of it this way: A broker tells a client about a "great investment" in a friend's startup and helps the client buy shares, all without telling the firm. Even if the startup succeeds and the client makes money, the broker violated FINRA rules by not notifying the firm. The violation is the lack of notice, not the outcome.
The Key Difference: OBAs vs. Private Securities Transactions
| Activity | Covers | Key Requirement |
|---|---|---|
| Outside Business Activity (OBA) | Outside business activities (non-securities) | Written notice to firm |
| Private Securities Transaction | Private securities transactions | Written notice to firm; if compensation involved, firm approves or disapproves in writing and supervises what it approves |
- The critical distinction: a private securities transaction involves securities specifically, while an OBA covers any other business activity
- Both require prior written notice, but private securities transactions have the additional supervision requirement when compensation is involved
Exam Tip: Gotchas
- OBAs (outside business activities) do NOT require firm supervision, only notice. Private securities transactions require supervision when compensation is involved. The exam tests whether you know which activity triggers the supervision requirement.
- A broker who "participates" in a private securities transaction without firm notice is selling away, even if no commission is earned. The question is whether the broker played a role in the transaction, not whether money changed hands.
- The consequences of selling away are severe. They include a fine, suspension, or industry bar.
What Should You Check on Exam Day?
- Can you explain what makes an activity an OBA (pay, or a role such as employee, contractor, officer, director, or partner even when unpaid) and why notice must come before it begins?
- Do you know what a selling-away notice must contain, and when the firm must approve or disapprove in writing rather than just acknowledge it?
- Can you explain what makes a transaction "selling away"?
- Do you know why selling away is a violation even if the investment makes the customer money?
- Can you state the difference between an outside business activity and a private securities transaction?