SIE Ready🚫 Prohibited Activities · Lesson 5 of 6 · 6 min
Selling Away, Breakpoints and Hot Issues
🧲 Some abuses don't look like fraud at all. They look like a favor, a side deal or a well-timed order.
💡 Key idea
Selling away, breakpoint sales, buying hot IPOs as a restricted person, backing away from quotes, late trading and recommending without a reasonable basis are all sales practice abuses.
🧠 Why it matters
SELLING AWAY is joining an outside securities deal without written notice to the firm (and, if paid, its approval); today that is FINRA Rule 3280, which new Rule 3290 replaces on Oct 25, 2027. BREAKPOINT SALES keep a fund purchase just under a sales-charge discount to earn more commission (Rule 2342). HOT ISSUES: under Rule 5130, restricted persons such as broker-dealer staff and certain family members may not buy new equity IPOs. BACKING AWAY is refusing to honor a firm quote (Rule 5220). LATE TRADING, entering fund orders after the pricing time at that day's price, is illegal under SEC Rule 22c-1; MARKET TIMING is abusive when it breaks the fund's stated policy. So are misstatements and baseless recommendations.
📈 In the real world
🎟️ A hot IPO prices tonight. Rep Kevin's wife asks him to get her 500 shares through a customer's account so 'no one notices.' Under Rule 5130 the immediate family of broker-dealer staff can be restricted persons, and parking the shares in a customer account adds fraud on top. He says no.
📌 Takeaways
- Selling away = outside securities deals without the firm's notice or approval
- Breakpoint sales: never steer purchases just below a discount level
- Restricted persons cannot buy new equity IPOs; late trading is illegal
📖 Terms in this lesson
Selling away: Taking part in securities transactions outside the firm without giving it the required written notice.
Breakpoint sale: Recommending a fund purchase just below a breakpoint so the customer pays a higher sales charge, prohibited by FINRA.
Late trading: Accepting mutual fund orders after the fund's pricing time but giving them that day's NAV, which is illegal.
✅ Test yourself
A customer wants to invest $48,000 in a fund whose sales charge drops at $50,000. The rep does not mention the breakpoint. What is this practice?
- Selling away
- Backing away
- A breakpoint sale
- Late trading
Answer: C · A breakpoint sale
Placing a purchase just below a sales-charge discount level to earn the higher charge is a breakpoint sale under Rule 2342. Backing away concerns firm quotes, selling away concerns outside deals and late trading concerns fund pricing times.
A rep helps a friend's start-up sell shares to several of his customers and is paid a fee, without telling his firm. What is the violation?
- Front running
- Marking the close
- Selling away
- Churning
Answer: C · Selling away
Participating in a private securities transaction outside the firm without written notice and approval is selling away. The other choices involve trading in customer or market orders.
A market maker publishes a firm quote of $20.05 to sell, then refuses to sell 100 shares at that price to another dealer. What is this called?
- Painting the tape
- Spoofing
- Late trading
- Backing away
Answer: D · Backing away
Failing to honor a firm quotation is backing away, prohibited by Rule 5220. Spoofing involves orders intended to be canceled, and late trading involves mutual fund pricing times.
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