fb-regbi-0001
{
"customer": "Retail customer of a broker-dealer",
"recommendation": "The associated person recommends a newly issued structured note tied to a custom equity index.",
"stipulated_facts": [
"Neither the associated person nor the firm has reviewed the note's structure, payoff formula, embedded costs, or risks.",
"The associated person cannot explain how the note's return is calculated.",
"The customer's investment profile is documented and was consulted.",
"Written disclosure of the relationship's scope, capacity, and fees was provided at the time of the recommendation."
]
}Do the stipulated facts establish that this recommendation violates the care obligation's reasonable-basis prong quoted in this item's sources? Answer with exactly one option id.
violates-care-reasonable-basis— Yes — the quoted reasonable-basis prong is violated on these factsprong-satisfied— No — the quoted reasonable-basis prong is satisfied on these facts
violates-care-reasonable-basis
The quoted prong requires the broker, in making the recommendation, to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs of the recommendation and to have a reasonable basis to believe it could be in the best interest of at least some retail customers. The stipulated facts state that neither the associated person nor the firm reviewed the note's structure, payoff formula, costs, or risks, and that the associated person cannot explain the return calculation. The understanding the prong requires is absent by stipulation, so the prong is violated. (Other obligations may also be implicated on these facts; this item asks only about the quoted prong.)
Answers yes: the quoted reasonable-basis prong is violated on the stipulated facts.
“Understand the potential risks, rewards, and costs associated with the recommendation, and have a reasonable basis to believe that the recommendation could be in the best interest of at least some retail customers”
Each quoted passage is exact-matched, after typographic normalization, against the corpus text fetched from the issuing authority (hashes in the corpus manifest). An item whose quote stops matching fails the build.
“Understand the potential risks, rewards, and costs associated with the recommendation, and have a reasonable basis to believe that the recommendation could be in the best interest of at least some retail customers” — sec-regbi
The key is correct. Initial logic and parameters are validated. The stipulated facts confirm the broker failed to understand the risks, rewards, and costs, directly violating the care obligation's reasonable-basis prong.
“Understand the potential risks, rewards, and costs associated with the recommendation, and have a reasonable basis to believe that the recommendation could be in the best interest of at least some retail customers” — sec-regbi
The stipulated facts state that neither the associated person nor the firm reviewed the note's structure, payoff formula, embedded costs, or risks, and that the associated person cannot explain how the note's return is calculated. Those facts directly negate the understanding required by the quoted reasonable-basis prong. Therefore the key's conclusion that the prong is violated is correct.
v1; no errata. Demonstrate a key error and the correction is published here, credited — challenge policy.