fb-regbi-0015
{
"person": "Retail customer of a broker-dealer",
"facts": "For the month of March, the firm runs a sales contest: the three representatives who sell the most shares of a specific proprietary closed-end fund win a resort trip. The contest is described plainly and fully in the firm's written disclosures, which every retail customer receives before any recommendation. A representative, motivated by the contest, recommends the fund to a retail customer for whom it is otherwise plausibly suitable.",
"question_context": "The firm's compliance manual reasons that because the contest is fully disclosed, the conflict-of-interest obligation is satisfied."
}Judged only against the quoted provisions of Regulation Best Interest, is the firm's arrangement consistent with the conflict-of-interest obligation? Answer with exactly one option id.
violates-conflict-elimination— No — sales contests based on specific securities within a limited period must be eliminated; disclosure cannot cure themconsistent— Yes — a fully disclosed conflict satisfies the obligationviolates-disclosure— No — but only because the disclosure was insufficiently prominent
violates-conflict-elimination
17 CFR 240.15l-1(a)(2)(iii)(D) requires the broker-dealer's policies and procedures to identify and eliminate sales contests based on the sales of specific securities within a limited period of time. Elimination is the only treatment the rule permits for this category of conflict — unlike other conflicts, which may be disclosed or mitigated. A fully disclosed month-long contest on one specific fund is therefore exactly what the provision forbids.
Selects violates-conflict-elimination, citing (a)(2)(iii)(D)'s elimination requirement.
“Identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific securities or specific types of securities within a limited period of time.”
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.
“Identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific securities or specific types of securities within a limited period of time.” — sec-regbi
The arrangement is a sales contest based on sales of a specific security—the proprietary closed-end fund—during a limited period, March. Paragraph (a)(2)(iii)(D) expressly requires such contests to be identified and eliminated, not merely disclosed. The key and its derivation are therefore correct.
“Identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific securities or specific types of securities within a limited period of time.” — sec-regbi
The stipulated contest is a sales contest (with non-cash compensation) based on sales of one specific security during a limited period (March). Paragraph (a)(2)(iii)(D) of the quoted rule requires policies reasonably designed to identify and eliminate that category of practice; unlike (A) or (B), it does not permit disclosure or mitigation as a substitute. The firm's disclosed contest and its compliance-manual reasoning that disclosure satisfies the conflict-of-interest obligation are therefore inconsistent with (D). The keyed option and derivation match the text.
v1; no errata. Demonstrate a key error and the correction is published here, credited — challenge policy.