Gifts and Gratuities

Gifts and Gratuities
FINRA does not allow member firms and their associated persons to buy influence at other firms with gifts of cash or gifts with resale value over a certain amount. Currently the amount is $100 but is expected to rise to $175 in the near future. Why would someone at your firm want to give someone at another firm a $1,000 set
of titanium golf clubs? Maybe your firm would like to start getting invited to join certain municipal securities underwritings that they run as syndicate manager. Or, maybe your firm would just like the other firm to start throwing some of the smaller accounts they don't want your way? Maybe a case of expensive scotch would do the trick?
While gifts and business entertainment are not completely prohibited, we are now entering a gray area that can either be considered normal business expenses or a violation of FINRA rules on influencing or rewarding the employees of other mem¬ber firms.
Here is how FINRA states the rule:
•    • • • • • • • • • • • • •
•    No member or person associated with a member shall, directly or •
•    indirectly; give or permit to be given anything of value, including • gratuities, in excess of one hundred dollars per individual per
•    year to any person, principal, proprietor, employey agent or repre- •
•    sentative of another person where such payment or gratui0 is in    •
relation to the business of the employer of the recipient of the pay-
•    meat or gratuity. Agift of any kind is considered a gratuiy.    •
•    • • • • • • • • • • • • •
FINRA then makes it clear that what they are prohibiting here is more along the lines of a $1,000 set of golf clubs, as opposed to legitimate contracts of employment where one member employs another member's employee for legitimate purposes. As the rule then states:
•    • • • • • • • • • • • • •
•    This Rule shall not apply to contracts of employment with or    •
•    to compensation for services rendered provided that there is in    •
existence prior to the time of employment or before the services are
•    rendered a written agreement between the member and the person •
•    who is to be employed to perform such services. Such agreement    •
•    shall include the nature of the proposed employment, the amount •
of the proposed compensation, and the written consent of such
•    person's employer or principal.    •
•    • • • • • • • • • • • • •
As with most sensitive issues, FINRA requires records surrounding these activities to be kept:
• • • • • • • • • • • • • •
•    A separate record of all payments or gratuities in any amount    •
•    known to the member, the employment agreement referred to in    •
paragraph (b) and any employment compensation paid as a result
•    •thereof shall be retained by the member for the period specified by •
•    SEA Rule 17a-4.    •
•    • • • • • • • • • • • • •
Note that "SEA' means "Securities Exchange Act of 1934" and "SEA Rule 17a-4" would be that SEC Rule promulgated under the Securities Exchange Act of 1934.


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