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Question

Difficulty: MediumGifts, Gratuities, Political Contributions, and Outside Business Activities

Under FINRA Rule 3270, a registered representative who purchases a limited partnership interest strictly as a passive investment is required to provide prior written notification to their employing broker-dealer.

Answer: Answer

Answer

The statement is False. Passive investments are explicitly exempt from the prior written notification requirement under FINRA Rule 3270.
The statement is false because FINRA Rule 3270 explicitly excludes passive investments from the requirement of providing prior written notice to the employing broker-dealer. A registered representative who holds a limited partnership interest strictly as an investor without performing management duties or receiving service compensation is engaging in a passive investment.

Step-by-Step Solution

1
Identify the applicable regulatory standard for outside activities.
FINRA Rule 3270 governs Outside Business Activities (OBA) for registered representatives.
Rule 3270 mandates prompt prior written notice to the member firm before engaging in compensated outside business activities.
2
Analyze the distinction between active business involvement and passive investment.
Purchasing a limited partnership interest where the representative acts solely as a passive investor does not constitute active employment or compensated business activity.
Passive investments are specifically excluded from the scope of Rule 3270.
3
Determine the required compliance action.
Because passive investments are exempt, no prior written notice to the broker-dealer is required.
The statement incorrectly asserts that prior written notice is required for a passive investment.

Key Concept

Passive Investment Exemption under FINRA Rule 3270 (Outside Business Activities)
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Topics

Gifts, Gratuities, Political Contributions, and Outside Business Activities