Question

Difficulty: MediumAccount Statements, Privacy Protection, and Regulation S-P

Under SEC Regulation S-P, a broker-dealer must provide a retail customer with an opportunity to opt out before disclosing the customer's nonpublic personal information to a nonaffiliated clearing firm for the sole purpose of clearing and settling transactions authorized by the customer.

Answer: Answer

Answer

The statement is False.

Under Regulation S-P, disclosures made to nonaffiliated third parties to effect, administer, or enforce transactions requested or authorized by the customer are legally exempt from opt-out rules. Because clearing and settling trades ordered by the customer falls directly under this transaction execution exception, the broker-dealer is not required to provide an opt-out opportunity prior to sharing this necessary information.

Step-by-Step Solution

1

Identify the general rule regarding Regulation S-P information sharing with nonaffiliated third parties.

Broker-dealers must generally provide customers with notice and a reasonable opportunity to opt out before disclosing nonpublic personal information to nonaffiliated third parties.

Regulation S-P protects consumer financial privacy rights.

2

Evaluate statutory exceptions to the Regulation S-P opt-out mandate.

Disclosures required to service accounts, process transactions, or execute operations requested by the customer (such as clearing and settlement via a nonaffiliated clearing broker) are exempt from opt-out requirements.

Operational necessity requires firms to share essential trade data to fulfill the customer's order instructions.

Key Concept

Exceptions to Regulation S-P Opt-Out Requirements for Essential Transaction Processing

Estimated Time:1m 0s

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Topics

Account Statements, Privacy Protection, and Regulation S-P