I own a small brokerage firm and had an idea for an arrangement between my firm and a customer whereby the customer would open an account with us and deposit funds into that account. We would permit the customer to use the firm's trading platform at a discount and would provide the customer with a discount on all transactional fees and charges. In exchange the firm would share in a percentage of profits generated in the account but not in the losses. Would this be permissible?

-R.J, California

FINRA addressed this exact issue in a February 2004 Interpretive letter. In that Interpretive Letter, FINRA cited NASD Rule 2330(f)(1)(A) which prohibits members, and individuals associated with members, from sharing in the profits or losses in a customer's account except under certain limited conditions. Rule 2330(f)(1)(A) permits a member to share in the profits or losses in a customer's account only to the extent that the member obtains the customer's prior written authorization and shares in the profits or losses in the account in direct proportion to the financial contributions made to the account by the member. This exception to the general prohibition requires that the member directly contribute financially to, or invest in, the account.

The arrangement described would not be considered a direct financial contribution. Additionally, the exception also requires that the member share in both the profits and losses of the account in direct proportion to the financial contribution. Since the arrangement you described does not include a proportionate sharing of the losses, it would likely not meet the condition set forth in Rule 2330(f)(1)(A)(iii).

One of my firm's customers is a small local bank. Recently I applied for a mortgage from the bank and one of the other reps in the office said I might be violating the rule against borrowing money from a customer. That seems ridiculous to me since the customer is a bank and I thought the rule only applied to individual customers. Can you clarify this?

-F.T, Boston

The idea that you might be violating Rule 2370 is not quite as crazy as it first sounds. The rule does apply to all customers, regardless of whether or not they are individuals. However, because the potential for misconduct is much less when registered individuals borrow from banks, getting a mortgage from a bank that also happens to be a customer of the firm should not be a problem as long as the terms of the lending arrangement are the same as those available to the general public.

FINRA has indicated that the requirements of Rule 2370 can be satisfied in such cases if the brokerage firm has written procedures in place indicating that: 1) the member approves in advance all lending arrangements between registered individuals and banks as long as the terms of the arrangement are the same as those available to the general public; and 2) the registered person gives prompt written notice to the member of the lending arrangement after he has entered into the arrangement. If the lending arrangement is on terms that are not available to the general public, you would have to give notice to your firm and get approval prior to the transaction.

My prior employer has filed an arbitration claim against me for a promissory note I signed when I was hired that gave me some advance compensation. My attorney told me the arbitration panel will consist of three arbitrators from the industry. I think industry arbitrators will be biased against me, especially if they're "management types." Is there any way I can get a non-industry arbitrator on the panel?

-M.A., Michigan

It depends on when the firm filed the arbitration. For employment disputes between firms and associated individuals that were filed prior to Aug. 31, 2009 relating exclusively to employment contracts, promissory notes or receipts of commissions, the arbitration rules required an all-industry panel. Cases involving other types of claims (for example, a discrimination claim) required a panel consisting of a majority of non-industry arbitrators.

However, in Notice to Members 09-43, FINRA amended the rules to now require a majority public panel for all industry disputes involving associated individuals. It should also be noted that in Notice to Members 09-48, FINRA announced that, for claims filed after Sept. 14, 2009 it will begin expediting the administration of cases that only involve a brokerage firm's claim that an associated person failed to pay money owed on a promissory note.