Series 7: 2.14.2.3. Customer Suitability And Public Communications

2.14.2.3. Customer Suitability and Public Communications

In light of a CMO’s complexity and the variety of its risk characteristics, FINRA expects broker-dealers and their representatives to be knowledgeable about CMOs so they can adequately assess whether they are suitable investments for their customers. A member firm must have reasonable grounds to believe that the CMO would be suitable for customers in general by doing due diligence on the issuer and by investigating the structure of the CMO. It must also make sure that the CMO is suitable for a particular individual customer based on the customer’s investment profile. This information includes the customer’s age, financial situation and needs, investment objectives, liquidity needs, and risk tolerance.

A member firm is also required to make sure that its customers adequately understand the CMO’s characteristics and risks. Before it sells a CMO to