Disclosure and Other Requirements When Extending or Arranging Credit in Certain Transactions
(1)It shall constitute a “Fraudulent, Deceptive, or Manipulative Act or Practice,” as used in these rules, for any broker-dealer to offer or sell any security to, or to attempt to induce the purchase of any security by, any person in connection with which such broker-dealer, directly or indirectly, offers to extend any credit to or to arrange any loan for such person, or extends any credit to or participates in arranging any loan for such person, unless such broker-dealer, before any purchase, loan or other related element of the transaction is entered into:
(a)Delivers to such person a written statement setting forth the exact nature and extent of:
(A)Such person’s obligations under the particular loan arrangement, including among other things, the specific charges which such person will incur under such loan in each period during which the loan may continue or be extended;
(B)The risks and disadvantages which such person will incur in the entire transaction, including the loan arrangement; and
(C)All commissions, discounts, and other remuneration received and to be received, in connection with the entire transaction, including the loan arrangement, by the broker-dealer, by any person controlling, controlled by, or under common control with the broker-dealer and by any other person participating in the transaction; and
(b)Obtains from such person information concerning his financial situation and needs, reasonably determines that the entire transaction, including the loan arrangement, is suitable for such person and delivers to such person a written statement setting forth the basis upon which the broker-dealer made such determination.
(2)This rule shall not apply to any credit extended or any loan arranged by any broker-dealer subject to the provisions of Regulation T (issued by the Board of Governors of the Federal Reserve System), if such credit is extended or such loan is arranged, in compliance with the requirements of such regulation, only for the purpose of purchasing or carrying the security offered or sold.
Rule 441-205-0080 — Disclosure and Other Requirements When Extending or Arranging Credit in Certain Transactions,