Written Notice Comes First

FINRA Rule 3280 requires an associated person to give prior written notice to their member firm before participating in any private securities transaction. The notice must describe the proposed transaction in detail, the person’s proposed role in it and whether they have received, or may receive, selling compensation.

If the person will be paid, the firm must respond in writing to approve or disapprove the participation. If the firm approves, it must record the transaction on its books and supervise it as if the firm itself had carried it out; if it disapproves, the person may not take part.

Participating without notice is known as selling away, one of the most serious violations a representative can commit. Our FINRA rules quick reference on supervision and financial rules places Rule 3280 among the supervision standards that appear on the exams.

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What Counts as a Private Securities Transaction

FINRA Rule 3280 defines a private securities transaction as any securities transaction outside the regular course or scope of the associated person’s employment with the firm. That includes new offerings of securities that are not registered with the SEC, such as private placements in a start-up or a real estate venture.

The rule applies when the associated person participates in the transaction in any manner. Recommending the investment, introducing investors, helping complete paperwork or receiving a fee for referrals can all count as participation.

Some activities fall outside the definition. Transactions in accounts the person holds at another firm, which are covered by separate rules, and transactions among immediate family members for which no compensation is received are excluded. The Securities Industry Essentials (SIE) Examination Preparation course at FRC covers these definitions as part of the conduct rules every candidate must know.

What the Written Notice Must Include

The notice goes to the member firm before the person participates, not afterwards. It must describe the transaction in detail, explain the role the person intends to play and state whether they have received or may receive selling compensation.

Selling compensation is defined broadly. It includes any compensation paid directly or indirectly from whatever source in connection with the purchase or sale of a security, such as commissions, finder’s fees, securities or rights to acquire securities, rights to participate in profits, tax benefits and expense reimbursements.

A detailed notice gives the firm what it needs to judge the risk. The Series 7 Exam Preparation course at FRC covers Rule 3280 in depth, because representatives regularly hear about outside investment opportunities from friends, clients and contacts.

What Happens After the Notice

When Compensation Is Involved

Paid participation triggers the strictest requirements. The firm must decide in writing whether to approve, and approval comes with real obligations for the firm.

An approved transaction must be recorded on the firm’s books and records, and the firm must supervise the person’s participation as if the transaction were executed on its behalf. That means the firm takes responsibility for suitability, disclosure and other duties connected with the sale.

Worked example: a representative is asked to help a friend’s start-up raise $500,000 from investors and is offered a 5 percent finder’s fee. Step one: 5 percent of $500,000 is $25,000, which is selling compensation. Step two: the representative must give prior written notice, and the firm must approve or disapprove in writing. Step three: if approved, the firm records the sales and supervises them as its own.

When No Compensation Is Involved

If the associated person will not receive any selling compensation, the requirements are lighter but still apply. The person must still give prior written notice, and the firm must provide written acknowledgment.

The firm may also require the person to adhere to specified conditions while participating. A firm might, for example, require that no firm customers be solicited or that the person avoid any role in handling investor money.

Worked example: step one, a representative introduces a former colleague to the founder of a private company raising capital and offers to help explain the offering to two potential investors, without being paid. Step two, this is participation in a private securities transaction, so the representative gives prior written notice. Step three, the firm acknowledges the notice in writing and attaches conditions, such as no involvement with firm customers.

Study Conduct Rules With FRC

Questions on this rule usually test what the associated person must do before participating, how the firm’s obligations change when compensation is involved and what selling away means. Our SIE and Series 7 courses work through each scenario with exam-style examples.

Consider studying with FRC for every exam on your route. Explore our USA exam courses, from the SIE through the Series 7, Series 63 and Series 65.

To take advantage of the membership, explore FRC Professional Membership, which gives you a verified Digital Profile that shows employers your real-time course progress, together with the Video Resume. Current offers are on our membership deals page.

Why Selling Away Is Treated So Seriously

Selling away means participating in a private securities transaction without giving the firm the required notice. Because the firm does not know about the transaction, it cannot supervise it, and customers lose the protection that supervision provides.

Many selling-away cases involve investments that later fail or turn out to be fraudulent. Customers who believed they were buying an investment endorsed by their representative’s firm may discover the firm never knew about it, which can make recovering losses much harder.

FINRA treats selling away as a serious violation, often resulting in suspensions or bars from the industry. It is also typically charged as a violation of the commercial honor standard, as our comparison of FINRA Rule 2010 vs Rule 2020 explains.

Rule 3280 and Outside Business Activities

Rule 3280 has a companion: FINRA Rule 3270, which covers outside business activities. Rule 3270 requires prior written notice to the firm before a registered person takes part in business activities outside their relationship with the firm, such as being employed by or receiving compensation from another business.

The difference lies in the subject. Rule 3270 covers outside business activities generally, while Rule 3280 covers participation in securities transactions outside the firm, with stricter approval and supervision requirements when compensation is involved.

Some situations involve both rules. A representative who becomes a paid director of a start-up and helps it raise money from investors is engaged in an outside business activity and is participating in private securities transactions. FINRA has also proposed consolidating the two rules into a single outside activities rule, so representatives check the current rulebook and their firm’s policies.

What Participation Looks Like in Practice

Participation is interpreted broadly, so representatives cannot avoid the rule by keeping their role small. Introducing a contact to an issuer, forwarding offering materials, hosting a meeting where an investment is pitched or helping an investor complete subscription documents can each amount to participating.

Worked example: step one, a representative mentions a friend’s private real estate fund to three clients over lunch and passes on the friend’s contact details. Step two, two of the clients invest $50,000 each, a total of $100,000. Step three, even though the representative never handled any money, the introductions were participation in a private securities transaction, so prior written notice was required before the conversations took place.

The safest assumption is that any involvement in helping someone buy or sell a security outside the firm needs notice. If there is doubt, the representative asks compliance first, because a short email before acting costs nothing.

Why Private Offerings Carry Extra Risk

Private placements are exempt from SEC registration, which means investors do not receive the same level of disclosure as they would with a registered public offering. The securities are often difficult to sell, and information about the issuer may be limited.

Those features make supervision especially important. When a firm approves and supervises a paid private securities transaction, it reviews the offering, considers whether it suits each investor and keeps records, protections that disappear when a representative sells away.

Customers often assume that anything their representative recommends has been vetted by the firm. Rule 3280 makes sure that assumption holds by bringing outside deals into the firm’s view before anyone invests.

What Firms Do to Prevent Selling Away

Firms require associated persons to disclose outside activities and private investments through regular questionnaires and attestations. Many also review email, social media and other communications for signs of undisclosed deals.

Supervisors watch for warning signs. Customers withdrawing large sums for unexplained purposes, representatives promoting investments the firm does not offer or unusual payments into a representative’s accounts can all point to selling away.

Firms that ignore these signs can face their own supervisory violations. Supervision of outside activity is part of a firm’s duty to oversee its people, not just the trades that pass through its systems.

Training is the other half of prevention. Firms remind representatives regularly that even unpaid help with an outside offering needs notice, because many selling-away cases begin with a representative who simply did not realize a casual favor counted as participation.

How the Rule Protects Representatives Too

Rule 3280 is often seen as a restriction, but it also protects the people who follow it. A representative who gives notice and receives written approval has a clear record showing the firm knew about and accepted their role.

If the investment later performs badly, that record matters. The firm’s supervision and the documented approval show the representative acted openly, rather than hiding an outside deal from the firm and its customers.

Without notice, a representative carries the full risk alone. Customers who lose money in an undisclosed deal may bring complaints and arbitration claims, and the representative’s registration, reputation and career can all be at stake. A single written notice is a small price for that protection.

Practical Steps Before Any Outside Deal

A representative approached about a private investment should pause before doing anything. Even a casual introduction or a conversation explaining the opportunity to a contact can amount to participation.

The safest step is to put the proposal in writing to the firm’s compliance department, describing the deal, the role being considered and any possible compensation. Waiting for the firm’s written response before acting protects both the representative and the people they are dealing with.

Documentation matters. Keeping copies of the notice, the firm’s approval, acknowledgment or disapproval and any conditions imposed shows the rule was followed if questions arise later.

The Memory Aid

Remember “write first, act later”: prior written notice comes before any participation in a private securities transaction.

For compensation, remember “paid means approve, record and supervise”: the firm must approve or disapprove in writing, and if it approves, it records and supervises the transaction as its own.

For no compensation, remember “unpaid means acknowledge”: the firm acknowledges in writing and may impose conditions.

Exam Traps to Avoid

The first trap is assuming notice can be given after the transaction. Rule 3280 requires prior written notice.

The second trap is assuming the rule only applies when the person is paid. It applies with or without compensation, but the firm’s obligations differ.

The third trap is confusing Rule 3280 with Rule 3270. Rule 3270 covers outside business activities, while Rule 3280 covers private securities transactions. The fourth trap is forgetting that an approved paid transaction must be recorded on the firm’s books and supervised as if the firm executed it.

A Client Scenario

A representative’s long-time client owns a growing restaurant group and asks him to help find investors for a new location, offering a share of the profits in return. Several of the representative’s other clients have money to invest and might be interested.

The representative recognizes that a share of profits is selling compensation and that introducing investors would be participation in a private securities transaction. He sends written notice to his firm’s compliance department, describing the offering, his proposed role and the profit share.

The firm reviews the proposal and disapproves his participation, citing the risk of soliciting firm customers for an outside venture. The representative declines the client’s offer, keeps a copy of the firm’s written response and avoids a selling-away violation.

The Dictionary as a Video Library

The FRC dictionary is a study tool, not just a glossary. Every entry pairs a written explanation with deep-dive video, on-page quizzes and interactive flash cards, so you can read a concept, watch it explained and test yourself in one place.

Rules are covered in the same depth: open a rule and you will find the full explanation alongside video walk-throughs of how it applies in practice. Open the FINRA Rule 3280 entry to see the notice and approval steps explained on video and test yourself with the quizzes.

Practice Questions to Test Yourself

Question one: What must an associated person do before participating in a private securities transaction? Give prior written notice to their member firm.

Question two: If the person will receive selling compensation, what must the firm do? Approve or disapprove in writing, and if it approves, record and supervise the transaction as its own.

Question three: If no selling compensation is involved, what must the firm do? Provide written acknowledgment, and it may impose conditions.

Question four: What is the term for participating in a private securities transaction without notifying the firm? Selling away.

Question five: Which rule covers outside business activities generally? FINRA Rule 3270.

Turn Rule Knowledge Into Career Evidence

Firms need representatives who know when to stop and ask compliance before acting, and understanding Rule 3280 is a clear sign of that judgment. FRC’s Digital Profile shows employers the courses you are actively studying and the progress you have earned through assessed learning, verified by FRC, and a QR code on your resume takes them straight to it.

The FRC Video Resume lets a hiring manager hear you before the interview. Explaining how you would handle a client’s request to help raise money for their business shows the compliance awareness broker-dealers look for.

Related Questions

Compensation conflicts also shape how firms sell registered funds, as our comparison of FINRA Rule 2341 vs Rule 2342 explains.

Key Points to Retain

FINRA Rule 3280 requires an associated person to give prior written notice to their firm before participating in any private securities transaction, describing the transaction, their role and any selling compensation. If compensation is involved, the firm must approve or disapprove in writing and, if it approves, record and supervise the transaction as its own; if not, the firm must acknowledge the notice in writing and may impose conditions.

Participating without notice is selling away, a serious violation often leading to suspensions or bars. Rule 3270 separately covers outside business activities, and some situations require compliance with both rules.

Before you can sit the Series 7 and take on these responsibilities, there is one exam anyone can take first, covered in our guide to whether you need sponsorship to take the SIE.