SERIES 7 | SERIES 65 | FINANCIAL REGULATION COURSES
FINRA Rule 3280 — Private Securities Transactions of an Associated Person — prohibits any person associated with a FINRA member firm from participating in any manner in a private securities transaction — any securities transaction outside the regular course or scope of the associated person's employment with the member firm — without first providing prior written notice to the member firm describing in detail the proposed transaction and the associated person's proposed role, and stating whether the associated person has received or may receive selling compensation in connection with the transaction, and then complying with the member firm's response to that notice before any participation in the transaction occurs.
Rule 3280 is the primary regulatory barrier against the practice commonly known as selling away — the practice of associated persons selling or recommending securities investments to customers or other investors through channels outside the member firm's platform and supervision, typically without the firm's knowledge, without the firm's required suitability review, without the anti-fraud protections applicable to registered securities offerings, and without the customer protection mechanisms that the FINRA regulatory framework is designed to provide. Selling away is among the most serious and most frequently encountered forms of misconduct in the securities industry — generating enormous investor harm, significant regulatory sanctions against both the individuals involved and the firms that failed to detect and prevent it, and reputational damage that can threaten the viability of member firms.
The critical distinction between Rule 3280 and Rule 3270 — the two companion rules governing outside activities that FINRA has proposed to consolidate into a single Rule 3290 — is that Rule 3270 applies only to registered persons and covers business activities of any kind that produce compensation, while Rule 3280 applies to all associated persons — registered and non-registered — but only with respect to securities transactions outside the regular course of employment.
What Constitutes a Private Securities Transaction
Rule 3280 defines a private securities transaction as any securities transaction outside the regular course or scope of an associated person's employment with the member firm.
The most common form of private securities transaction — and the most commonly prosecuted form of selling away — is the private placement or investment offering that an associated person sells to customers or other investors without routing the transaction through the member firm's platform. A registered representative who recommends that customers invest in a private real estate limited partnership, a startup company's private offering, a promissory note from a private issuer, or any other investment not offered through the member firm's approved product list is participating in a private securities transaction subject to Rule 3280's requirements — regardless of whether the investment involves a security registered under the Securities Act of 1933 or one exempt from registration under Regulation D or another exemption.
The definition is intentionally broad — any securities transaction that does not go through the member firm's books and records in the ordinary course of the associated person's employment is a private securities transaction requiring Rule 3280 compliance. The associated person who introduces a customer to an investment opportunity and receives a finder's fee is participating in a private securities transaction. The associated person who acts as a portfolio manager for a privately managed account at another institution is participating in private securities transactions. The associated person who recommends securities through a personal website, social media platform, or other channel not under the member firm's supervision is participating in private securities transactions.
The Prior Written Notice Requirement
Before participating in any private securities transaction an associated person must provide prior written notice to their member firm describing in detail the proposed transaction and their proposed role in it — and must state whether they have received or may receive selling compensation in connection with the transaction.
The prior written notice must be provided before the associated person begins any participation in the transaction — not after the transaction has been introduced to investors, not after customers have been solicited, and not after any commitment has been made. The pre-participation timing requirement ensures that the member firm has a genuine opportunity to evaluate the transaction and the associated person's role before that role creates compliance obligations, potential liability, and customer protection concerns.
The notice must describe the proposed transaction in detail — including the nature of the investment, the identity of the issuer, the terms of the offering, the compensation structure, and any other material information about the transaction that would enable the member firm to assess its compliance implications. A vague or incomplete notice that does not provide sufficient detail for the firm to evaluate the transaction is not a compliant notice — and an associated person who provides inadequate notice and then participates in the transaction has not satisfied Rule 3280's requirements.
The notice must state whether the associated person has received or may receive selling compensation — any compensation paid in connection with the transaction including commissions, finder's fees, referral fees, profit participations, or any other form of economic benefit received in connection with the associated person's role in the transaction. The selling compensation disclosure is critical because it determines which of Rule 3280's two response frameworks applies — the more demanding framework requiring firm approval for compensated transactions or the acknowledgment framework for uncompensated transactions.
For a series of related transactions in which no selling compensation has been or will be received an associated person may provide a single written notice rather than separate notices for each transaction — recognising the practical burden of requiring individual notice for each transaction in an ongoing series of uncompensated private investment activities.
The Firm's Response — Two Frameworks Based on Selling Compensation
Rule 3280 establishes two distinct response frameworks depending on whether the private securities transaction involves selling compensation — reflecting the more significant compliance implications and investor protection concerns that compensated selling away creates.
When an associated person has received or may receive selling compensation in connection with the proposed transaction the member firm must advise the associated person in writing whether the firm approves or disapproves the associated person's participation. This approval or disapproval requirement is mandatory — the firm cannot simply acknowledge the notice and take no position when selling compensation is involved.
If the member firm approves the associated person's participation in a compensated transaction the transaction must be recorded on the books and records of the member firm and the firm must supervise the associated person's participation in the transaction as if the transaction were executed on behalf of the firm. This recording and supervision requirement is the most consequential aspect of Rule 3280 — it transforms the outside private transaction into a transaction that is treated for supervisory purposes as if it were part of the firm's regular business. The same suitability analysis, disclosure requirements, and supervisory oversight that apply to the firm's regular securities transactions must be applied to the approved private transaction.
If the member firm disapproves the associated person's participation in a compensated transaction the associated person may not participate in the transaction in any manner — directly or indirectly. The disapproval is absolute — the associated person cannot attempt to participate through intermediaries, cannot provide informal advice about the transaction to potential investors, and cannot receive any benefit from the transaction through indirect means. A disapproval is a categorical prohibition on participation.
When an associated person has not received and will not receive any selling compensation the member firm must provide prompt written acknowledgment of the notice and may at its discretion impose conditions on the associated person's participation. For uncompensated transactions the firm's acknowledgment satisfies the response obligation — the firm is not required to approve or disapprove — but the firm retains the ability to impose conditions that manage any compliance risks the uncompensated activity creates.
Selling Away — The Violation Rule 3280 Prevents
The practice of selling away — participating in private securities transactions without complying with Rule 3280's notice, approval, and supervision requirements — is among the most serious and most investor-harmful forms of misconduct in the securities industry.
Selling away typically occurs when a registered representative introduces customers to investment opportunities that are not approved by their member firm — often because the opportunities do not meet the firm's due diligence standards, do not qualify for inclusion on the firm's approved product list, or involve compensation arrangements that would not be permissible within the firm's platform. By conducting these transactions away from the firm's supervision the representative deprives customers of the suitability review, disclosure requirements, and supervisory oversight that the FINRA regulatory framework requires — and deprives the firm of the ability to detect and prevent the harm that unsuitable or fraudulent outside investments can cause.
The most damaging forms of selling away involve Ponzi schemes and fraudulent investment offerings — where a registered representative exploits the trust that customers place in them based on their professional credentials and securities industry affiliation to solicit investments in fraudulent schemes that are never disclosed to or supervised by the firm. Customers who invest based on their trust in the registered representative often suffer total loss of their invested capital — and have no recourse against the member firm unless the firm failed to detect and prevent the selling away through adequate supervisory procedures.
Member firms that fail to establish adequate supervisory systems to detect selling away — through customer complaint monitoring, account statement review, internet and social media surveillance, and periodic registered person questionnaires about outside activities — may themselves face FINRA disciplinary action for supervision failures under Rule 3110 in addition to any discipline imposed on the individual registered persons involved in the selling away.
Connection to Form U4 Disclosure
Private securities transactions that involve selling compensation — if approved by the member firm and recorded on its books — must be disclosed on the registered person's Form U4 through the applicable outside business activity disclosure questions. The Form U4 disclosure ensures that the associated person's regulatory record reflects their involvement in approved outside securities activities — giving regulators, future employers, and investors through BrokerCheck access to information about the full scope of the registered person's securities activities.
Unapproved private securities transactions — selling away in violation of Rule 3280 — may generate customer complaints, arbitration proceedings, and regulatory actions that must be disclosed on Form U4 as those matters develop — creating a regulatory record of the associated person's misconduct that follows them throughout their career in the securities industry.
Examination Relevance and Key Takeaways
FINRA Rule 3280 is tested on the Series 7 and Series 65 examinations in the context of private securities transactions, selling away, the prior written notice requirement, and the different response frameworks for compensated and uncompensated outside transactions.
The key points to retain are these.
FINRA Rule 3280 — Private Securities Transactions of an Associated Person — prohibits all associated persons — registered and non-registered — from participating in any private securities transaction without first providing prior written notice to the member firm describing the transaction and their role, and stating whether selling compensation is involved. The notice must be prior — before any participation in the transaction begins.
For transactions involving selling compensation the firm must approve or disapprove in writing — if approved the transaction is recorded on the firm's books and supervised as if executed on behalf of the firm, if disapproved the associated person may not participate in any manner. For transactions not involving selling compensation the firm must provide prompt written acknowledgment and may impose conditions. The practice of participating in private securities transactions without the required notice and firm response is selling away — among the most serious and most investor-harmful forms of misconduct in the securities industry.
Rule 3280 applies to all associated persons — not only registered persons — covering any securities transaction outside the regular course or scope of employment. A series of related uncompensated transactions may be covered by a single notice. Rule 3280 works alongside Rule 3270 — Rule 3270 covers business activities generally for registered persons, Rule 3280 covers securities transactions specifically for all associated persons. FINRA proposed Rule 3290 in March 2025 to consolidate Rules 3270 and 3280 — both rules remain in full force as of the date of this entry.
