Selling Away

Selling away is a broker's sale of a security to a customer outside the regular business of the brokerage firm the broker is registered with, without first giving the firm written notice and getting its approval. It is industry and regulatory vocabulary rather than a rule's name: a 2001 NASD notice titled "Selling Away and Outside Business Activities" describes "a registered person who sells a security away from his or her firm without first obtaining written approval from the firm." The rule it breaks today is FINRA Rule 3280, which governs what FINRA calls "private securities transactions."

What the rule requires. FINRA Rule 3280 bars a person associated with a member firm from participating "in any manner in a private securities transaction" except as the rule allows. Before taking part, the representative must give the firm written notice describing the transaction, the representative's role, and whether selling compensation will be paid. If the representative will be paid, the firm must approve or disapprove in writing. An approved transaction must be "recorded on the books and records of the member," and the firm must supervise it "as if the transaction were executed on behalf of the member"; a disapproved one may not happen at all. The rule defines a private securities transaction as "any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission," with narrow exclusions.

Selling away and a private securities transaction are not the same thing. A private securities transaction done with notice and the firm's approval is permitted and supervised. Selling away is the version that skips that step, so the firm has not reviewed the investment, is not supervising the sale and may not even know it happened.

Why investors end up holding these products. NASD's 2001 notice described issuers and promoters targeting registered representatives to sell short-term promissory notes, "marketing them to registered persons as nonsecurities products that do not have to be sold through a broker/dealer." Many such notes are securities, and when they are sold without registration and outside the firm, the investor may have neither the disclosure registration would require nor a firm that vetted the deal.

A rule change is approved but not yet in effect. In September 2026 the SEC approved FINRA Rule 3290 (Outside Activities Requirements), which "would replace current FINRA Rules 3270 and 3280." The new rule keeps the core structure for outside securities transactions: prior written notice, the firm's approval or disapproval, and recording and supervision of an approved transaction for compensation as if the firm had executed it. FINRA has not yet set an effective date, so Rule 3280 continues to apply until it does.

The pattern looks like this: a broker the customer already knows offers an investment that is not on the firm's platform: a note, a private company's shares, a real estate deal. Payment goes somewhere other than the customer's account at the brokerage, and the investment does not appear on the firm's statements. If the investment fails or turns out to be fraudulent, the customer discovers that the firm never approved it.

Consider an example. Walter's broker of fifteen years tells him about a one-year promissory note paying 12% from a company the broker knows, and asks for a $50,000 check made out to the company. On paper Walter would collect $6,000 of interest, $50,000 × 12%. Under FINRA's rule, if the broker is being paid to sell it, the firm must have approved the sale in writing and must record it on its books and supervise it. So Walter can ask the firm's compliance department whether it approved the transaction and whether it will appear on his account statement, look up the broker on BrokerCheck, and check whether the note is registered or relies on an exemption. If the firm has no record of it, the sale is outside the firm's supervision.

Pros

• The notice-and-approval rule gives firms the chance to review an outside investment before a representative sells it to customers.
• An approved outside transaction is recorded and supervised like the firm's own business, which gives the customer the firm's oversight.
• A customer can check for approval directly by asking the firm and looking at its account statements.

Cons

• When a representative sells away, the firm has not reviewed the investment, and the customer may have no account record of it at the firm.
• An investment sold this way may be an unregistered security, without the disclosure that registration would require.
• The rule is changing: Rule 3290 will replace Rule 3280 on a date not yet set, so descriptions that cite rule numbers will date.