Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Investments, Trading, and Financial Markets

Anti-Reciprocal Rule (FINRA) - Explained

What is the AntiReciprocal Rule?

Written by Jason Gordon

Updated at April 17th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is the Anti-Reciprocal Rule?How Does the Anti-Reciprocal Rule Work?Examples of Anti-Reciprocal Rule EnforcementAcademic Research on Anti-Reciprocal Rule

What is the Anti-Reciprocal Rule?

The Anti-Reciprocal Rule is a regulation by the Financial Industry Regulatory Authority (FINRA) that prohibits a mutual fund manager and a brokerage firm from colluding to engage in business transactions that will affect a client negatively. The anti-reciprocal rule was designed to protect investors and clients of brokerage firms from being victims of conflict of interest that might occur when a mutual fund and brokerage frim collaborate. When collaborations occur between two market makers such as a brokerage firm and a mutual fund, an investor might be a victim of bad advice emanating from conflict of interest. The anti-reciprocal rule protects investors from such.

Back to:INVESTMENTS & TRADING

How Does the Anti-Reciprocal Rule Work?

The anti-reciprocal rule was first used by FINRA in 1973 after its adoption, this rule prevents the occurrence of a collaboration between two market makers that are only for their own benefits and not for the best interest of their clients. When brokerage firms and mutual firms go against the anti-reciprocal rule, they face a penalty or pay a fine to FINRA. There are diverse arrangements or collaborations between a brokerage firm and a mutual fund that could cause harm to an investor. For instance, if a brokerage firm recommends a mutual fund company to an investor only for them to generate commissions on the investors they send in, such collaboration is against the interest of the client or investor. When the anti-reciprocal rule was amended in 1981, it included some definitions that offer more protection to clients of brokerage firms and investors.

Examples of Anti-Reciprocal Rule Enforcement

There are many scenarios when FINRA has enforced the anti-reciprocal rule and punish brokerage firms and mutual fund companies that violate the rule. Usually, when this rule is violated, the offender is required to pay a fine to FINRA. The National Adjudicatory Council (NAC) is the appeal body of FINRA, this is the council that conducts hearings for cases related to the violation of the anti-reciprocal rule brought before it.

anti-reciprocal rule

Was this article helpful?

Yes
No

Related Articles

  • Circular Trading - Explained
  • Bond Yield - Explained
  • Bell Shaped Portfolio - Explained
  • Master Swap Agreement - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand