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Capital Markets, Derivatives, and the LawPositivity and Preparation$
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Alan N. Rechtschaffen

Print publication date: 2019

Print ISBN-13: 9780190879631

Published to Oxford Scholarship Online: May 2019

DOI: 10.1093/oso/9780190879631.001.0001

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(p.325) 16 Suitability
Capital Markets, Derivatives, and the Law

Alan N. Rechtschaffen

Oxford University Press

This chapter begins with a discussion of the suitability doctrine. The duty owed by broker-dealers is one of suitability when doing business with the general public; this was added to the Exchange Act with the adoption of the Securities Act of 1993. The duty owed by broker-dealers is not a fiduciary duty: it is the duty to make recommendations that are suitable to their client based on their personal situation. The suitability doctrine requires that the broker must have a reasonable basis for believing the recommendation to have been suitable for the customer, in light of the customer's financial condition and understanding of the investment and its risks. The Government Securities Act of 1993, which amended the Exchange Act, is the impetus for the suitability rule. The remainder of the chapter deals with suitability as it relates to futures and options.

Keywords:   suitability doctrine, brokers, Government Securities Act, Securities Act, futures, options

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