Interpretive Notices

9038 - NFA COMPLIANCE RULES 2-29: HIGH PRESSURE SALES TACTICS

(Staff, June 19, 1996; revised January 1, 2020)

INTERPRETIVE NOTICE

NFA Compliance Rule 2-29 governs FCM, IB, CPO and CTA Members' communications with the public and is one of the most important NFA rules in ensuring that Members observe high ethical standards in their dealings with customers. NFA Compliance Rule 2-29(a)(2) prohibits the use of high-pressure sales practices. The rule itself does not define "high-pressure sales practices." However, NFA has taken a number of disciplinary actions related to high-pressure sales practices, and those cases provide guidance to Members on the types of practices that have been found to constitute high-pressure sales practices.

A common thread in many of the disciplinary actions involving high-pressure sales practices is a sense of undue urgency conveyed to the customer by an AP. In essence, the AP is asking the customer to act now and think later. The purpose of NFA's rule is to ensure that the customer makes a fully informed and carefully considered investment decision. Any tactic, such as those outlined below, that pressures a customer for a hasty decision will be considered a violation of NFA Compliance Rule 2-29(a)(2).

Over the years, NFA has observed an undue sense of urgency conveyed through many different high-pressure tactics. In some cases, the AP rushes the customer through the account opening forms, glossing over the risk disclosure in his or her haste to open the account. In other cases, APs have inundated a customer with multiple communications designed to provide a sense of urgency to open an account to avoid missing out on predicted market movements. APs have also used electronic communications with bolded, capitalized or highlighted text or subject lines in an attempt to convey false urgency to a customer.

These high-pressure sales practices have been enhanced by rapidly changing technology, including smartphones with multiple communication applications, easily accessible online account forms, the use of electronic signatures and the electronic transfer of funds. Members must be aware of the changes to technology and new technology that could be used by APs to pressure customers into investing or entering into trades in violation of NFA rules.

High-pressure sales practices could also involve a pattern of telephone calls, emails, instant messages and/or text messages, which are unusual in their timing or frequency. For example, an AP may barrage a customer with calls, emails, instant messages and/or text messages at all hours of the day, including late at night, early in the morning and during weekends. Alternatively, an AP's solicitations to open an account may occur several times a day, several days a week for weeks on end. Any solicitation designed to abuse, annoy or harass a customer into opening an account, including soliciting customers at unusual hours and with unusual frequency may constitute a high-pressure approach in violation of NFA Compliance Rule 2-29.

Perhaps the most obvious indicator of a high-pressure sales practice is simply the tone used by the AP to address the customer. In a handful of cases, APs have shouted at customers, used profane language or otherwise berated the customer in an attempt to bully the customer into opening an account. Such conduct clearly violates NFA rules.

This notice cannot and is not intended to alert Members to all of the factors that may constitute a high-pressure approach. Each of the factors highlighted above, however, has frequently been present in the high-pressure sales cases brought by NFA, and Members should certainly be vigilant in preventing and detecting such practices in their own operations.