Breakpoint Sale Regulatory Violation (FINRA Rule 2342)
A registered representative solicits a customer to purchase $49,000 of Class A mutual fund shares, knowing that the fund's breakpoint discount begins at $50,000. The representative intentionally fails to notify the client of the $50,000 breakpoint to earn a higher commission. This unethical practice is known as a:
Under FINRA Rule 2342, a 'Breakpoint Sale' is the prohibited practice of selling mutual fund shares just below a breakpoint dollar threshold to generate higher commissions without informing the customer of the discount.
Complete Analysis & Legal Rationale
Representatives have an affirmative regulatory duty to advise clients when an investment is near a breakpoint threshold or when a Letter of Intent (LOI) can secure lower sales charges.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Accurately defines a breakpoint sale under FINRA Rule 2342.
Selling away is conducting private securities transactions outside the firm (Rule 3280).
Front running is trading ahead of large client orders.
Interpositioning is inserting a 3rd party broker between buyer and seller.