Gifts and Gratuities: Annual $100 Limit and Business Entertainment Exceptions
To express appreciation for substantial trading flow directed to the firm, a registered representative invites the head trader of an institutional client to an annual corporate gala. The representative purchases two tickets for $225 each, attends the gala alongside the client, and pays for dinner costing $180. Additionally, during the holidays, the representative sends the same institutional trader an engraved personal wristwatch valued at $175. Which statement accurately reflects FINRA Rule 3220 compliance?
Gifts are capped at $100 per person per year. Legitimate business entertainment where the representative hosts and accompanies the client is exempt from the $100 cap.
Complete Analysis & Legal Rationale
FINRA Rule 3220 prohibits associated persons from giving anything of value exceeding $100 per individual per calendar year where the payment is in relation to the business of the recipient's employer. However, ordinary and customary business entertainment (such as meals, theater, or sporting events) is NOT subject to the $100 gift limit provided that the registered representative personally attends and hosts the event. The $175 wristwatch is an unhosted physical gift and exceeds the $100 limit, violating the rule.
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:
Business entertainment is exempt from the $100 ceiling when the representative hosts and accompanies the guest.
Hosting the client at dinner is legitimate business entertainment, whereas the standalone $175 wristwatch is a gift that violates the $100 ceiling.
Wristwatches are tangible business gifts subject to the strict $100 annual limit, not exempt items.
FINRA Rule 3220 protects the integrity of the employment relationship and applies equally to institutional and retail customer employees.
Official Standard: Restricts gifts and gratuities given to employees of other institutions to an aggregate of $100 per recipient per year.