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Second Circuit Clarifies Definition of “Customer” Under FINRA Rules

On Behalf of | Aug 10, 2014 | Financial News

Last week, the Second Circuit issued an important opinion clarifying who may be considered a “customer” of a FINRA member firm. In Citigroup Global Markets Inc. v. Abbar et al. (No. 13-2172) (2d Cir. Aug. 1., 2014), the Second Circuit held that a customer, under the meaning of FINRA Code of Arbitration Procedure Rule 12200, is one who either: (1) purchases a good or service from a FINRA member; or (2) has an account with a FINRA member.

In adopting its bright line rule, the court rejected the notion of a facts-and-circumstances type test to determine whether someone could be considered a customer: “[C]ourts need not wonder whether myriad facts will coalesce into a functional concept of the customer relationship.” Indeed, the court stated that such an approach (and the potential for litigation) defeats the express goals of arbitration to yield economical and swift results. According to the Second Circuit, the bright line rule provides a simple, predictable and suitably broad definition of customer.