Unit 7-Other Relevant Regulations

Question 1

SEC Rule 17f-1

Answer 1

Established Securities Information Center (SIC)

-This is the central database for reporting lost, stolen, counterfeit, or missing securities

Question 2

Reporting Rules (missing securities)

Answer 2

• If no criminal activity is suspected, the BD has 2 business days to find securities. On 3rd business day, loss must be reported to SIC as well as transfer agent
• If criminal activity is suspected, BD has 1 business day to notify SIC, transfer agent, and FBI
• If securities are later found, all parties previously notified must be contacted within one business day

Question 3

Securities Inquiries

Answer 3

All BDs receiving new securities must reach out to the SIC to inquire about their status unless security is:

• Received directly from issuer
• Received from another member firm
• Part of transaction valued at less than $10K
• Received from an existing customer of firm that:
  
  • Is registered in customer name
  • Was previously sold to customer and can be verified by member records

Question 4

Fidelity Bonding (G-6)

Answer 4

Required MSRB members to secure fidelity bonding to protect against theft, embezzlement, etc by its own employees
-Minimum bond is 120% of net cap requirement (must be at least 100K no matter how small net cap)
-Fidelity bond level must be reviewed annually
NOTE: Bank dealers are exempt as they already have insurance under current banking laws

Question 5

Lifetime Records

Answer 5

• Articles of Incorporation/Partnership Agreements
• Minutes of Board Meetings
• Records of stock certs

Question 6

Six Year Records

Answer 6

-Blotters (original entry and trade)
-Cash receipts and disbursement records
-General Ledger
-Customer Ledger (statements)
-Securities Records
-Customer Account Records (6 yrs after account closed)
-Syndicate Settlement Records
-Customer Complaints
-Principal Designation Records
-Political Contributions
-Gifts and Gratuities
-Consultant Agreements
NOTE: All records must be readily available for 2 years
NOTE 2: Bank Dealers do not need to keep records of customer credits/debits. These are only applicable to securities accounts.
NOTE 3: Securities receives and delivered out same day do not need to be recorded

Question 7

Records not explicitly mentioned as lifetime or 6-year

Answer 7

Default for 4 years:
-Trial balances
-CE records
-Correspondence and written communication
-Put options and repurchase agreements
-Customer Confirms
NOTE: Records can be kept on a trade date or settlement date basis. Whichever process is chosen must be applied consistently

Question 8

Digging into an APs U4

Answer 8

• Hiring firm must look into at least 3 years before date of application to verify info
• A BD that receives an inquiry from another member regarding a former employee must respond within 10 business days
• U4s are kept for 3 years after separation (6 for principals)