ch 18

Question 1

form U4

Answer 1

• registration as an associated person of a FINRA member firm requires Form U4
• name, address, aliases
• 5 year residency history
• 10 year employment history
• disclosure of any charge/conviction (if yes, detailed disclosure reporting page - DRP)
• any changes require filing an amended form with the central registration depository no later than 30 days after the member is aware of the change
• don’t need to update for educational achievements or martial status

Question 2

qualifications investigated

Answer 2

• member firm must certify that it has investigated the person’s business reputation, character, education, qualifications, experience
• If FINRA discovers any misleading info or omissions, disciplinary action may be taken to bar the individual. Principal signing application might be liable as well

Question 3

DRPs

Answer 3

• criminal disclosure (felony and certain financial misdemeanors)
• regulatory action disclosure (SEC, state regulators, SRO)
• civil judicial disclosure (civil cases not involving securities)
• customer complaints/arbitration/ civil litigation disclosure
• termination for cause disclosure
• financial disclosure (bankruptcy, payment on surety bond, unsatisfied judgements and client

Question 4

customer compliant procedures

Answer 4

• member firms must establish its own procedures
• complaints only count if they are WRITING
• complaint records must be retained for a min of 4 years

Question 5

when complaints are received

Answer 5

• if received by reg rep, must immediately bring to the attention of the person designated in procedures (manager, legal, etc)
• if broker dealer gets compliant about reg rep, they discuss it with the reg rep first then contact customer
• efforts are made to resolve compliant without taking it through FINRA’s formal procedures
• Meditation, arbitration is next if not resolved

Question 6

code of arbitration procedure

Answer 6

• arbitration is an alt to going to court to resolve disputes
• established to arbitrate unresolved industry disputes
• mandatory when:
  
  • a member against another member or reg clearing agency
    - a member against an associated person
    
    • an associated person against another associated person
• most new account forms include a predispose arbitration clause that must be signed by customers before opening an account
  - if a customer requests this form, must provide in 10 days
• without a signed arbitration agreement, a customer can pursue arbitration, but a member can’t force a customer to arbitration
• class action claims are NOT subject to arbitration
• claims brought by employees of member firm against the firm are note required to be arbitrated unless the parties agree
• advantages of arbitration: save time, money and decisions are final and binding, no appeals are allowed

Question 7

initiation of proceedings

Answer 7

• any party may initiate of proceedings by filing a claim with the director of arbitration of FINRA
• claim must describe in detail the issue and include documentation and remedy they are looking for
• claimant must include check for the required claim filing fee
• director sends copy of claim to other party
• respondent has 45 calendar days to respond to the director and claimant .
  - all available defenses and related counterclaim
  - if respondent doesn’t respond in 45 days may at the discretion of the director, be barred from presenting at the hearing
• if the dispute involves irreparable injury, that party might seek interim or permanent injunction - must show clear case and suffer permanent harm unless immediate relief is granted

Question 8

mediation

Answer 8

• alt dispute resolution process
• cheaper than arbitration
• both parties need to agree to it, but can withdraw at any time without consent of the other party
• attempt to work out a settlement
• mediator is selected
• if unsuccessful, a hearing is conducted
• issue is settled when memo of understanding is signed

Question 9

selection of arbitrators

Answer 9

• FINRA maintains a list
• nonpublic arbitrator
  
  • financial industry exp
    - industry prof who rep parties in disputes (5 yr cooling off period based on their affiliations, 2 yr based on someone else’s activities
• public arbitrator
  
  • any person who doesn’t meet the definition of nonpublic

Question 10

simplified arbitration

Answer 10

• any dispute involving 50,000 or less
• one arbitrator
• 30 days

Question 11

arbitration threshold

Answer 11

• 50,000 or less = one arbitrator
• 50,000 to 100,000 = one arbitrator, unless parties agree to 3
• greater than 100,000 = 3 arbitrators, unless parties agree to 1

Question 12

awards

Answer 12

• all monetary awards must be paid within 30 days of the decision date
• all awards and details of claim are made public by FINRA

Question 13

statute of limitations

Answer 13

• 6 years

Question 14

code of procedure (COP)

Answer 14

• FINRA’s formal procedure for handling trade practice complaints involving violations of the member conduct rules
• FINRA’s dept of enforcement is the body to hear and judge complaints
• appeals and review of Dept of Enforcement are handled by national adjudicatory council.

Question 15

FINRA manual

Answer 15

• must be made available to customer upon request

Question 16

reporting requirements

Answer 16

• member firm must promptly report to FINRA (not later than 30 days) if members or an AP:
  - have been found to have violated fed securities law
  
  • are subject to a customer complaint of theft, misappropriation, forgery
  • suspended or expelled by another SRO
    - indicated, convicted or plead guilty, no contest to any criminal offense (except traffic violations)
    
    • defendant or respondent in any securities/commodity related litigation or arbitration settled in excess of 15,000
    • becomes subject to statutory disqualification
    • subject of an in-house disciplinary action

Question 17

sanctions

Answer 17

• censure
• fine
• suspension of membership for up to 2 years
• expulsion, cancelation, revocation
• barring from associating with other members
• any other fitting sanction
• if AP is suspended, they cannot remain associated with the member in any capacity (can’t be on premise during suspension)
• member is prohibited from paying salary, commission, other remuneration
  
  • AP can only be paid monies earned before the suspension

Question 18

appeals

Answer 18

• appeal may be made to the national adjudicatory council (NAC)
• must be made within 25 days of decision date, otherwise decision is final
• if not satisfied, appealing party can take the case to the SEC
• from there the appealing party can take the case to the fed court system
• appealing stays the effective date of sanctions other than a bar or expulsion

Question 19

clearly erroneous transactions

Answer 19

• Nasdaq has the authority to declare any inter dealer trade null and void or adjust the terms if the current terms are clearly in error
• Nasdaq can take this action itself or in response to customer complaint
• if a member wants a trade null and void or adjusted it must notify Nasdaq market operations within 30 minutes of execution and provide all details
• Nasdaq will make decision to:
  - void the trade
  - adjust the terms
  - take no action