Chapter 1: Sales Supervision Flashcards
(124 cards)
1
Q
FINRA is…
A
“Merged regulator” that combines NYSE and NASD regulatory units
2
Q
FINRA Conduct Rules
A
Govern the relationship between customers and member-firms. Clients are to be treated in a “just” and “equitable” manner with a high degree of ethical standard.
3
Q
FINRA Uniform Practice Code
A
Governs relationship between member firms. Settlements, good delivery, disputes among members, etc.
4
Q
FINRA Code of Procedure
A
The rules by which customers can dispute infractions against member firms
5
Q
FINRA Code of Arbitration
A
Rules by which member firms can dispute infractions between one another.
6
Q
FINRA Disciplinary Powers
A
Can censure, suspend, expel, and/or fine member firms
7
Q
Exempt from FINRA membership
A
Deal solely in exempt securities: Govt, municipals
Or
Business exclusively outside US
8
Q
Exempt securities under FINRA
A
Government and Municipal secs; unless packaged products
9
Q
When would you need to join FINRA if you only deal on exempt securities?
A
When packaging exempt securities in products such as mutual funds, unit trusts, or CMOs
10
Q
Form for FINRA membership application
A
Form BD
11
Q
Statutory Disqualification
A
Disqualified from FINRA membership by:
- previously suspended or expelled from any other SRO domestic or foreign
- subject to SEC order suspending or revoking registration or associated with such a firm or entity
- willfully filed false or misleading application or material omission of fact
- willfully violated federal securities or commodities law or aided or abetted or counseled or commanded such acts; also failed to supervise such individuals
- convicted of any securities or “money” related misdemeanor or felony within the past 10 years
- temporarily or permanently enjoined from engaging in the securities business
12
Q
Eligibility Proceeding
A
Form can appeal FINRA after statutory disqualification; If approved, SEC must also approve the re-admittance
13
Q
FINRA Application Information
A
- Copy of Registration submission to SEC
- Trial balance and net capital computation
- member’s written supervisory procedures
- list of officers, partners, and associates persons at time of application
- any other info requested by FINRA district office
14
Q
FINRA pre-membership interview
A
- Level of Net capital and any future requirements
- internal and compliance procedures
- familiarity with FINRA rules
- business plan; including details about persons associated with the firm
- planned facilities, clearing arrangements, and supervisory personnel
15
Q
of FINRA district offices
A
11 - same as federal reserve banks
16
Q
Notification of applicant occurs within ___ days after the interview
A
30
17
Q
Membership termination procedure
A
Given in writing and not effective until 30 days after submission of written notice
18
Q
Resignation term with customer complaints
A
Resignation is not effective for 2 years after submitted in writing if there are any complaints or pending actions against the member firm
19
Q
Transfer of registration to another firm
A
NO transfers are permitted. New firm must go through application and approval process
20
Q
Designation of OSJ
A
Office of Supervisory Jurisdiction (OSJ) must be designated by member firm. Any branch or centralized branch may act as OSJ but must be supervised by resident principal.
Creates and enforces written supervisory practices.
21
Q
OSJ
A
Office of Supervisory Jurisdiction; creates and enforces written supervisory procedures for member firm branches
22
Q
Form BR
A
Branch registration form for FINRA with CRD.
23
Q
Form BR changes submitted within ___ days
A
30 days after applicant learns of facts and circumstances giving rise to amendment
24
Q
Exceptions to “branch” definition
A
Back offices, primary residences of representatives, “offices of convenience” and satellite offices
25
When is a vacation home considered a branch?
If used 30 or more business days out of the year
26
Satellite office definition
No more than 25 securities are traded per year
27
“Not-Not-May” rule
RSNIP; Must be displayed in any location where bank products are also offered
NOT FDIC insured
NOT deposits and not guaranteed
Securities are subject to risk and MAY lose value
28
General Principal
```
Sole Proprietor
Officer
Partner
Managers of OSJ
Directors of Corporations
```
Must be Series 24 registered
29
Series 24 registration
For General Principals of securities firms
30
To become “Principal”
Must be series 24 registered and have been a registered rep for at least 18-months out of a preceding 5 year window
31
Principal has ____ days to pass qualifications exams
120 days after being appointed principal
32
General Sales Supervisor
Series 9/10 registered BOM, only supervises general sales practices.
33
“FinOP” Financial and Operations Principal
Must have at least 1 for clearing firm, Series 27 registered. Generally, the firm’s supervising accountant and preparer of financial reports for FINRA and SEC
34
Limited FinOP
Series 28 registered; each non-clearing firm must have at least 1. Prepares firm’s financial reports for FINRA and SEC
35
Registered Options Principal
Series 4 and 7 registered; for any firm engaging in options trading with customer accounts. Must have a “designated ROP” - name given to FINRA. Main office compliance individual for options advertisements, sales literature, and general supervision.
36
Investment Companies and Variable Annuities Limited Principal
Series 26; allows initial offering of CEFs and sale of redeemable securities and Variable annuities
37
Series 39
Direct Participation Program; Series 22 or Series 7 required
38
Exemptions to registered rep
Dealing solely with clerical work or exempt securities and foreign associates who do not deal in US.
39
Series 6
Limits authority to deal on redeemable shares or variable annuity contracts
40
Series 22
Direct participation program representative exam
41
Series 52
Muni bonds license
42
Waiting periods for failed exams
30 days after failure, must wait 180 days after 3 successive failures. Another 180 days for each successive failure after 3
43
Statutory disqualification of Rep with amendment
Must be submitted within 10-days if rep would be disqualified by changes to U4.
**Normally 30 days without disqualifying event
44
Principal must verify ___ years of employment history and applicant’s will ___________ _________
3 years; applicants good character
45
CE requirement
Regulatory on 2nd anniversary of registration and then every 3 years thereafter
46
Regulatory element may be completed within ____ days of notice
120 days; thereafter, license is considered “inactive” until requirement is complete
47
Registration with military duty
Considered “inactive.” CE requirements are suspended and firm must submit notice to CRD in writing. Upon return from service, registration is reactivated at point left off.
Can return to another B/D, can maintain clients with another broker and share commissions.
Must reassociate within 90 days before registration is terminated.
48
Returning military must reassociate within ___ days to prevent registration termination.
90 days
49
Special inactive status for called-up military
FINRA will place a 24 month hold on termination if active military rep has terminated association with member firm.
50
U5
Termination form
51
U5 must be filed with FINRA within ___ days of termination
30 days. A copy must also be supplied to terminated individual
52
New employer must review U5 of new employee within ___ days of association
60 days. Also a new U4 must be submitted
53
U5 obtained from
Web-CRD
54
U5 must be amended within ___ days of discovery
30 days. Same as U4, without statutory disqualifying event
55
Must regularity by exam after __ years of non-association with member firm
2 years. FINRA also retains jurisdiction over the individual if there is a customer complaint for this same period.
56
U5 cannot be filed if
There is a customer complaint or pending action until such issues are resolved. Then begins the 2 year waiting period
57
Generally, changes to any material information must be given to FINRA within ____ days
30 days, **Unless U4 is amended with potentially disqualifying event - 10 days.
58
FINRA Rule 2267
Requires customer be provided information on checking Broker records through BrokerCheck and FINRA, annually
59
Customer account conduct rules
1) cannot guarantee against loss
2) cannot share in G/L
3) must share in proportion unless immediate family member
4) cannot borrow or lend to client
60
Installment Sales allowed?
No, Prohibited
61
Client Gift Limit
$100/yr/client
62
FINRA Rule 2030
Anti-bribery rule discouraging pay-to-play practices with state and local governments
63
Maximum political contribution (able to vote)
$350/candidate/election with potential to vote
64
Maximum Political Contribution (not able to vote)
$150/candidate/election
65
Ban on political contributions if over limit
2 years if contribs. exceed minimum
66
Problems with Registered Non-Traded REITs
Distributions not guaranteed
Illiquid
High Fees
Lack of Transparency
67
Inspect Supervisory Branch
Every year
68
Inspect non-supervisory branch
Every 3 years
69
Branch Inspection Report Items (at a minimum)
- Safeguarding of customer securities
- Maintenance of books and records
- Supervision of customer accounts services by branch managers
- Transmittal of funds between representatives and customers and to third parties
- Validation of customer account changes
- Validation of changes in customer info
70
When hiring new rep…
Must review U5 within 60 days of filing the U4
71
SIPC required on Sales Literature?
No
72
SEC research interpretation
Provides information reasonably sufficient upon which to base an investment decision
And
Is distributed to +15 people
73
Rule 134a
“Amended Tombstone Rule”
74
Rule 135a
“Generic Advertising Rule”
75
Rules 134a and 135a govern:
Mutual Fund and Options Advertising
-Basically cannot add any ameliorative, promotional language beyond basic description of the issue and the companies and functions associated.
76
FINRA Taping Rule
If sales force of member firm contains 20-40% employees from previously expelled or revoked registration firms, that firm is required to tape conversations
77
Adherence to taping rule
If determined by FINRA:
| Must comply within 60 days and retain records for 3 years
78
Answer to a complaint
Must be given to OHO within 25 days; thereafter another notice is sent and 14 days allowance.
If no answer is received it is treated as default and decision is made by Chief hearing officer
79
Pre-hearing conference held within ___ days of answer to complaint.
21 days
80
Decision on complaint rendered within ___ days of hearing panel
60 days
81
Hearing panel consists of
Chief Hearing Officer and 2 other industry panelists
82
First appeal after hearing panel
Goes to NAC - National Adjudicatory Council
83
Hearing panel decisions can be appealed for ____ days
25 days after Hearing Panel decision rendered
**The decision is not final until 25 days after hearing decision with no appeal**
84
When is a hearing decision final?
25 days after decision rendered with no appeals
85
NAC can review hearing panel decision for ____ days.
45 days after decision rendered
86
Second appeal of hearing panel decision
To SEC after NAC decision
87
Third appeal of Hearing panel decision
To Federal Appeals court after SEC decision
88
How many appeals possible of Hearing Panel Decision?
3
1) NAC within 25 days, NAC has 45 days to review
2) SEC after NAC decision reached
3) Federal appeals court after SEC decision reached
89
MRVP
Minor Complaints - “Minor Rule Violation Plan”
Max $2,500 fine
90
FINRA may summarily suspend a member who:
Was suspended or expelled from another SRO.
Or
Experiences financial or operating difficulties
91
After summary suspension, member firm may:
Request a hearing within 7 days, and hearing will be held within 7 days of submission for hearing
92
Dispute between 2 associated persons must go to:
Arbitration
93
Optional All Public Panel Rule
Customer can elect 3 public arbitrators if desired
94
Statute of limitations for Arbitration
6 years from the event
95
Arbitration awards paid:
Within 30 days, 15 day grace period with threat of suspension or revocation of firm registration if missed
96
Mediation can be used if:
Both parties agree to mediation
97
Technical insider defined as:
Officer
Director
>10% shareholder of equity secs
98
Insiders required to report trades to SEC within ___ days
2 days of event
99
Short swing disgorgement
Any profits from trades within 6-month period must be paid back to corporation
100
Insiders cannot short stock but can…
“Short against the box” at year end to lock on gains, but must close position within 20 days
101
Rule 10b-5
“Catch-all” fraud rule; covers all undefined activity that would operate as fraud
102
Penalties for Insider Misuse of Information
Up to 3 times the profit or up to $5,000,000 and up to 20 years in prison
103
Penalty for firm with controlling person knowing of misuse of information
$25,000,000
104
Controlling person knowing of misuse of information by insider?
Will not be penalized unless they knew or recklessly disregarded the fact
105
Fines are payable to:
The US Treasury
106
Informer bounty
10-30% of amount recovered under civil penalties
107
Insiders can be sued by any person that traded the security for ___ years
6 years
108
10b5-1 is what?
Trading plan or “safe harbor” rule
109
2 & 5 rule
Unlawful practices suits statute of limitations, 2 years within discovery but no more than 5 years after violation occurred
110
Rule 10b-1
Covers manipulation of exempt and non-exempt securities
111
Rule 10b-3
Unlawful for broker-dealers and municipal bd’s to employ deceptive or manipulative practices
112
Rules 14e-1 through 14e-5
Cover tender offer unlawful practices
113
When must a company submit opinion to shareholders under tender offer?
Within 10 days
114
During a tender offer:
Insiders cannot buy stock nor can maker of offer buy company shares in the market.
115
SEC Section 15
Rules on broker dealers
116
Penny stock rules
15g-1 through 15g-6
117
Penny stock defined as
Equity securities that are not exchange listed or are not included in NASDAQ and have a price of
118
Unsolicited calls times
Between 8:00am and 9:00pm
119
Cold calling statements needed
Name, firm name, address or telephone from which the caller is dialing
120
Cold calling rules also cover…
Unsolicited faxes and anything conducted over telephone
121
Who enforces cold calling rules?
FTC
122
Established business relationship (cold calling)
“EBR” person contacted made a transaction or had a security with firm within the past 18 months
Or
Has contacted member firm to inquire about products or services within the past 3 months
123
Exemption from out-of-state registration
Customers vacationing in state or effects trades with other BDs, banks, institutions
124
Research report restriction for (co)manager of issue
10 days for IPO, 3 days for secondary
