Chapter 2 Reg Requirements for Member Firms Flashcards Preview

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Flashcards in Chapter 2 Reg Requirements for Member Firms Deck (29)
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Those engaged in management of the firm

Includes - officers, directors, partners, and managers of offices of supervisory jurisdiction (OSJ)

-NOT specifically required for branch office managers


Series 4

Supervises options activities


Series 24

Supervises general securities activities


Series 27

-Prepares Focus
-Verifies books and records are accurate
-CFO must hold a Series 27 registration


Manual containing a firm's supervisory policies and procedures covers and specifies what?

-Covers the scope and nature of the firm's:
-business activities
-methods of operation

-Specifies the detailed responsibilities of all supervisors and the review procedures they are required to follow


The WSP manual answers the following two questions:

1. What are the policies and procedures governing all aspects of the firm's business?

2. Who is responsible to make sure these policies and procedures are followed?

Keep old WSP for 3 years


Office of Supervisory Jurisdiction (OSJ)

Supervises activities at its own location, branch offices and associated persons working in remote locations:
-Maintaining custody of customer assets
-Final approval for opening new accounts
-Review and approval of customer order
-Supervising one or more branch offices
-Maintaining a file of written complaints (its own and those of supervises branches)


Branch Offices:

Location where a member firm conducts business with the public and is advertised as such.


Non-Branch Office:

Office of convenience - used occasionally, and exclusively by appointment, to meet clients (no signage allowed)

Registered representatives' primary residence


Primary Residence Limitations

To be excluded from registering as a branch office:

-Only one person, or any immediate family members who also reside at the location, may conduct business there

-The location may not be identified as a branch and customers may not visit the location

-No customers funds or securities may handled

-All persons must be assigned to a branch and the branch's address must be listed on any communication


Information barriers between certain departments

-barriers limit employee access to electronic and physical records
-Requests for inof about accounts or client positions must be routed through, or discussed in the presence of, a firm's Legal or Compliance Dept
-Clean Desk Policy
-Barriers limit employee access to restricted areas of the firm (eg, banking, ib, sales/trading)


Red Flag Issues

RR asks for list all new accounts opened in last 6 months and position they hold. what is your next course of action?

Refuse the request and direct the RR to Compliance.


Red Flag Issues

A member of sales and trading needs to attend a meeting in the investment banking area of your firm. Can this be done?

Yes, as long as this person is accompanied by a member of the investment banking group at all times.


Insider Trading and Penalties

Using material, non-public info about an ISSUER to make a profit or avoid loss

If a violation occurs within a brokerage firm, liability may extend to the tipper, tippee, supervisor, and firm

-An RR using this info to help clients, but not himself, still violates the rule

-Unverified rumors must be reported to legal/compliance


Insider Trading


-Disgorgement of profit and paying treble damages


Insider Trading


Max fine $5 million and/or 20 years in prison


Insider Trading

Restrict list

Watch list

Watch list - firm is working on activity but it is not announced


Red Flag Issue

You suspect that your firm's head of investment banking and chief trader are sharing information. After bringing your fears to the attention of your supervisor, nothing appears to change. What is your action?

Contact the Office of the Whistleblower


Office of the Whistle blower (OWB)-

The OWB is where a person may turn when senor management is potentially breaking the law

-Created under Dodd-Frank Act; part of SEC
-Designed for large infractions
-Resulting in sanctions of greater than $1million
-Bounties range form 10% to 30%
-Info may be submitted anonymously
-Through an attorney
-Whistleblower is not required to be employee
-may be external source


2-2 No 1

Which of the following locations would be considered an office of supervisory jurisdiction (OSJ)

any location at which one of the following takes place
-Market-making and/or ordering execution
-Structuring of public offerings or private placement
-Maintaining custody of cust funds and /or securities
-Final acceptance (approval)of new accounts
-Review and endorsement of customer orders
-Final approval of advertising or sales lit
-Responsibility for supervising other branch offices

Not every branch office is required to be OSJ if its activities are supervised elsewhere.


2-3 Insider trading involves the purchase or sale of

securities using non public info


2-4 FINRA classifies personnel in all of the following categories, EXCEPT:

a. Registered Reps
b. Registered Principals
c. Unregistered Employees
d. Operations professionals

d. Operations professionals


2-5 All of the following choices require written approval by a supervisor, EXCEPT:

a. New customer accounts
b. Orders for a member's own accounts
c. Orders for an inst account
d. Accepting a personal check from customers

d. Accepting a persona check from customers


2-7 Customer complaints should be reported to FINRA within:

b. 10 business days


2-8 In order for a Web site to be considered to be categorized as sales literature, it must be:

-password protected

if public then advertising


2-9 E-mail is considered correspondence if it is sent to:

an unlimited number of existing retail customers


2-10 A business continuity plan must do all of the following EXCEPT:

a. be filed with Finra on an annual basis
b. State the alt physical location for employees
c. Provide for a data backup and recovery system
d. Designate two emergency contact persons

-a. be filed with Finra on an annual basis

it just need to be available upon request


Under FINRA rules, the specific duties of a FINOP are:

Final approval and responsibility for the accuracy of financial reports submitted to any duly established securities industry regulatory body
• Final preparation of such reports
• Supervision of individuals who assist in the preparation of such reports
• Supervision of and responsibility for individuals who are involved in the actual maintenance of the member's books and records from which such reports are derived
• Supervision and/or performance of the member's responsibilities under all financial responsibility rules promulgated pursuant to the provisions of the Securities Exchange Act of 1934 (Exchange Act)
• Overall supervision of and responsibility for the individuals who are involved in the administration and maintenance of the member's Operations Department
• Any other matter involving the financial and operational management of the member


An Operations Professional notices that one of the firm's registered representatives has purchased a security on the broker-dealer's watch list in an account maintained at another member firm. What must occur as a result of the trade?

The Operations Professional should notify the Compliance Department. As a result of a trade occurring with a security on the firm's watch list, a report must be filed with its SRO. The trade may not be prohibited but it is subject to closer scrutiny than other trades. (63412)