Chapter 3 Registration and Regulation of Broker Dealer Employees Flashcards Preview

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Flashcards in Chapter 3 Registration and Regulation of Broker Dealer Employees Deck (43)
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U4 must signed and submitted with fingerprint card to

FINRA Central Registration Depository (CRD)

-Signing binds the person to using arbitration to settle disputes
-Experience, knowledge, and training are vital (NOT education)


CRD provides:

-Info about an individual's employment and disciplinary history
-A very limited amount of this info is available to the public through BrokerCheck


Registration specific to

roles and/or products

-Each state may also require registration


FINRA Representative Registrations

(Series 6 or Series 7)

RRs may sell securities on a solicited or unsolicited basis


FINRA Representative Registrations

Series 11
Assistant Rep. for Order Processing

RRs may accept unsolicited orders from clients and be paid a salary or hourly wage (not commission)
-No soliciting orders or accounts and no investment advice or recommendations may be provided


Unregistered People

may not give advice, process orders, or be paid commissions


Series 99 registration does not allow a person to give what give advice or trade securities


If arrested NOT ........., file a U4

NOT convicted


Statutory Disqualification

Ground include

1. Conviction within the last 10 years of any felony or securities related misdemeanor
2. Denial or revocation of registration by the SEC or CFTC
3 Expulsion or suspension from membership with any SRO (US or foreign)
4 Omitting a material fact in any application or report to an SRP
5 Maintaining a business relationship with a person who has been banned from the securities industry


If an RR is subject to any disciplinary action, indictment, arrest, guilty plea, or conviction a report is filed with.....



Termination of Registration

If an associated person's registration is terminated:

-File U5 with FINRA within 30 days
-provide copy to person
-incl volunt or involunt

-An disc issues must file updates


Termination of Registration

After 2 years of inactivity an individual must ...



Continuing Education

Regulatory Element
-All registred personnel
-Due on second anniversary and every 3 years thereafter
-Must be completed within 120 days of notice
-If not completed, registration becomes inactive

Firm - regular training directed by firm

Annual Compliance meeting - attendance is required for Series 99 rep every year


For an RR to be involved in outside activities and earn compensation, he must provide written notice to his employer:

example - serving on a co's board of directors, writing articles for a financial publication on part-time basis, or bartending on the weekends

-Hobbies not included
-Written approval and filing notice NOT required


Private Security Transactions (Selling Away)

Transactions executed by an associate person outside of her association with a member firm:
-if no compensation, an RR must provide written notice to her employer detailing the trade and obtain written acknowledgment from the firm

-To receive comp, RR must obtain her employer's written approval and firm must record the transaction on its books.


Outside Accounts for B/D Employees

To open an account for ANY employee of another member firm, his spouse, or dependent children, an executing firm must:

1. Notify the employer in writing
2. Upon request, send duplicate confirms and statements
3. Inform the employee of these required provisions


Outside Accounts for B/D Employees

No FINRA required pre-approval by employer but restrictions on _______ by an employer apply to all accounts held by associated person.

Rules do not apply for which contracts-

personal trading

Rules do not apply for
1. mutual funds
2. UITs
3. variable contracts


Equity IPOs

Restricts a member firm's ability to sell EQUITY IPOs to accounts in which

a restricted person has beneficial interest


Equity IPO's

Restricted persons are:

1. Member firms and ANY member firm employees
2. Household family members of member firm employees
3. Persons materially supported by the employee

-Other family members may purchase from a B/D not employing the restricted person.


Gift Limit

Gift to employees of member firms limited to $___

FIRNA approval required?

$100 per person per year.

No Finra approval required


Gift Limit

If you go with the client it is an expense (occasional meal, sporting event, etc.)

Firms required to keep track of ...

gifts given and received.


Red Flag Issue

An IT consultant send an Ops Professional a gift basket of $120 for thank you for assistance with a project. Is this a conflict?

Yes, gifts received from vendors may also be subject to limitations


Political Contribution
Violation if Municipal Finance Professional contributes more then $___ to a candidate for whom he may vote.

-Any he may NOT vote fore

If violation


if violation a 2 year ban is imposed on certain types of underwriting business with issuer:

- If the MFP leaves the firm to join a new firm in a similar capacity, the remaining ban will apply to both firms

Most Ops Professionals are not MFPs


Prohibited Practices by Operations Professionals:

Churning -

excessive trade to gain commissions


Prohibited Practices by Operations Professionals:

-Trading without permission
-Blanket recommendations
-Lending to or borrowing from customers (unless relative)
-Guaranteeing against a loss
-Sharing in client profits and losses
-Unless joint account and sharing proport to the contribution made.


Red Flag Issue

You notice that a number of client accounts have been purchasing the same security. The accounts are all discretionary and overseen by the same person. What is your concern?

Blanket Recommendations (Laziness)


Red Flag Issue

You are copied on an e-mail which a RR persuades a customer to purchase a security by the assuring her that, should it fall in value, rep will make up the difference in the account. The practice is considered:

Guaranteeing a customer against a loss


Red Flag Issue

Older, wealthy client gives RR $50K and tells the RR to keep the profits he earns on the cash and to return the $50K when he can. What prohibited practice is this an example of?

Borrowing form a customer


Compensation Rules

Payment to non-members

RRs prohibited from paying comp to any individual who is not FINRA registered
-includes paying referral fees


Compensation Rules


-Firms are not permitted to return some or all of the commissions or sales charges to customers
-includes zeroing out commissions on confirms