Chapter 3 Registration and Regulation of Broker Dealer Employees

Question 1

U4 must signed and submitted with fingerprint card to

Answer 1

FINRA Central Registration Depository (CRD)

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

Question 2

CRD provides:

Answer 2

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

Question 3

Registration specific to

Answer 3

roles and/or products

-Each state may also require registration

Question 4

FINRA Representative Registrations

Salespersons
Series 6 or Series 7

Answer 4

RRs may sell securities on a solicited or unsolicited basis

Question 5

FINRA Representative Registrations

Series 11
Assistant Rep. for Order Processing

Answer 5

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

Question 6

Unregistered People

Answer 6

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

Question 7

Series 99 registration does not allow a person to give what

Answer 7

..to give advice or trade securities

Question 8

If arrested NOT ………, file a U4

Answer 8

NOT convicted

Question 9

Statutory Disqualification

Ground include

Answer 9

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

Question 10

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

Answer 10

FINRA

Question 11

Termination of Registration

If an associated person’s registration is terminated:

Answer 11

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

-An disc issues must file updates

Question 12

Termination of Registration

After 2 years of inactivity an individual must …

Answer 12

requalify

Question 13

Continuing Education

Answer 13

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

Question 14

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

Answer 14

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

Question 15

Private Security Transactions (Selling Away)

Answer 15

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.

Question 16

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:

Answer 16

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

Question 17

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-

Answer 17

personal trading

Rules do not apply for

1. mutual funds
2. UITs
3. variable contracts

Question 18

Equity IPOs

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

Answer 18

a restricted person has beneficial interest

Question 19

Equity IPO’s

Restricted persons are:

Answer 19

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

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

Question 20

Gift Limit

Gift to employees of member firms limited to $___

FIRNA approval required?

Answer 20

$100 per person per year.

No Finra approval required

Question 21

Gift Limit

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

Firms required to keep track of …

Answer 21

gifts given and received.

Question 22

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?

Answer 22

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

Question 23

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

Answer 23

$250

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

Question 24

Prohibited Practices by Operations Professionals:

Churning -

Answer 24

excessive trade to gain commissions

Question 25

Prohibited Practices by Operations Professionals:

Answer 25

- Churning - 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.

Question 26

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?

Answer 26

Blanket Recommendations (Laziness)

Question 27

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:

Answer 27

Guaranteeing a customer against a loss

Question 28

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?

Answer 28

Borrowing form a customer

Question 29

Compensation Rules Payment to non-members

Answer 29

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

Question 30

Compensation Rules Rebating

Answer 30

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

Question 31

Compensation Rules RRs may not personally compensate an institutional money manager for trades

Answer 31

they direct to the RR

Question 32

3-1 A principle is thinking about hiring Bill, a registered rep, who last worked at Fortune Brokerage. Fortune has been expelled by all SROs. If the principal wanted to check on Bill's background what should he do?

Answer 32

Check the CRD. CRD (Central Registration Depository) maintains the details concerning all registered personnel. CRD files contain qualification, employment, and disclosure history of all registered personnel.

Question 33

3-2 FINRA's Investor Education and Protection Rule required member firms to provide customers with all the following info-

Answer 33

1. The BrokerCheck hotline number 2. The address of Finra's website 3. A statement providing info about the investor brochure

Question 34

3-3 When a broker-dealer wants to employ an individual who is subject to statutory disqualification, the firm must apply to FINRA for permission through a process called

Answer 34

Eligibility proceeding

Question 35

3-4 Registered reps who do not complete their Reg Element training within 120 dayis of their anniversary date:

Answer 35

Are place on inactive status

Question 36

3-5 All the following registered reps must notify their employer of their activity, Except: a. Kevin, who is a member of the board of trustees of a family-owned business b. Marie, who volunteers to help the United way handle its funds c. Leon, who plays in a band that is hired for weekend weddings d. Amanda, who writes articles for financial magazines in her spare time

Answer 36

b. Charitable work does not fall under this

Question 37

3-6 if rep is receiving compensation even if in a private placement exempt from registration under 1933 act it is still considered a private securities act and the re would need to do what to participate and receive the compensation -

Answer 37

1. notifiy her firm in writing 2 also receive permission in order to participate

Question 38

3-7 Firm B must do the following four things if an employee of Firm A intends to open an account with Firm B

Answer 38

1. Notify Firm A in writing of the intention of employee 2. Send duplicate confirms and statements to Firm A if requested 3. Have the account approved by a principal at Firm B 4. Notify the employee that his employer will be contacted

Question 39

3-8 Which of the following choices would NOT be considered a restricted person? a. aunt of assoc person who lives in spare room in house b. person who buys and sells securities on behalf of an institutional investor c. the attorney of the underwriter offering the new issue d. the brother of the associ persons father

Answer 39

d. the brother of the associ persons father

Question 40

3-10 (no 9) Firms allowed to release confidential client info w/o client written permission when:

Answer 40

IRS is preparing for audit or SEC

Question 41

The following actions would be grounds for the statutory disqualification of an applicant's registration.

Answer 41

Having been expelled or suspended from membership or participation in, or barred or suspended from being associated with, any self-regulatory organization or foreign equivalent of a self-regulatory organization • Having associated with any person who is known or, with exercise of reasonable care, should be known, to be a person that is subject to an order of the Commission, other appropriate regulatory agency, or foreign financial regulatory authority (making choice (a) correct) • Having been convicted, not simply indicted, within the last 10 years of any felony or securities-related misdemeanor (making choices (c) and (d) incorrect) • Having willfully made any statement that was false or misleading with regard to any material fact, or having omitted to state any material fact in any self-regulatory organization application, report, or proceeding

Question 42

Issuer-directed offering and allows associated persons to purchase IPOs if the issuer specifically directs the offering to them. In this case, the issuer is directing the IPO to employees and immediate family members of employees, allowing the Operations Professional to purchase up to _______ shares.

Answer 42

500 shares

Question 43

In order to correct a misreported transaction after the trade date, a broker-dealer uses the:

Answer 43

As/of function