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Flashcards in Chapter 8.1 Deck (15):

Self- Regulatory Organization(SRO)

-Is supported by it's own members
-Sets rules, regulations, and penalties
-Allows it's members to vote

**Examples include FINRA, CBOE, and MSRB
**SRO's are not Government Agencies
** All disciplinary actions taken place by SRO's are subject to SEC review.


FINRA executive representative

Each membership applicant is required to designate a "FINRA executive representative" who will represent, vote, and act for the member in all affairs of FINRA. The executive representative is required to be a registered principal in the Applicant's senior management.

**Each executive representative must have an e-mail account.


How long does FINRA have jurisdiction to bring disciplinary actions against member firms and associated persons?

2 years following the resignation, termination, cancellation, or revocation of their membership or registration.


Resigned member

Shall continue to be subject to the filing of a complaint based upon conduct which commenced prior to the effective date of the member's resignation. Any compliant shall be filed within 2 years after the effective date of the resignation, cancellation or revocation.


Successor Registration

In the event that a B/D succeeds to an continues the business or a B/D, the registration of the predecessor shall be deemed to remain effective as the registration of the successor if the successor, within 30 days after such succession, files and application for registration on Form BD, and the predecessor files a notice of withdrawal from registration on Form BDW; Provided, however that the registration of the predecessor B/D will cease to be effective as the registration of the successor B/D 45 days after the application for registration on form BD is filed by such successor.


In-accurate information contained in any application for registration

The B/D must promptly file with the Central Registration Depository(CRD) an amendment on Form BD correcting such information.

**Every amendment filed with the CRD will be deemed to have been filed with the SEC.


What must the SEC do within 6 months of the date of granting registration to a B/D?

Conduct an inspection of the B/D to determine whether it is operating in conformity with the provisions of the rules and regulations. The SEC may delay such inspection of any class of brokers or dealers for a period not to exceed 6 months.


Application is required for what?

-A merger of the member with another member
-The direct or indirect acquisition by the member of another member
-The direct or indirect acquisition of transfers of 25% or more in the aggregate of the member's assets or any asset, business or line of operation that generates revenues comprising 25% or more in the aggregate of the member's earnings measure on a rolling 36-month basis.
-A change in the equity ownership of partnership capital of the member that results in one person or entity directly in indirectly owning or controlling 25% or more of the equity or partnership capital; or
-A material change in business operations


Filing and Content of Application

-The member shall file the application with FINRA's department of member regulation
-An applicant shall submit an application that includes a Form CMA including a detailed description of the change in ownership, control, or business operations


Effecting change and imposition of interim restrictions

-A member shall file an application for approval of a change in ownership or control at least 30 days prior to such change
-A member may file an application for approval of a material change in business operations, other than modification or removal of a restriction, at any time, but the member may not effect such change until the conclusion of the proceeding, unless the Department and the member otherwise agree.


Rejection of Application that is not substantially complete

If the department determines within 30 days after the filing of an application that the application is not complete, the department shall reject the application and deem it not to have been filed. The department shall serve written notice on the applicant o the department's determination and the reasons therefor. FINRA shall refund the application fee, less $500.


Office of Supervisory Jurisdiction

Refers to any office of a member at which any one or more of the following functions take place:
-Order execution or market making
-Structuring of public offerings or private placements
-Maintaining custody of customer's funds and/or securities
-Approval of(not the opening of) new account on behalf of the member
-Review and endorsement of customer orders
-Final approval of advertising or sales literature for use by persons associated with the member
-Responsibility for supervising the activities of persons associated with the member at one or more other branch offices of the member

**Exempt from the OSJ definition: Locations that solely conduct final approval of research reports are exempt from the definition
**Each OSJ, including the main office, must have designated one ore more registered principals, whereas each Non-OSJ branch office must have designated a "Person-in-Charge" to carry out the supervisory responsibilities of each office
**If a registered principal is going to supervise multiple OSJ's the designated principal must have a physical presence on a regular and routine basis
**A "supervisor" is a registered principal who is physically located at the OSJ Branch office
**A "Person-in-charge" is a registered person(RR or principal) who is physically located at, and manages activities of individuals working at a Non-OSJ branch office.


FINRA branch office definition

Any location where 1 or more associated persons of a member regularly conducts the business of effecting any transactions in, or inducing, or attempting to induce the purchase or sale of any security, or is held out as such.


Exclusions to the definition of branch office

-Any location that is established solely for customer service and/or back office functions where no sales activities are conducted
-Any location that is associated with a person's primary residence provided that:
-Only 1 associated person, or multiple associated persons, who reside at that location and are members of the same immediate family, conducts business at that location
-The location is not held out to the public as an office and the associated person does not meet with customers at the location
-Neither customer funds nor securities are handled at that location
-The associated person is assigned to a designated branch office, and such designated branch office is reflected on all business cards, stationery, advertisements, and other communications to the public by such associated person
-The associated person's correspondence and communication with the public are subject to the firm's supervision(must be able to be "captured" by the firm)
-Electronic communications are made through the member's electronic system
-All orders are entered through the designated branch office or an electronic system established by the member that is reviewable at the branch office
-Written supervisory procedures pertaining to supervision of sales activities conducted at the residence are maintained by the member
-A list of the residence locations is maintained by the member
-Any location, other than primary residence, that is used for securities business for less than 30 business days in any calendar year
-Any office of convenience, where associated persons occasionally and exclusively by appointment meet with customers, which is not held out to the public as an office. An associated person may not establish regular business hours at such location or hold out the location in any way. Final approval and execution of transactions must be done through the branch office
-Where such office is located on bank premises, signage necessary to comply with federal, state, and banking laws may be displayed and will not be deemed "holding out" for purposes of this rule.
-Any location that is used primarily to engage in non-securities activities and from which the associated persons effects no more than 25 securities transactions in any one calendar year; provided that any advertisement or sales literature identifying such location also sets forth the address and telephone number of the location from which the associated person conducts business at the non-branch locations are directly supervised.
-The floor of a registered national securities exchange
-A temporary location established in response to the implementation of a business continuity plan


If branch office information becomes inaccurate or incomplete, what must happen?

Amendments must be filed with FINRA not later than 30 days after the firm learns of the facts giving rise to the amendment