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Regulations > FINRA Rules > Flashcards

FINRA Rules Flashcards

1
Q

What are SRO’s?

A

Self regulatory organizations. These are non-governmental orgs that have the power to create and enforce industry regulations and standards

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2
Q

What is the main objective of an SRO?

A

To protect investors by promoting ethics and quality

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3
Q

What 2 regulatory units combined to make FINRA?

A

NASD and NYSE

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4
Q

What is a registered Representative?

A

Someone who solicits orders to buy or sell securities. Must have passed the series 7.

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5
Q

What is a sales assistant?

A

Someone who has passed the Series 11 - they assist day to day dealings with clients and write order tickets. They canNOT open accounts or make any investment recommendations

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6
Q

What is a U-4 form?

A

Application for registration. This includes:

  • Employment history
  • Residence history
  • Descriptive info plus a questionnaire seeing if a person is subject to statutory disqualification
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7
Q

What is Fidelity bond coverage?

A

Required by mmber firms on all employees to insure againts loss due to theft or misappropriation of funds

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8
Q

What will disqualify someone from being registered?

A

If they have any MONEY-related misdemeanor, or if they have any type of felony in the past 10 years, among other things. Not that DUI misdemeanors will not disqualify someone

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9
Q

What is the CRD?

A

Central Registration Depository. This is where each registered person’s records are kept on file. You can see a rep’s disciplinary record at the FINRA website

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10
Q

What is the rule regarding a registered representatives outside work?

A

A RR cannot work outside the member firm doing anything else UNLESS the person provides prompt written notice and follows any instructions of the employer

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11
Q

When must computerized regulatory training sessions be completed? (This is the regulatory element of continuing education)

A

On the registrants 2nd anniversary of registration, and every 3 years after that. If incomplete within 120 days notice, the person’s registration is suspended and they cannot be paid until it is completed

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12
Q

What is the firm element of continuing education?

A

Annual training plan must be prepared by member firms to cover relevant compliance issues

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13
Q

What is the U-5 form?

A

This terminate registration. It must be filed within 30 days of registration to FINRA

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14
Q

What is “hanging licenses”

A

This is keeping a registration valid after leaving the business just to avoid retaking the exams (prohibited)

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15
Q

What is a FINRA reportable event?

A

Any event in which an associated person to the firm gets into trouble requires the member firm to file a written report to FINRA (even w/o conviction) within 30 days

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16
Q

What is a FINRA BrokerCheck?

A

Information regarding an RR’s or member firms disciplinary history can be accessed on the FINRA website. The info includes:

  • 10 year employment history
  • Securities license/regs
  • disciplinary records

Residence history and physical characteristics are EXCLUDED

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17
Q

What are the FINRA conduct rules?

A

These rules cover dealings with the public; i.e. gifts, business entertainment, etc

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18
Q

What is the FINRA gift limit?

A

$100 dollars per year per person

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19
Q

What is the business entertainment limit?

A

There isn’t a “limit” but should not be too excessive or frequent. Firms must create written policies and procedures covering business entertainment

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20
Q

Do FINRA conduct rules prohibit someone from paying an associated person to work?

A

No, as long as there is a written requirement spelling out the work, and the compensation to be received, and this is approved in writing by firm principal

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21
Q

How long are conduct rule records retained?

A

3 years (this includes record of gifts, and compensation to others

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22
Q

What is the definition of Correspondence?

A

Correspondence is communication made available to 25 people or LESS within any 30 calendar time frame

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23
Q

When is approval of correspondence required?

A

All of it is always required to be approved. It is required to be approved prior to issuance, with the exception of a Communications Compliance training program covering outgoing communications, and the firm also audits these. In this case, post-use review can be applied

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24
Q

When can an RR share in an account?

A

In general, RR’s cannot share in customer accounts, UNLESS registered rep gets written approval of employer and shares in DIRECT proportion to amount contributed. Proportion test is exempt for RR’s immediate family

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25
Q

When can an RR borrow or lend from customers?

A

In general, an RR cannot do this, with the only exceptions being immediate family, very close personal relationships, and a customer with a business relationship (aside from RR and customer)

26
Q

What must order tickets be stamped with? How long are order tickets retained?

A

Time it was transmitted to the floor, and the time it was executed. Order tix are kept for 3 years

27
Q

When must Broker dealer FS and FINRA manual be made availabe?

A

Upon customer request

28
Q

When must control relationships be disclosed?

A

At the time of the trade

29
Q

Can a RR solicit shares of their own firm?

A

No - not if it is publicly traded. However, the RR can accept unsolicited requests to buy the stock

30
Q

What must a broker dealer and/or its RR’s do before recommending a PPO (Private placement offering)

A

They must conduct an investigation regarding the security and the issuer’s representation about it (cannot blindly recommend a PPO)

31
Q

What does the 5% policy apply to?

A

For commissions - applies to all OTC and exchange transactions except those that require a prospectus

32
Q

What items are exempt from the 5% policy?

A

Mutual funds (8.5 percent) and limited partnerships (10 percent) and (obviously) exempt securities

33
Q

What is Rule 5130? (IPO)

A

Common equity IPO’s can NOT be purchased by FINRA members, their employees, or immediate family members of these. The rule also applies to fiduciaries to member firms and investment managers

34
Q

What must occur before ANY account can buy a common equity IPO?

A

The account owner us sign a statement saying that they are not in a restricted category that disallows them from purchasing an IPO (a reconfirmation is sent to the customer for this annually thereafter)

35
Q

What is the definition of Retail Communication?

A

Any written/electronic communication distributed or made available to MORE than 25 (26 or more) retail investors in a 30 day time frame. This requires principal approval before distribution

36
Q

What is the definition of Institutional communication?

A

Any written/electronic communication distributed or made ONLY available to INSTITUTIONAL investors (banks, savings and loans, investment co’s, gov’t entities, or any person with assets of $50,000,000 or more. No prior principal approval required with post use review program in place

37
Q

What is the basic rule for correspondence/communication regarding approvals?

A

Correspondence and institutional communication do NOT require prior approval, while RETAIL communication requires approval (retail = required)

38
Q

What is sales literature?

A

Material sent to MORE than 25 investors that is more specifically directed to certain groups. These include:

  • Market letters
  • Circulars
  • Seminars
  • Research reports
  • Form letters
  • PASSWORD protected websites
39
Q

Is a public appearance/forum considered to be retail communication or correspondence?

A

It depends on the amount of people. If there are more than 25 investors, it would be communication. If it is 25 or less people, it is correspondence

40
Q

When must Retail communication be filed?

A

For firm’s first year of op’s - 10 business days in advance of use

41
Q

What retail communication is ALWAYS filed 10 days in advance, no matter firm’s age?

A
  • Options retail comms

- mutual fund retail comms with member prepared performance rankings

42
Q

What retail comms are ALWAYS filed 10 days AFTER first use?

A
  • All other mutual fund comms (excludes the perf. rankings)
  • CMO retail comms
  • DPP retail comms
43
Q

Where are recommendations allowed and prohibited?

A

Recommendations are allowed in sales literature and correspondence but are prohibited in advertising

44
Q

Are testimonials allowed to be used?

A

Can be used as long as disclosure is made if they were paid more than $100

45
Q

What is a Research report?

A

Any communication that analyzes individual securities or companies and provides info sufficient to make an investment decision. Must state that advantages must also note the risks

46
Q

Who must approve research reports?

A

Supervisory analysts

47
Q

What must be included if past performance is used on a research report?

A
  • data for last 12 months
  • current general market trends
  • Transaction costs
  • Past performance is not indicative of future disclaimer
48
Q

What are the rules separating research departments from investment banking department?

A

Research departments can NOT:

  • Report to IB
  • Have reports approved by IB
  • Have comp. based on firm winning inv. based on IB
  • Have its reports approved by issuer prior to distribution
49
Q

What are the restrictions on member’s issuance of Research reports?

A

A member may not issue research reports about an issuer that the member was a manager or co-manager for on IPO’s until 10 calendar days following the effective date of the offering.

The same rule applies for secondary offerings, but it is a 3 calendar day restriction instead of 10

50
Q

What disclosures must a member firm make when recommending issuer’s securities for investment?

A

Member must disclose if:

  • it owns 1% or more of issuers stock
  • has any financial interest in that issuer
  • has managed an offering of that issuer in the last year
  • has been compensated from IB services by issuer in the last year
  • it is a market maker in the issuer’s stock
51
Q

Are tombstones and prospectuses considered to be advertisements?

A

No

52
Q

What is regulation AC?

A

Analyst certification. This requires BD’s and associated person, when making research reports, to include a statement by the analyst that:

  • views expressed are accurately reflecting own personal views
  • no part of analyst’s comp. was or will be related to recommendation
53
Q

When are third party research reports exempt from certification?

A

When they are TRULY independent of the BD

54
Q

What is the FINRA Code of Procedure?

A

This details the handling of customer grievances that did NOT sign arbitration agreements

55
Q

What is the District hearing panel?

A

This panel receives the complain and sends a copy to the firm, and the firm is obligated to respond in writing to the allegations. The panel determines if violation occurred and if so, the penalties

56
Q

What is the procedure for the District panel hearing?

A

A hearing is scheduled with at least 1 month’s notice to each party. The panel then renders a decision.

57
Q

Where does the first appeal to the district panel hearing go to?

A

FINRA National Adjudicatory Council (Board of Governors)

58
Q

Where does the second appeal to the district panel go to?

A

To the SEC

59
Q

Where does the third appeal of a hearing go to?

A

The Federal courts

60
Q

What is an MRV?

A

A minor rule violation. The is used for minor complaints, where the respondent admits guilt to the minor offense and is subject to a $2,500 max penalty

Regulations (6 decks)

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