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SIE Study Guide (personal notes, Kaplan) > Important Acts and Self Regulatory Organizations > Flashcards

Important Acts and Self Regulatory Organizations Flashcards

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1
Q

What does the Securities Act of 1933 govern?

A

The new issue (primary) market and requires issuers to register their securities when selling to the public

It involves the money-raising activities of issuers.

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2
Q

What is the purpose of the Securities Exchange Act of 1934?

A

Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges; created the SEC

BDs refers to broker-dealers.

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3
Q

What regulation does the Investment Company Act of 1940 cover?

A

The regulation of packaged products such as mutual funds, closed-end funds, and unit investment trusts

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4
Q

What does the Investment Advisers Act of 1940 regulate?

A

Firms that earn fees for providing investment advice

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5
Q

What is the purpose of the Securities Investor Protection Act of 1970 (SIPA)?

A

Covers the protection thresholds for customers in the event of a BD’s bankruptcy

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6
Q

What does the Insider Trading and Securities Fraud Enforcement Act of 1988 define?

A

Penalties for the misuse of material, nonpublic information by both firms and individuals

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7
Q

What is covered by The USA PATRIOT Act of 2001?

A

Anti-money laundering (AML) policies and procedures that must be followed by financial firms

It is partially based on the Bank Secrecy Act of 1970.

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8
Q

What does FINRA regulate?

A

Investment banking, trading in the OTC market, trading in exchange-listed securities, conduct of member firms and associated persons

FINRA stands for the Financial Industry Regulatory Authority.

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9
Q

What is one of FINRA’s objectives?

A

Promote the investment banking and securities business

This includes facilitating better practices in the securities industry.

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10
Q

Name a principle that FINRA aims to standardize.

A

Principles and practices

Standardization helps ensure consistency across the industry.

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11
Q

What does FINRA promote regarding commercial honor?

A

High standards of commercial honor

This promotes trust and integrity in the financial services industry.

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12
Q

What laws does FINRA encourage observance of?

A

Federal and state securities laws

Compliance with these laws is crucial for maintaining market integrity.

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13
Q

What kind of communication does FINRA provide a medium for?

A

Communication among its members, government, and other agencies

This facilitates collaboration and information sharing.

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14
Q

What kind of rules does FINRA adopt and enforce?

A

Rules designed to prevent fraudulent and manipulative practices

These rules are essential for protecting investors and maintaining fair markets.

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15
Q

What does FINRA promote among its members?

A

Self-discipline

Self-discipline helps maintain ethical standards within the industry.

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16
Q

What grievances does FINRA investigate and resolve?

A

Grievances between the public and members, and between members

This process helps ensure accountability and fairness.

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17
Q

True or False: FINRA has the power to arrest or prosecute criminal activity.

A

False

FINRA can notify law enforcement if it detects criminal activity.

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18
Q

Fill in the blank: FINRA’s purpose includes promoting just and equitable principles of _______.

A

trade

This is part of their mission to ensure fair practices in securities trading.

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19
Q

What are BD firms that have been granted membership to FINRA called?

A

Member firms

Member firms agree to abide by FINRA’s rules and regulations.

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20
Q

Who are the individuals that work for FINRA member firms and agree to FINRA rules?

A

Associated persons

Associated persons are required to comply with the same rules as their firms.

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21
Q

With whom may FINRA member firms do business?

A

Other FINRA member firms or institutions that meet specific exceptions

Exceptions include banks in underwriting municipal issues and foreign firms that are members of their nation’s FINRA equivalent.

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22
Q

What authority has FINRA been delegated by the SEC?

A

To administer qualification exams for associates of member firms

This ensures that individuals meet necessary standards for their roles.

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23
Q

What do the FINRA Conduct Rules cover?

A

The relationship between firms and their customers

They include fair dealing, compensation issues, communication standards, and sales practice violations.

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24
Q

True or False: Violations of the FINRA Conduct Rules are considered serious violations.

A

True

Violations can lead to significant consequences for member firms and associated persons.

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25
What does the Code of Procedure cover?
The enforcement of FINRA rules and the punishment of members who violate the Conduct Rules. ## Footnote The Code outlines how violations are handled and the processes involved in enforcement.
26
Who investigates suspected violations of FINRA rules?
FINRA's Department of Enforcement (DOE). ## Footnote Investigations typically arise from a FINRA audit or customer complaints.
27
What actions can FINRA take against a member firm or associated person upon finding a violation?
* Suspend, expel, or bar from membership * Impose fines * Censure * Any other action deemed appropriate ## Footnote These actions are part of the enforcement measures for rule violations.
28
To which body can DOE decisions be appealed?
The National Adjudicatory Council (NAC) of FINRA. ## Footnote Appeals can further go to the SEC and then to federal appellate courts.
29
What does the Uniform Practice Code (UPC) cover?
Trading and payment for securities transactions with other broker-dealers ## Footnote UPC rules include good delivery of securities and payment of dividends.
30
What is the purpose of the Code of Arbitration (COA)?
To provide a faster and cheaper resolution for monetary disputes than the traditional court system. ## Footnote COA is a FINRA-run dispute resolution process.
31
True or False: COA decisions can be appealed.
False. ## Footnote COA decisions are final and binding.
32
What type of disputes does the Code of Arbitration (COA) handle?
Disputes about money. ## Footnote The final decision in COA always involves a payment of money.
33
Fill in the blank: A customer involved in a monetary dispute with a BD must agree to _______.
arbitration. ## Footnote This agreement can be made before a dispute occurs.
34
What is commonly included in a new account agreement regarding disputes?
A pre-dispute arbitration agreement. ## Footnote This is standard practice for most broker-dealers (BDs).
35
What does MSRB stand for?
Municipal Securities Rulemaking Board
36
True or False: The MSRB is a self-regulatory organization.
True
37
Fill in the blank: The primary purpose of the MSRB is to protect ______ in the municipal securities market.
investors
38
Which of the following is a responsibility of the MSRB? A) Setting interest rates B) Writing rules for municipal securities dealers C) Conducting audits
B) Writing rules for municipal securities dealers
39
What is the main regulatory framework under which the MSRB operates?
The Securities Exchange Act of 1934
40
What are examples of non-debt municipal securities covered by the MSRB?
ABLE accounts and Section 529 plans
41
C.O.M.P.A.S
Records that are part of the life of the firm and must be retained **indefinitely** (for the life of the firm): * **C**orporate charter or articles of incorporation. This document is used if the BD is organized as a corporation. * **O**rganizational records related to the foundations of the firm; i.e. Form BD, the BD registration application. * **M**inutes recorded from board or partners meetings. * **P**artnership agreement if BD is organized as a partnership. * **A**mendments to any of the original records. * **S**tock certificate book if BD is organized as a closely held corporation. Stock certificate books are actual books where stocks are held until issued.
42
Blotters
* retained for **six years**; * A blotter is a record of original entry of the purchase and sale of securities, the receipt and delivery of securities, and the receipt and disbursement of cash. Blotters must reflect transactions as of trade date (or event date) and must be prepared no later than the following business day.
43
- must be maintained for six years; - contains accounting records of assets, liabilities, and networth; - must be prepared on regular basis for compliance
general ledger
44
stock record
- must be retained for **six years**; - shows all securities held by firm, ownership, and where securities are held; - must be prepared no later than business date after settlement date
45
* another term for customer statements; * Cash accounts and margin accounts are shown on separate ledgers. * These ledgers must be prepared no later than the settlement date. * six-year retention required
customer ledgers
46
- six year retention requirement - might include new account form and margin agreement
customer account records
47
This record shows when an associate is appointed to a principal position and what areas they will supervise. This is six years from the time the person leaves the principal position; also retained for six years.
designation of principals
48
How many years must the most recent two years of records be kept readily accessible?
Two years ## Footnote This applies to three- and six-year records.
49
Where must records be stored to meet the accessibility requirement?
Branch office, OSJ, or headquarters ## Footnote This is where the document would normally be stored.
50
After two years, where may the records be stored?
Offsite location ## Footnote Records must still be retrievable.
51
How long are most records retained?
Three years
52
Name one type of record that requires three-year retention.
Advertising ## Footnote This is one example among several.
53
What type of financial report is retained for three years?
Trial balances (monthly financial report)
54
What forms are included in the three-year retention requirement for terminated personnel?
Forms U4 and U5, and fingerprint cards
55
What must be retained for three years regarding customer transactions?
Customer confirmations
56
What type of records related to orders must be kept for three years?
Order tickets
57
List one type of ledger that requires a three-year retention.
* Securities borrowed * Securities loaned * Monies borrowed * Monies loaned * Dividends and interest received
58
What information must be recorded regarding associated persons?
A list of every office where each associated person regularly conducts business
59
What type of records related to compensation must be retained?
Associated persons' compensation records
60
What manual must be retained for three years?
The firm's compliance and procedures manual
61
What is the retention period for written complaints according to FINRA Rule 4513?
Four years after resolution ## Footnote This retention applies to all written complaints received by the firm.
62
Where are records of complaints typically maintained according to FINRA Rule 4513?
At the BD's office of supervisory jurisdiction (OSJ) ## Footnote The OSJ is associated with the office where the complaint originated.
63
Can complaints delivered to a firm's headquarters be retained there?
Yes ## Footnote Complaints can be retained at headquarters if delivered directly there.
64
What must be included in the written complaint report filed with FINRA?
A copy of the complaint ## Footnote This report is filed on a quarterly basis.
65
What does FINRA Rule 4513 apply to regarding complaints?
Reports regarding written complaints ## Footnote It includes both the complaints themselves and their associated reports.
66
What is required of each FINRA member firm concerning the office of supervisory jurisdiction (OSJ)?
Identify and register at least one OSJ ## Footnote Each firm must have a designated OSJ to oversee compliance.
67
Who must manage all OSJs according to FINRA regulations?
A principal ## Footnote The principal is responsible for overseeing the activities of registered associates.
68
What is the responsibility of the OSJ?
Overseeing activities of registered associates in its region ## Footnote The OSJ manages compliance and operational activities of its associated offices.
69
What is the record retention period according to SEC Rule 17a-3?
3 years ## Footnote Records must be readily available for at least two years of this period.
70
For how long must records be readily available under SEC Rule 17a-3?
At least two years ## Footnote This ensures that records are accessible for regulatory review during that time.

SIE Study Guide (personal notes, Kaplan) (17 decks)

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