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Flashcards in Regulations 10% Deck (20)
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SEC

-responsible for supervision of the capital markets
-writes laws that govern financial markets
-can enforce laws
-President appoints SEC board for term of years

1

FINRA bylaws

1. Uniform Practice Code (UPC) relates to dealings between member firms, covering all transactions in nonexempt securities while providing orderly completion of dealer to dealer transactions
2. Conduct Rules - relate to a member firm's dealings with the public
3. Code of Procedure - outlines the procedural process in the event of violations and complaints
4. Code of Arbitration - is concerned with settling disputes between dealers or brokers and the public

2

Security Exchange act of 1934

established to regulate the trading of securities after they have been issued (secondary market) and to regulate exchanges and B/D

3

UPC

-addresses how b/d interact with each other and associated persons

4

Which persons must be registered as principals?

-those who are actively engaged in the management of the member's securities business, including supervision, solicitation of the training of persons associated with the member.
1. sole proprietors
2. officers
3. partner
4. managers of offices of supervisory jurisdiction; and
5. Directors of corporations

5

Limited Principal

-Limited to shares of open-end investment companies, closed end investment companies during the IPO only, and variable contracts
-take the series 26 - investment company and variable products qualification exam

6

When must the regulatory element be completed?

-on the second anniversary date of their original registration, and every 3 years thereafter.
-they have 120 days from registration date for completion

7

Firm element

-continuing and current eduction
-at least annually

8

U5

-Uniform termination notice of securities registration
-written notice of termination
-must be provided within 30 days of termination
-still liable for 2 years following termination

9

disqualification

1. b/d who have been suspended or expelled from a registered national securities association or national securities exchange
2. b/d who have been barred or suspended for conduct inconsistent with just and equitable trade practices
3. b/d enjoined by a court from engaging as investment advisers, underwriters, brokers, dealers, or in any capacity in connection with the securities business

10

Correspondence

-written or email messages distributed to either existing customer's or to fewer than 25 prospective customers within any 30 calendar day period
-does not need to be approved

11

How long must retail communications be kept on file

3 years, along with the name of the preparing person and approving person

12

Institutional sales material

-gov entity or subdivision
-employee benefit plan with at least 100 participants
-qualified plan with at least 100 participants
-FINRA member, registered associated person or person acting solely on the behalf of any such institutional investor
-must be maintained for 3 years and approved by the principal

13

Private securities transaction

-defined as transactions effected outside the normal business of an associated person's employment with a member firm
-prohibited
-known as selling away
-new offerings of securities that are not reg with SEC

14

Private transactions

-must provide written notice for approval;
-the proposed transaction
-the person's proposed role; and
-compensation conditions

15

Non cash "approved" compensation

-gifts that do not exceed an annual amount of $100 per person and are not preconditioned on achievement of a sales target
-an occasional meal, ticket to a sporting event
-payment or reimbursement for the purpose of training

16

Code of Procedure:

-handling of security violations and complaints
-Department of Enforcement - receives complaint from customer or Board of Governonrs
-have initial jurisdiction
-National Adjudicatory Council (NAC) has appellate and review jurisdiction
-deals with discipline
-appeals go to the NAC, then to SEC, then court

17

AWC - under code of procedure

-Acceptance, waiver and consent (AWC) - similar to a plea, only available if the respondent does not dispute allegations

18

MRV - code of procedure

-Minor rule violation -
-less serious violation, administrative in nature
-max $5,000 fine with no appeals

19

Code of Arbitration

-settles inter-industry disputes
-provides a cost effective method through which disputes are typically settled much sooner
-a customer seeking monetary damages may also go to arbitration, customers normally agree to this when opening an account
-National Arbitration Committee appoints a panel, consists of an odd number
-$25,000 or less - simple arbitration
-any award is required to be paid within 30 days