Series 79 Flashcards
(220 cards)
1
Q
Any person who performs investment banking activities is required to do what?
A
Pass the series 79 exam
2
Q
Is an employee who is engaged in both investment banking activities and general securities business required to pass only the 7?
A
No - he is required to pass both the 79 and 7
3
Q
Is receiving any parts of an examination from any person considered to be a violation?
A
Yes
4
Q
How long must candidates wait after failing an exam the first or second time to take the second or third exam?
A
30 days
5
Q
How long must candiates wait after failing an exam for the third time?
A
180 days
6
Q
What must agents do in addition to qualifying under FINRA rules (ie passing the 79)
A
Must ensure proper registration in each state as well (most states require the series 63 examination in addition to the 79)
7
Q
Along with the individuals who are required to be registered in a state, what must be true of the securities that are sold?
A
Each security that is sold to a customer must either be registered (blue-skyed) under state law or be exempt from registration. If there is more that one state involved (e.g. the RR works in one state, but the client resides in another state), the security must generally be registered or exempt in each jurisdiction
8
Q
If there is more than one state involved (e.g. the RR works in one state but the client resides in another state), the security must be what with respect to each state?
A
The security must be registered or exempt in each jurisdiction
9
Q
If a person who is associated with a FINRA member firm has been indicted or pleads guilty to any felony or misdemeanor that involves the purchase or sale of a security, theft, robbery, burglary, extortion, forgery, or counterfeiting, the event must be what?
A
Reported to FINRA
10
Q
If a person is not subsequently convicted of the act, is he subject to voluntary disqualification?
A
No - however, if found guilty he may be subject to statutory disqualification and may no longer be associated with a FINRA member firm in any capacity - even in an unregistered capacity
11
Q
What must a firm do in order to continue to employee someone who has been subject to statutory disqualification?
A
A firm must file an MC-400 (membership continuation) with FINRA requesting special permission through a process referred to as an Eligibility Proceeding
12
Q
When a registered representative resigns or is terminated from employment with a member firm, what is the firm required to do?
A
They are required to notify FINRA within 30 days by filing a u5 form with the applicable details
13
Q
When a registered rep resigns or is terminated from employment with a member firm, the member firm is required to file a specific form with FINRA, what is that form? Who is also, in addition to FINRA, required to be provided with a copy of this form?
A
a U5 form. The firm is also required to provide the former employee with a copy of the form
14
Q
What does the U5 form state?
A
The U5 states whether the termination was voluntary or involuntary as well as any relevant compliance information
15
Q
What are the four ways that issuers have to obtain money?
A
- Remove funds from their bank accounts
- Borrow from a bank
- Borrow from the public (issue bonds)
- Offer an ownership stake (equity) in their company to the public in return for the needed capital
16
Q
What is a primary offering?
A
In a primary offering, the corporation (issuer) seeks to sell its securities directly to investors
17
Q
Is the weekly offering of treasury bills by the US government an example of a primary offerin?
A
Yes
18
Q
How do secondary markets help firms raise money?
A
Although the resale of securities has no direct effect on the issuing entity, the ability to resell a stock or bond (liquidity) increases an investor’s willingnes to raise additional capital in the future
19
Q
How are trading markets traditionally broken down (two categories)
A
- Physical trading floors (NYSE)
2. Electronic marketplaces (Nasdaq)
20
Q
Issuers that are seeking access to capital often approach financial firms for assistance. Many of these firms are referred to as broker-dealers - what is that?
A
The term broker dealer refers to the two possible capacities in which a firm may act when affecting a transaction
21
Q
What is a broker?
A
A broker is defined as any person engaged in the business of effecting transactions in securities for the account of others
22
Q
What is a dealer?
A
A dealer is defined as any person engaged in the business of buying and selling securities for its own account
23
Q
Broker dealer departments include investment banking, sales, trading, and operations - what is investment banking?
A
Investment banking is the area that works directly with the issuers to arrange and structure the needed financing. For example, these financial professional may advise an issuer whether it should sell stocks, bonds, or a combination of both to obtain funds. Investment bankers are often referred to as underwriters
24
Q
Broker dealer departments include investment banking, sales, trading, and operations - what is sales?
A
Sales professional are often referred to as registered representatives (RRs). Historically, these personnel were referred to as stock brokers or bond brokers. Financial professional who work in the sales area market products to both retail investors (individuals) and institutions such as pension plans and college endowments
25
Broker dealer departments include investment banking, sales, trading, and operations - what is trading?
Trading professionals handle the execution of trades for both the firm's clients and the firm's own account. These executions (trades) may occur on an exchange or in the over the counter market
26
Broker dealer departments include investment banking, sales, trading, and operations - what is operations?
This department ensures that all paperwork, funds, and securities transfers that are associated with a trade (or processing) are handled efficiently and in accordance with industry standards, Operations personnel perform functions such as generating customer statements, confirmations, and tax records, as well as engaging in the transfer of securities and/or funds. THese personnel are also responsible for verifying that all firm and client assets are organized properly and safeguarded
27
The major regulation for capital raising, trading, and clearing are heavily regulated. The major regulation comes from laws - also referred to as what?
Laws (also referred to as Acts) that are passed by Congress and enforced by the SEC
28
Who creates and enforces day to day operations?
day to day rules are often handled by SROs, such as FINRA
29
Is FINRA and SRO?
Yes , the financial industry regulatory authority (FINRA) is an SRO)
30
Compliance professionals create a series of house rules that will form the basis for what?
A firm's written supervisory procedures (WSP)
31
Under SRO rules, what must each individual who seeks registration with a member firm complete?
A form U4
32
Who is the form U4 filed with and reviewed by?
The central registration depository (CRD)
33
Potential customers may obtain certain information about the disciplinary history of registered representatives from the CRD system by calling a toll-free telephone number or through FINRA's online BrokerCheck system
Note
34
Could a "yes" answer to some of the questions on the U4 form lead to a statutory disqualification
Yes
35
Statutory disqualification refers to the denial of an application for registration based solely on past transgressions, such as:
1. Being expelled or suspended from a SRO
2. Having a registration denied, suspended, or revoked by the SEC or another regulatory agency (including the commodity futures trading commission and foreign regulators)
3. Violating, or assisting in the violation, of any securities or commodities law, or any rule of the MSRB
4. Failing to reasonably supervise a subordinate who violateds rules. This does not apply if (1) there was a supervisory system in place which would reasonably be expected to detect the violation, and (2) the supervisor reasonably discharged duties under the system
5. Being convicted of a felony or misdemeanor involving false reports, bribery, perjury, crimes related to funds or securities, or any other felony within the last 10 years
Note
36
A convicted felon is barred from the operating the securities business for 10 years from the time of her conviction
Note - a disqualified person may apply to an SRO to enter or reenter the securities industry before the 10year period has elapsed
37
By signing the form U4, registered representatives also agree to file timely amendments if any information on the form changes
Note
38
Under SEC rule 17f-2, what are required of any registered employees of a broker dealer - including representatives and principals - an exception is made for employees who are not engaged in the sale of securities, do not have access to funds or securities, and do not handle or process funds or securities
Fingerprints
39
If answers to certain questions on a U5 change within 30 days following termination, an updated (amended) form must be filed - t/f?
True
40
If a person who was previously registered seeks employment with another member firm, the new firm must do what?
Investigate the person's qualifications - to accomplish this investigation, the firm must, within 60 days of filing Form U4 for the new employee, reveiw the form U5 that was submitted by the person's previous employer
41
If an applicants potential employer requests a copy of a form U5, it must be provided within how many business days of the request?
2 - however, if the applicant does not have a copy of Form U5, he must promptly request a copy from from his former employer and then provide it to the requesting firm within two business days of receipt
42
FINRA retains jurisdiction over a registered representative for two years following any termination of registration - therefore, if an individual decides to return to a brokerage firm as a registered representative, he will be able to do so without having to requalify with FINRA (essentially wihtout retaking his regulatory exam) if he becomes employed by a member firm within that two year period
Note
43
What is the most inclusive registered representative registration (which allows you to sell any security)
The series 7
44
What is investment banking defined as?
Work being performed by associated persons of a broker-delaer which primarily involves:
1. Advising on or facilitating debt or equity securities offerings through a private placement or a public offering, including origination, underwriting, marketing, structuring, syndication, and pricing of such securities and managing the allocation and stabilization activities of such offerings
2. Advising on or facilitating mergers and acquisitions, tender offers, financial restructurings, asset sales divestitures or other corporate reorganizations or business combination transactions including but not limited to rendering a fairness, solvency, or similar opinion
45
Does the definition of investment banking cover individuals whose investment banking work is limited to public municipal finance offerings or direct participation program offerings (limited parnterships)
No - also, this registration category does not cover individuals whose investment banking work is limited to effecting private securities offerings
46
Does FINRA consider the content of its qualification exams to be confidential?
Yes
47
If a person is found guilty of any felony or misdemeanor that involves the purchase or sales of a security, theft, robbery, burglary, extortion, forgery, or counterfeiting, he may be subject to statutory disqualification and may no longer be associated with a FINRA member firm in any capacity - even in an unregistered capacity - t/f?
True
48
What must a firm file in order to continue to employ someone who was subject to statutory disqualification?
An MC-400 with FINRA requesting special permission through a process referred to as an Eligibility proceeding
49
If an MC-400 is denied, and the employee is terminated what must the firm file?
The firm must file a Form U5
50
What are the activities of non-registered persons within a broker dealer limited to?
1. Extend invitation to firm-sponsored events
2. Inquire as to whether a prospective customer wished to discuss investments with a registered representative
3. Inquire as to whether a prospective cusomter wished to receive sales material from the firm
51
non-registered persons my not solicit orders or new accounts, provide investment advice, make recommendations, give pricing information, or execute transactions on behalf of the firm
Note - they can't even solicit new accounts
52
In situations in which an associated person of a foreign broker-dealer is permitted to make sales calls in the US, she must be accompanied by a registered representative of a US broker-dealer and any sales that are effected must be appear on the books and records of the US broker dealer
Note
53
Must all registered persons participate in an annual compliance review which may be conducted as an individual meeting with each representative or as a group meeting - in either case, the meeting must include a discussion of compliance issues that are relevant to the business of the representatives involved. The emphasis of the meeting should be on regulation and complaince, but not product knowledge
Note - participation in these annual compliance meetings should be documented
54
A member firms registered and associated persons are also required to participate in an industry mandated continuing education (CE) program
Note
55
The mandatory CE program is broken down into 2 parts, what are they?
1. The regulatory element
| 2. The firm element - which is the responsibility of each broker-dealer
56
How often must registered persons participate in regulatory element training?
On the second anniversary of their initial securities registration and every three years thereafter - this requirement continues for as long as a person is associated with a member firm in a registered capacity
57
How many days in advance will FINRA notify a broker-dealer of a registered representative's appropriate anniversary date for taking the regulatory element of his or her continuing education?
FINRA will notify a broker-dealer of a registered representative's appropriate anniversary date 30 days in advance
58
Is the anniversary for continuing education always related to the representative's initial date of registration?
No - the anniversary date could be a representative's initial registration or a significant disciplinary action (since certain disciplinary actions "restart the clock")
59
Once notification is made, the represnative has how many days to complete the regulatory element training before his registration becomes inactive?
120 days - note, the the registration becomes inactive, the rep cannot perform any activity or receive any compensation that requires securities registration
60
If an inactive status exceeds two years, a person must requalify for registration by retaking the appropraite examination - t/f?
True
61
What is a covered person?
Any registered person who has direct contact with customers while conducting a member firm's securities sales, trading, or investment banking activities, and her immediate supervisor is considered a covered person with regard to the firm element of continuing education
62
What must firms do on an annual basis with respect to the training of their covered personnel?
At least once per year, each firm must demonstrate to the regulators that it has analyzed and prioritized the training needs of its covered personnel and developed a written training plan based on that needs analysis
63
A broker-dealer must maintain records documenting the content of its program and the completion of the program by its covered registered persons
Note
64
Is a broker-dealer;s firm element plan required to be submitted for regulatory review?
No - the broker-dealer's firm element is not required to be submitted for review unless requested - but the broker dealer must maintain records documenting content of program and the completion of the program by covered registered persons
65
Is it true that registered persons who are called into active military service are exempt from the two year inactive status limitation that normally applies to registration reinstatement?
Yes
66
During the period of active military service, individuals are not permitted to function as registered representatives by contracting customersl however, they may continue to receive compensation based on their previous securities transactions
Note
67
If a person doesn't register within 90 days of the completion of active duty, she has the standard two years to register - t/f?
True (minus the time between termination and engaging in active serivce)
68
The demand to sit for regulatory element of continuing education based on the second anniversary of initial registration is tolled during the period of active military service. THerefore, the demand to sit for Regulatory element of continuing education base don the second anniversary of initial registration and each three years thereafter is halted while the person is in active military service
Note
69
What is the main federal law that covers the operation of the secondary markets?
The Securities Exchange Act of 1934 (the Exchange Act)
70
What does the securities act of 1934 cover?
1. Regulation of transactions in the secondary market including anti-manipulation rules and regulation of the extension of credit in securities transactions
2. Registration and regulation of broker dealers
3. oversight of industry self-regulatory organizations
4. Registration and regulation of companies that have securities trading in the secondary market, including regular financial disclosures, proxy rules, and insider reporting
71
What are some securities that are exempt from some aspects of the securities exchange act of 1934?
Certain securities, such as US government securities and municipal securities are exempt from some aspects of the securities exchange act of 1934
72
THe exchange act authorized the creation of the securities and exchange commission (SEC) which is charged with what?
Enforcing the securities laws and creating rules to implement those laws
73
What created the SEC?
the exchange act of 1934
74
How are members of the SEC appointed?
They are appointed by the president with the advice and consent of the senate
75
How many commissioners are there in the SEC? Are there any regulations on how many of these commissioners can be from the same political party?
5 - no more than 3 of these commissioners may be from the same political party
76
How long are the terms of the commissioners of the SEC?
5 years - may not participate in securities transactions over their tenure
77
What does the phrase "manipulative, deceptiv, or other fraudulent device or contrivance" is considered to include any untrue statement of a material fact and any omission of a material fact that is necessary to make the statements made not misleading
Note
78
What is the most high-profile application of Rule 10b-5?
insider trading (but there are other manipulative acts such as wash sales, matched orders, and pool activities that are also prohibited
79
What are wash sales?
Wash sale represent the purchase and sale of securities by an individual without any beneficial change of ownerhship for the purpose of raising or depressing the price of the security
80
Matched sales are essentially cooperative wash sales?
True
81
Can an individual who suffers damages due to the manipulation of the price of a security sue the manipulator for recovery of the damages?
Yes
82
How long is the statute of limitations for manipulative activities?
3 years from the occurence of the manipulative activity or one year of discovery - whichever comes first
83
Is it acceptable to state that a firm is registered with the SEC, but fraudulent to state that any activities effected by a firm are approved by a regulatory body?
Yes
84
Are pro-forma financial statements allowed?
Yes - but a pro forma financial statement that projects the income or capital structure resulting from a business combination is allowed, but the securities act considers the use of the statements fraudulent unless the assumptions upon which the statements are based are clearly disclosed
85
Generally, the circulation of rumore is prohibited; however, unsubstantiated rumors that are published in some of widely circultated media may be discussed - t/f?
True - especially if the source of the rumors and the fact that they are unsubstantiated is disclosed
86
Is a FINRA member allowed to circulate a quote if the quote is not a bona fide bid for, or offer for the security?
No - A FINRA member is not permitted to publish or circulate a quote unless (the member) believes the quote to be a bona fide bid for, or offer for the security
87
Any quote that is not firm must be indicated as what?
Nominal or subject
88
To balance legitminate reasons why an issuer may choose to legitimately purchase its own stock in the open market, such as through stock buyback plans or funding employee stock purchase plans with the temptation to illegally increasing the price of its stock, the SEC has created what rule
rule 10b-18
89
What does rule 10b-18 cover?
Rule 10b-18 controls how an issuer or an affiliate may buy its own stock in the secondary market
90
Under rule 10b-18, safe harbor, if what conditions are met by an issuer will the SEC assume that it is not trying to manipulate its own stock price?`
1. Only one broker dealer may be used to place bids and make purchases during any trading session. The rule does permit an issuer to use one broker dealer during normal business hours and a different broker dealer during after hours trading
2. Making purchases at certain times of the day must be avoided. Issuers may not make a purchase that is the first transaction reported that day, nor may purchases be made during the last half hour of the normal trading day. If the issuer's securities are actively traded, the purchase prohibitions changes to within the last 10 minutes of the trading day
3. The bid or purchases price of securities is limited to certain prices. For securities that are quoted or reported in a consolidated system or interdealer quotation system that displays at least two quotations, the price may not be higher than the highest independent bid or the last independent transaction price - whichever is higher. For example, if the last independent transaction was 23.53 and the current bid/ask spread is 23.5 -23.6, the highest price at which the issuer may buy its stock is 23.52. For other securities, purchase must be effected at a price no higher than the highest independent obtained from three independent dealers
4. The amount of stock purchased on any single day is limited. The total volume on any single day may not exceed 25% of the ADTV for that security. However, in lieu of purchasing less than the 25%, the issuer may execute one block purchase per week if no other 10b-18 purchases are made that day. Note, the block purchase per week is no other 10b-18 purchases are made that day. Note, the block purchase is not included when calculating a security's four week ADTV under this rule
91
Rule 10b-18 regulates the purchasing of its own stock by an issuer - does the rule regulate the number of broker delaers that may be used to place bids and make purchases during the trading session?
Yes - 1. Only one broker dealer may be used to place bids and make purchases during any trading session. The rule does permit an issuer to use one broker dealer during normal business hours and a different broker dealer during after hours trading
92
Rule 10b-18 regulates the purchase of its own stock by an issuer - does the rule regulate the times at which the issuer can make its purchases?
yes - Making purchases at certain times of the day must be avoided. Issuers may not make a purchase that is the first transaction reported that day, nor may purchases be made during the last half hour of the normal trading day. If the issuer's securities are actively traded, the purchase prohibitions changes to within the last 10 minutes of the trading day
93
Rule 10b-18 regulates the purchase of its own stock by an issuer - does the rule regulate the prices at which the issuer can repurchase is shares?
Yes - The bid or purchases price of securities is limited to certain prices. For securities that are quoted or reported in a consolidated system or interdealer quotation system that displays at least two quotations, the price may not be higher than the highest independent bid or the last independent transaction price - whichever is higher. For example, if the last independent transaction was 23.53 and the current bid/ask spread is 23.5 -23.6, the highest price at which the issuer may buy its stock is 23.52. For other securities, purchase must be effected at a price no higher than the highest independent obtained from three independent dealers
94
Rule 10b-18 regulates the purchase of its own stock by an issuer - does the rule regulate the volumes at which the issuer can repurchase is shares?
Yes - The amount of stock purchased on any single day is limited. The total volume on any single day may not exceed 25% of the ADTV for that security. However, in lieu of purchasing less than the 25%, the issuer may execute one block purchase per week if no other 10b-18 purchases are made that day. Note, the block purchase per week is no other 10b-18 purchases are made that day. Note, the block purchase is not included when calculating a security's four week ADTV under this rule
95
What is a block purchase?
A block purchase is defined as a quantity of stock that either (1) has a purchase price of $200,000 or more, or (2) is at least 5,000 shares with a purchase price of at least $50,000 or (3) is at least 20 rounds lots that total 150% or more of the trading volume for that security (or if trading volume data is not available, is at least 20 round lots that total 1/10th of 1% of the outstanding shares of the security, less the shares that are basically owned by affiliates
96
When are the timing and volume restrictions pertaining to rule 10b-18 lifted?
Since issuer purchases may provide liquidity during periods of market turbulence, the timing and volume restrictions are relaxed following a market-wide trading suspension. The rule 10b-18 safe harbor iis available to an issuer that bids for or purchases its common stock either
1. From the reopening of trading until the close of trading on the same day as the imposition of the market wide trading suspension
2. At the next day's opening, if the market wide trading suspension was in effect at the scheduled close of trading
97
In the event that either of the exceptions of the volume limit rules of rule 10b-18 is used (ie Since issuer purchases may provide liquidity during periods of market turbulence, the timing and volume restrictions are relaxed following a market-wide trading suspension. The rule 10b-18 safe harbor is available to an issuer that bids for or purchases its common stock either
1. From the reopening of trading until the close of trading on the same day as the imposition of the market wide trading suspension
2. At the next day's opening, if the market wide trading suspension was in effect at the scheduled close of trading) what is the volume limit that is imposed?
in the event that either of the aforementioned exceptions is used ,the volume of purchases must not exceed 100% of the ADTV for that security
98
To use either of the exceptions to the volume limits on rule 10b-18, what must the the issuer still comply with?
The previously described price and broker dealer conditions
99
What doe rule 10b-5 make it unlawful to do?
1. Employ any device, scheme, or artifice to defraud
2. Make any untrue statement of a material fact or omit to state a material fact that is necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading
3. Engage in any act, practice, or course of business that operates or would operate as a fraud to deceit upon any person
100
An individual who sells a security based on an untruthful statement or the omission of a material fact may be held liable for how much?
Any monetary damages the buyer suffers - however, if the seller demonstrates that he used reasonable care and was not aware of the untruthful statements or omission, he will not be held liable
101
One of the most important applications of rule 10b-5 is what?
As it relates to insider trading
102
What is insider trading?
insider trading involves the purchase or sale of securities using material, nonpublic information about those securities in a fraudulent manner
103
If a corporation as material information, it must release the information to the public before any person may use the information to complete a transaction. It is innappropriate to selectively release the information to broker-dealers, financial analysts, shareholders, or any other limited group
Note
104
If a tippee knew, or should have known, that the information was confidential, both the tippee and the tipper may have violated insider trading rules
Note
105
Significant insider trading legislation was passed in the 1980s due to some high profile cases, what were these pieces of legislation?
1. Insider Trading Sanctions Act of 1984 (ITSA)
| 2. Insider Trading and Securities Fraud Enforcement Act 1988 (ITSFEA)
106
According to the ITSFEA any person may be held liable for trading violations if they purchase or sell a security while in possession of material nonpublic information or if they have communicated such information to another party in connection with a transaction
Note
107
What four things should compliance procedures to prevent insider trading include?
1. A system for monitoring employees' personal trading in firm proprietary accounts
2. Restriction or monitoring of trading in securities where the firm has access to inside information
3. Procedures to restrict access to files containing confidential information, including the establishment of information barriers between departments
4. Education of employees regarding insider trading issues
108
Information barriers consist of a set of procedures for preventing the transmission of confidential information from one department to another within a broker dealer. These barriers, formerly referred to as Chinese walls, may be physical or procedural
Note
109
Is there a safe harbor for a firm's information barrier procedures?
No -the burden is on the firm to be able to show that is procedures are adequate
110
Restricted and watch lists contain securiteis that a firm's employees are either restricted or prohibited from trading or issues that are subject to closer scrutiny by the member firm
Note
111
Must restricted lists be distributed to employees?
Yes, but the contents of the watch list are generally only known to selected members of the legal and compliance departments
112
Should a firm's written supervisory procedures include a description regarding when and why certain securities have been added to, or removed from, the lists
Yes
113
Should lists contain the name of the person who added the security or deleted it from the list
Yes -however the rationale for the decision is not required
114
If an investment banking representative comes into possession of material non-public information, what is the best course of action?
The best course of action is for her to immediately notify her compliance department. At that point the compliance department would be able to put the company on the firm's watch list
115
For insider trading violations, a civil penalty may be imposed of up to three times the amount of gain made or loss avoided in the transactions
Note
116
With respect to insider trading, might the SEC also demand disgorgement of profits, which means that the guilty person must return the profits generated?
Yes
117
For each violation, what is the criminal penalty for insider trading?
an individual may be subject to fines of up to $5 million and/or imprisonment for up to 20 years
118
For corporations and other non-natural persons, how much might the fine be for insider trading?
The fine may be up to $25 million per violation
119
Who handles all securities related criminal actions?
The Department of justice (DOJ)
120
Is it a best practice to have supervisory duties be conducted by someone who is less senior to another?
Yes
121
All broker dealers must create a written procedures manual which covers the scope and nature of the firm's business activities and methods of operation. The manual must also specify the detailed responsibilities of all supervisors and the review procedures they are required to follow
Note
122
Where must a copy of the written supervisory procedures be kept?
A copy of the written supervisory procedures must be kept in each office or location in which supervisory activities are conducted
123
Must the written procedures also explain the method by which completed supervisory reviews are documented?
Yes
124
The supervisory manual includes the titles, registration status, and location of supervisory personnel and their responsiblilities
Note
125
A record of the names of supervisory personnel and the dates for which their designation was effective must be prepared and maintained for three years and, for two of those three years, it must be kept in an easily accessible location
Note
126
Any amendments to the supervisory manual must be made within a reasonable time after changes in rules or regulations take effect
Note
127
In addition to maintaining written procedures, what must a member firm make available for examination by customers upon request?
A current copy of the FINRA manual must be made available for examination by customers upon request - it may be chosen to be made available in electronic format.
128
Each member firm must develop written proecures that are appropriate to its business size, structure, and customers, that allow for the review of incoming and outgoing writting and electronic corresponsedence with the public that relates to investment banking or securities buisness
Note
129
According to SRO (FINRA) rules, the CEO of a member firm must do what to attest to the fact that the firm has existing compliance supervisory procedures that are designed to comply with FINRA?
THe CEO of a member firm must execute and sign an annual certification that attests to the fact that the firm has existing written compliance and supervisory procedures that are designed to comply with FINRA, the MSRB, and federal securities regulation
130
The CEO of a member firm must execute and sign an annual certification that attests to the fact that the firm has existing written compliance and supervisory procedures that are designed to comply with FINRA and the MSRB, and federal securities regulation - when must this be filed?
No later than the anniversary dates of the previous year's certification
131
Under industry rules, a member appoint a principal to supervise the activities of any location that is defined as a(n) what?
Office of Supervisory Jurisdiction
132
What is an OSJ (office of supervisory jurisdiction) (note, under industry rules, a member firm must appoint a prinicipal to supervise the activities of any location that is defined as an OSJ)
1. Market Making and/or execution
2. Structuring public offering or Private placements
3. Maintaining custody of customers' funds and/or securities
4. Final acceptance (approval) of new accounts
5. Review and endorsement of customer orders
6. Final approval of retail communication
7. Responsibility for supervising one or more other branch offices
133
An OSJ must have what on the premises whose responsibilities include approving and reviewing accounts, transactions, correspondence, retail and institutional communication, and responding to customer complaints
An OSJ must have a General securities principal (Series 24) on the premises whose responsiblities include approving and reviewing accounts, transactions, correspondence, retail and institutional communication, and responding to customer complaints. If the principal has jurisdication over satellite offices, he must also approve accounts and orders within those offices and make frequent visits to those sites
134
A member firm may be required to designate other OSJs to ensure adequate supervision. Among the factors a firm must consider when making this determination are whether the branch has registered personnel engaging in retail sales involving regular contact with public customers, whether a substantail number of RRs conduct securities activities at this location, whether the branch is geographically distant from an OSJ, and wehther the activities at the branch are diverse or complex
Note
135
Does a non-OSJ branch have to be supervised by a principal (series 63)
No - a non-OSJ branch office may be supervised either by a principal or a competent registered representative
136
What is a branch office as defined by FINRA?
A branch office of a broker-dealer is defined as an office where one or more of the firm's associated persons regularly conduct the business of effecting transactions in, or inducing or attempting to induce the purchase of any security, or any location represented as such
137
What are some types of offices that are not required to be registered as branch offices?
1. Non-sales offices
2. Locations of convenience that are used occasionally and by appointment only
3. The floor of an exchange
4. Temporary locations that are used in a business continuity plan (ie backup offices)
5. Locations that are primarily used for non-securities business and from which fewer than 25 securities transactions are effected annually providesd that any retail communication generated by this location identifies the location that supervises the personnel who work at the location from which the communication was obtained
6. Any locations other than primary residences, that are used for securities business for fewer than 30 business days per year
7. Primary residences of registered representatives
138
Are non-sales offices required to be registered as branch offices?
No
139
Are locations of convenience that are used occasionally and by appointment only required to be registered as branch offices?
No
140
Are floors of exchanges required to be registered as branch offices?
No
141
Are temporary locations that are used in a business continuity plan (ie backup offices) required to be registered as branch offices
No
142
Are locations that are primarily used for non-securities business and from which fewer than 25 securities transactions are effected annually provided that any retail communication generated by this location identifies the location that supervises the personnel who work at the location from which the communication was obtained required to be registered as branch offices?
No
143
Are any locations that are used for securities business for fewer than 30 business days per year required to be registered as branch offices?
No
144
Are primary residences of registered representatives required to be registered as branch offices
No
145
What is the inspection cycle for OSJ and supervisory branch offices (offices that supervise one or more non-branch locations)?
they must be inspected annually
146
What is the inspection cycle for non-supervisory branch offices?
Non-supervisory branch offices are subject to inspection every three years
147
What is the inspection cycle for non-branch offices?
They are simply subject to regular inspection
148
According to FINRA rules how long must communications (all retail communications, institutional communications, research reports, and correspondence (including email and instant messages) be kept on file?
A minimum of three years
149
Customer order tickets and trade confirmations must be kept on file for how many years?
3 years
150
Is it true that any type of correspondence that is used by a member firm must be able to be stored?
Yes
151
Are SEC registration statements (e.g. forms S-1 or S-3) prospectuses (including red herrings or preliminary prospectuses) required to be kept on file by member firms?
No - kind of odd, but apparently not
152
FINRA requires all member firms to create an AML compliance program that includes policies and procedures that are reasonably designed to detect money laundering and stipulate the reporting of suspicious transactions
Note
153
What FINRA rules states that the firm must designate an individual or group of individual as compliance officers to be responsible for monitoring and implementing the firm's AML program?
FINRA rule 3011
154
Does FINRA rule 3011, the rule that states that the firm must designate an individual or group of individuals as compliance officers to be responsible for monitoring and implementing the AML program require that that/those individuals come from within the compliance department?
no - but the rule states that the name of the person(s) responsible for overseeing the program must be provided to FINRA and that the person(s) must have a working knowledge of the bank secrecy act
155
A firm's program must provide for ongoing employee training and include an independent audit function to test the program's (AML program) effectiveness - testing of the program must be done on an annual basis with more frequent testing if warranted
Note
156
If the member does not execute transactions for customers, does not hold customer accounts, and does not act as an introducing broker with respect to customer accounts (e.g. engages solely in proprietary trading or conducts business only with other broker-dealers), then independent testing is only required every how many years?
2 (as opposed to 1 otherwise)
157
What must broker-dealers file for all cash transactions executed by a single customer during one business day that exceed $10,000
Currency Transaction Reports (CTRs) (FinCEN Form 104)
158
When must broker dealers file Fincen form 104s (currency transaction reports)
For all cash transactions by a single customer during one business day that exceed $10,000 - the reporting requirement is also triggered when a customer places multiple, smaller transactions during a single day that, in an aggregate, exceed $10,000
159
What must be filed whenever a person physically transports, sends, or receives cash, cash equivalents, or monetary instruments in an aggregate amount exceeding $10,000 into or out of the US?
A currency and monetary instrument transportation report (CMIR) must be filed whenever a person physically transports, sends, or receives cash, cash equivalents, or monetary instruments in an aggregate amount exceeding $10,000 into or out of the US
160
When must a currrency and monetary instrument transportation report be filed?
whenever a person physically transports, sends, or receives cash, cash equivalents, or monetary instruments in an aggregate amount exceeding $10,000 into or out of the US?
161
Broker dealers who transfer or transfer or transmit funds (wire transfers) must collect information about any transfer of X or more, including the names of the transmitter and recipient - what is X
$3000
162
What form is filed by a financial institution if a transaction involves at least $5,000 and the member firm knows or has reason to believe that the funds are derived from an illegal activities, designed to avoid the filing of other forms, or have no legitimate lawful purpose
A suspicious activities report (SAR) also referred to as FinCEN form 101, is filed if a transaction involves at least $5,000 and the member firm knows or has reason to believe that the funds are derived from an illegal activities, designed to avoid the filing of other forms, or have no legitimate lawful purpose
163
When is a FinCen form 101 (suspicious activity report
| - SAR) filed?
if a transaction involves at least $5,000 and the member firm knows or has reason to believe that the funds are derived from an illegal activities, designed to avoid the filing of other forms, or have no legitimate lawful purpose
164
In what time frame must a FinCen form 101 be filed? (from the date of the $5000 suspicious activity) (SAR)
It must be filed no later than the 30th day after the member firm discovers the activity.
165
Would the member firm notify the person who entered into the transaction that the report is being filed of a FincCen form 101? (SAR - suspicious activity report)
No - recall, this is the form pertaining to the 5000 or greater suspicious activity
166
Under no circumstances may a registered representative inform the subject of an SAR that a report has been filed
Note - only disclose to federal law enforcement and securities regulators
167
Is it true that broker dealers are required to take reasonable steps to verify the identity of customers who intent to open accounts and must check the information they are provided
Yes - note - firms must be especially careful to ensure that they are not doing business with any person whose name appears on a list maintained by the US Treasury Department's Office of Foreign Asset Control (OFAC). The OFAC list includes the names of known and suspected terrorists and other criminals, as well as pariah nations
168
As part of its AML compliance procedures, what are member firms required to establish? (with respect to customer ID)
A written customer identification program (CIP
169
With respect to the AML and the written customer ID program, for US citizens what is the member firm required to obtain?
The client's name, date of birth, address, and taxpayer identification number
170
With respect to the AML and the written customer ID program, for non-US citizens what is the member firm required to obtain?
One of the following: taxpayer ID number, passport number and country of issuance, or any government issued document that includes a picture and provides evidence of the individual's nationality
171
Must member firms verify the identify of any new customer usually be asking the customer to provide a government issued identification document such as a driver's license or passport
Yes
172
The office of foreign assets control (OFAC) has administered US economic sanctions and embargoes with a number of countries - which ones?
Cuba, north korea, syria, iran
173
What must any US bank that has knowledge of a payment to or from one of the OFAC sanctioned countries do?
Block the transaction and report it within 10 business days
174
Are banks prohibited from maintaining correspondent accounts for foreign shell banks (ie a bank with no physical presence in any country)
Yes
175
What are the penalties for violations regarding AML laws?
Up to 20 years in prison + fines up to $500,000 or twice the amount of the funds involved - whichever is greater - violators may also face civil fines which may easily add up to millions of dollars
176
What does FINRA Rule 3011 state?
That the firm must designate an individual or group of individuals, as a compliance officer(s) to be responsible for monitoring and implementing the firm's AML program)
177
What is the foreign corrupt practices act (FCPA)
The law prohibits corrupt of improper payments to foreign government officials for the purpose of obtaining business - the antibribery provision of the law applies to US companies, the US subsidiary of a foreign company, as well as any foreign private issuer that is an SEC reporting company. The position of the SEC and the Department of Justice (DOJ) is that non-US companies that issue stock or trade as an ADR in the US are subject to the FCPA
178
If improper payments are discovered as a result of the due diligence process, what is the best action for the investment banking firm?
To provide disclousre to both the SEC and the DO
179
Is it true that industry rules state that a member firm (executing member) that transacts bueinss for any employee, partner, or officer of another member firm (employer member) must use due diligence to determine that such transactions will not adversely affect the interests of the employer member firm
yes
180
When an executing member knows that a person who is associated with an employer member has a financial interest in, or discretionary authority over, any existing or proposed account carried by the executing firm, the existing member must do what three things?
1. Notify the employer member in writing of the intention to open the account
2. Send duplicate confirmations and statements to the employer member, if requested
3. Notify the person opening the account that these procedures will be followed
181
If a person associated with a member wishes to open an account with an investment adviser, bank, or other financial institution that is not a member of FINRA, the person opening the account must do what
Notify the employer in writing prior to opening the account
182
If a person associated with a member wishes to open an account with an investment adviser, bank, or other financial institution that is not a member of FINRA, the person opening the account must inform his employer,, and what may the employer request?
The employer may request, in writing, that the employee make a written request of the financial institution opening the account that it issue duplicate confirmations, statements, and other information to the employer member - however, the employer firm is not required to grant approval
183
If a person associated with a member wishes to open an account with an investment adviser, bank, or other financial institution that is not a member of FINRA, the person opening the account must inform his employer,, and The employer may request, in writing, that the employee make a written request of the financial institution opening the account that it issue duplicate confirmations, statements, and other information to the employer member - however, the employer firm is not required to grant approval -for what transactions do the requirements of this rule not apply?
The requirements do not apply to transactions involving redeemable investment company shares, variable contracts, or unit investment trusts
184
What must employees do if as registered personnel they pursue outside business interests as an employee, independent contractor, sole proprietor, officer or director and are being compensated (or have the reasonable expectation of being compensated)
They must provide their employers with prior written notification
185
Does an employer have the right to approve or disapprove of the outside business activity that the employee must inform the employer about?
Yes
186
Do passive investments generally need to be reported? What about participation in charitable activities for which no compensation is received
No - neither would need to be reported
187
What are private securities transactions?
Private securities transactions are transactions outside the regular scope of an associated person's employment with a member firm
188
What are private securities transactions sometimes called?
Selling away
189
What might selling away include?
Private placements, traditional public offerings, and arranging loans
190
What must an associated person engaging in selling away transactions do with respect to his employer?
He must provide written notice to the employing member
191
If an associated person is to receive compensation for a selling away transaction, the member must do what?
Specifically approve the transaction in writing in order for the person to participate - in such case, the transaction must be reported on the member's books
192
If an associated person will not be compensated for a selling away transaction, the member may nevertheless require the associated person to adhere to specific conditions in order to participate in the transaction
Note
193
When can an employee of a member firm share in the profits and losses in a customer's account?
1. The employee has made a financial contribution to the account
2. The sharing of the profits and losses is in direct relationship to the employee's financial contribution
3. The employee has obtained the prior WRITTEN consent of the member firm carrying the account
194
can registered individuals always borrow money from, or lend money to a customer?
No - Registed individuals may not borrow money from or lend money to a customer unless certain conditions are met
195
What are the 4 times that a registered individual can borrow money from or lend money to a customer?
1. Customer is an immediate family member
2. Customer is a financial institution that is regularly engaged in the business of providing credit, financing,, or loans
3. The customer and the RR are both registered person of the same broker dealer
4. The customer and the RR have either a personal or business relaionship that exists outside the brokerage relationship
196
Unless the customer is an immediate family member or a financial institution in the business of extending credit (e.g. a broker dealer lending funds in a margin account), RRs are required to do what?
Provide notification to their member firms and obtain written approval prior to extending into such arrangements
197
Are employees of member firms allowed to guarantee against losses in customer accounts or on transactions that are effected in customer accounts?
No
198
Are RRs allowed to reimburse a customer for losses?
No
199
Offering guarantees of any kind, whether related to the performance of a specific issue or the ability to participate in an upcoming distribution, is strictly prohibted
Note
200
What is the gift limit rule?
Under the rule, FINRA member firms or their associated persons may not give anything of value in excess of $100 per year to employees when the gift is in relation to the securities business of the recipient's employer
201
How do you go about valuing a gift (recall, under the gift limit rule member firms or their associated persons may not give anything of value in excess of $100 per year to employees when the gift is in relation to the securities business of the recipient's employer
Generally, a gift should be valued at the greater of its cost or its market value at the time is was given
202
If a gift is given to a group, what amount would be deemed to have been given to each of the individuals?
if a $200 gift basket is sent to branch office of four individuals, each individual is considered to have received a gift valued at $50 (200/4 = 50)
203
Is $100 per year a maximum limit on gifts (as a consolidated figure) for each individual at a member firm?
Yes - all gifts given by a member firm or its associated persons must be consolidated for purposes of the $100 per year permitted maximum. Therefore, if an RR makes a gift that is valued at $85 to an individual in relation to her securities business, the value of any other gits made by any associated person of the firm to that individual over the course of that year may not exceed $15
204
What kinds of gifts are excluded under the limitations of the rule regarding maximum allowable gifts?
1. Personal gifts given to an individual customer that are not related to the business of the employer
2. Promotional items and de minimis gifts
3. Business entertainment
4 Compensation for services
205
What are de minimis gifts?
De minimis gifts are those that have a trivial or minimal value
206
What are promotional gifts?
Promotional gifts are those that display a firm's logo and have nominal value including umbrellas, tote bags, and shirts
207
Are commemorative items that are decorative and serve to recognize business transactions or relationship excluded from the limit?
Yes
208
Ordinary and usual business entertainment is excluded from the gift limit if what conditions are met?
1. The business entertainment is not so frequent as to raise a question of impropriety
2. The member or its associated persons host the clients and guests
209
Does the term business entertainment (which is considered to be excluded from the limit of gift giving so long as it is not so frequent as to raise a question of impropriety) include transportation and lodging expenses?
Yes
210
Generally, although no business is being conducted, a person associated with the member firm must accompany and participate with the employee. Providing tickets, but not accompanying the employee, would be considered a gift rather than business entertainment
Note
211
Unless an exemption is available, are FINRA member firms permitted compensation employees of non-member firms for securities or underwriting business?
No - FINRA member firms are not permitted to compensate employees of non-member firms for securities or underwriting business
212
FINRA member firms are permitted to pay non-member firms for services rendered, however, they are prohibited from doing what?
Making payments related to business referrals
213
What is a complaint (as defined under industry rules)
Any written statement of a customer or any person acting on behalf of a customer alleging a grievance involving the activities of those persons under the control of the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer
214
Are member firms required to maintain a separate file of all written complaints in each office of supervisory jurisdiction (OSJ - always has principal)?
Yes
215
The complaint file must contain a description of the actions taken by the member firm regarding the compaint and must contain or refer to another file which contains any correspondence regarding the complaint
Note
216
Must a principal review each complaint?
Yes - but there is no review time frame requirement
217
How long must records of customer complaints be maintained?
4 years
218
Even if a member firm has not received any complaints, must a complaint file be maintained?
Yes
219
How often are FINRA members required to provide statistical and summary information regarding customer complaints
On a quarterly basis - the report is due on the 15th of the month following the end of the calendar quarter in which the complaints were received.
220
If no compaints were received during a quarter, is a quarterly complaint report required?
No
