series_24_day3_5_brainscape_flashcards
(16 cards)
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What is FINRA Rule 5110 and why is it important?
Rule 5110, the Corporate Financing Rule, regulates underwriting compensation and prohibits excessive underwriting fees. It ensures fairness and transparency in public offerings. Compensation limits are typically 10% of gross proceeds.
What does FINRA Rule 5121 cover?
Rule 5121 deals with conflicts of interest in offerings. If a broker-dealer has a conflict (e.g., owns 10%+ of the issuer), it must disclose the conflict and bring in a Qualified Independent Underwriter (QIU).
What is the purpose of Rule 5130?
Rule 5130 prohibits ‘restricted persons’—like broker-dealer employees and their immediate families—from buying IPO shares to prevent unfair allocation of new issues.
What does Regulation M aim to prevent?
Reg M prevents manipulation during offering periods. It restricts activities like stabilizing bids, short selling, and certain trading by distribution participants to ensure a fair market.
What is a penalty bid and how must it be disclosed?
A penalty bid occurs when a syndicate member loses their selling concession if the investor sells too quickly (i.e., ‘flips’ the IPO). Must be disclosed in offering documents.
What is the reporting deadline to FINRA’s Trade Reporting Facility (TRF)?
Within 10 seconds of execution during market hours. Real-time reporting ensures market transparency.
What does FINRA Rule 5210 prohibit?
Rule 5210 prohibits publishing or circulating any false or misleading quotes, trade reports, or price data.
What is front-running and what rule prohibits it?
Front-running is executing a trade based on knowledge of an impending customer order. Prohibited by FINRA Rule 5280.
What are the key requirements under Regulation SHO?
Reg SHO mandates a locate before short sales (Rule 203(b)) and includes rules to prevent naked short selling. It also imposes close-out requirements for fails to deliver.
What is the ‘best execution’ obligation?
Broker-dealers must seek the most favorable terms for a customer order, considering price, speed, and likelihood of execution. Applies to all clients, retail and institutional.
What is FINRA Rule 2111 and what does it require?
Rule 2111 covers suitability. Reps must have a reasonable basis to believe a recommendation is suitable based on a customer’s investment profile (age, goals, risk tolerance, etc.).
What is the Know-Your-Customer (KYC) rule?
FINRA Rule 2090. Firms must use reasonable diligence to understand essential facts about each customer before opening an account or making recommendations.
What is the margin call timeline under Regulation T?
If a customer buys securities in a margin account, they must deposit the required funds within 4 business days (T+4). If not met, the firm must sell securities to cover.
How long must customer complaints be retained?
Customer complaints must be retained for 4 years. A copy must also be submitted to FINRA on a quarterly basis if required.
What’s required for a discretionary account to be approved?
Written authorization from the customer and written approval by a designated principal. Each discretionary trade must also be reviewed and approved promptly.
