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SIE Exam > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Registration

A

National Adjudicatory Council (NAC) establishes rules, regulations, membership eligibility and standards.

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2
Q

Broker Dealer Registration

A

any broker dealer registered with SEC is eligible to apply for membership to FINRA

affects transactions - broker dealers, investment bank - also register with FINRA

municipal bond firm - register with FINRA

firms agreement to:

  1. comply with association rules and regulations
  2. comply with federal securities laws
  3. pay dues, assessments, other charges in manner and amounts fixed by association

application made to FINRA district office, passes qualification, accepted into membership

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3
Q

Associated Person

A

any person associated with member firm who intends to engage in the investment banking or securities business must be registered with FINRA as an associated person.

must be sponsored by firm

member firm must ascertain persons business reputation, character, education, qualification, experience.

a member firms failure to register an employee who performs any function of a registered representative may lead to disciplinary action by FINRA

associated person may also be disciplined

no broker dealer may allow someone been barred to associate without commissions express permission

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4
Q

Fingerprint records

A

RR BD must have fingerprint records

sent to US Attorney General

sales, handle cash

receptionist handles incoming mail would need to be fingerprinted

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5
Q

Fingerprint exemptions

A

those selling only mutual funds, variable annuities, or direct participation programs are exempt from fingerprinting.

certain broker dealer employees are exempt

  • not involved in securities sales
  • not handle or access to cash, securities, books, records of entry
  • do not supervise
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6
Q

Registered Representative (RR)

A

all associated person engage in investment banking and securities industry

  • assistant officer not function as principal
  • individual supervises, solicits, conducts business
  • trains people to supervise, solicit, conduct
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7
Q

Registered Principal

A

anyone who manages or supervises any part of a members investment banking or securities business must be registered with FINRA.

Unless member firm is sole proprietorship - employ 2 registered principals.

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8
Q

Ineligibility

A

may not act unless FINRA eligibility standards are met

statutory disqualification - disciplinary sanctions by SEC, SRO, foreign, may be cause for statutory disqualification

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9
Q

Rejected Registration

A
  1. expelled or suspended from membership in any SRO or foreign
  2. under SEC order/ foreign order denying, suspending, or revoking registration, barring
  3. found to be cause of another BD to be expelled
  4. misstatements willfully made in application
  5. any felony, misdemeanor involving securities money
  6. court conjunctions prohibiting
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10
Q

Central Registration Depository (CRD)

A

maintains information on disciplinary history of all person currently registered.

customer can access

broker check required on all FINRA member websites

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11
Q

Denied Membership

A
  1. expelled or suspended
  2. subject to SEC ordering, suspending, revoking
  3. willfully filed false or misleading application

while bankruptcy or unsatisfied lien does not disqualify one from registering, failure to disclose the facts would

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12
Q

Continuing Education Requirement

A

registered person are required to participate in CE

firm and regulatory element

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13
Q

CE - Firm Element

A

requires member firms to prepare annual training plan taking into account recent regulatory developments, scope of member firms business activities, performance of its personal.

must be given to all registered person who have direct contact with public

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14
Q

CE - Regulatory Element

A

requires all registered persons to complete computer based training sessions within 120 days of persons second registration anniversary and every three years thereafter.

content is determined by FINRA and is appropriate to RR or principal status of person

if fail to complete - FINRA will deactivate until met

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15
Q

Home Offices

A

approval of member firm SRO is required

all normal business activities are permitted

subject to premise visits

home office address, telephone advertised in any normal manner.

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16
Q

FINRA Rules

A
  1. Conduct Rules
  2. Uniform Practice Code
  3. Code of Procedure
  4. Code of Arbitration
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17
Q

Conduct Rules

A

fair and ethical trade practices must follow when dealing with public

18
Q

Uniform Practice Code (UPC)

A 
uniform trade practices
-settlement 
- good delivery 
- ex dates 
- confirmations 
- DK procedures 
BD follow when conducting business
19
Q

Code of Procedure

A

how violations of code and conduct rules heard and handled

20
Q

Code of Arbitration procedure

A

governs resolution of disagreements and claims between members, RR, public

addresses monetary claims

21
Q

Form U-4 / U-5

A

representatives and principles must be registered with FINRA

u-4 = when hiring 
u-5 = when terminated
22
Q

Form U-4

A

register associated person
not effective until pass exams

fails exam = 30 days
3 fails = 180 days

  1. name, address, any aliases
  2. five year residency history
  3. 10 year employment history
  4. any charges, arrest, conviction investment business

any changes CRD 30 days)

must satisfy registration requirements of each state

information on martial status, education background is not required on form u-4, within 10 year employment if full time education must include

23
Q

Form U-5

A

must file if resign or terminated to CRD within 30 days

failure results in late fee

indicate reason for termination

if RR leaves to join another, copy of u-5 within 60 days

24
Q

License and Jurisdiction Retention

A

person Leave and affiliate within two years - license remains valid

after 2 years must repass exams

FINRA retains jurisdiction over person 2 years, customer complaints or charges, subject to FINRA rules for 2 year period following termination

Representative Park - parking is subject to sanctions

25
Q

Misleading or Omitting Information

A

BD and AP must not promote or disseminate false or misleading information

  1. recruitment advertising - potential commission or fee claims at never be exaggerated
  2. Brochures - chart with brochure shows long call neglects to reflect maximum loss from premium paid (graphs may never show opportunity for gain without showing loss potential)
  3. Professional or Educational designation (use of degree or designations may never be misleading nor can reference)

must consider nature of audience

26
Q

Customer Complaints

A

customer complaint received - red flag

notify
account representative, account principal, branch manager, compliance department

principal will need to address

complaint is defined as written statement by customer

27
Q

Customer Complaints - Take Note

A

it is common industry practice for new account form to have an arbitration agreement which binds the client to submitting all disputes to arbitration if they cannot be resolved.

without such an agreement, disputes between members and public customers can only go to arbitration at the insistence of the customer

28
Q

Customer Complaints - Example

A

customer opens new account - disputes price paid for securities - limit order - firm contends given market order

if complaint not resolved - directed to FINRA directors

if involves allegation of theft - notify FINRA within 10 days

excessive customer complaints red flag indicating improper use of customer funds, securities or both

29
Q

Recordkeeping Customer Complains

A

maintained in file at OSJ

each complaint accompanied by state of resolution endorsed by principal

member firms electronically file with FINRA

filing made within 15 days end of each calendar quarter

remember , copies of customer complaints, as well as quarterly files, must be retained for four years

30
Q

Outside Business Activities

A

must provide prior written notice to member
permission is not required
right to reject

Passive investments - not considered outside business activity, does not need approval

teaching night classes on finance would require

volunteering does not

31
Q

Private Securities Transactions

A

Also known as selling away

RR does not allow options transactions, but RR wants to, RR can accommodate client new option contract and transaction but go through another BD.

RR is selling away because transactions are not part of normal business

  1. provide written notice
  2. detail proposed transaction
  3. describe role in transaction
  4. disclose receive compensation
32
Q

Private Securities Offering - With Compensation

A

if transaction involves compensation, member firm may approve or disapprove.

approve - done on own books
disapprove - not allowed

supervision, and thus responsibility of all that is associated with the transaction, is that of employing member firm, NOT the bd who is accommodating the private securities transaction.

33
Q

Private Securities Offering - Without Compensation

A

not received or will not receive compensation, member firm must acknowledge receive written notification.

transactions associated with immediate family are excluded

34
Q

Political Contributions

A

should never be used to procure business

35
Q

Political contributions - RR

A

Investment Adviser Act of 1940

if made - may not provide services to any government for a fee for two years.

when soliciting business may not make contributions

36
Q

Political Contributions - Municipal Securities Dealer

A

MSRB - interpret rules, rules are enforced by FINRA

MSRB Rule G-37

37
Q

MSRB Play for Pay

A

deals with influence of political contributions on selection of underwriters.

  1. negotiated underwriters, municipal issuer select underwriter
  2. financial advisory work in which municipal issuers select municipal firm to structure New Issue
38
Q

Rule G-37

A

prohibits municipal firms from engaging in municipal securities for two years if contribution is made.

  1. municipal firm
  2. MFP
  3. PAC
39
Q

Municipal Finance Professional (MFP)

A

associated person of FINRA member firm engaged in municipal securities underwriting, trading, sales, financial advisory, research, investment advice, and any other activities that involve communication with public investors.

associated personal whose activity are limited solely to sales or have clerical or ministerial functions are not MFPS

able to donate max $250 - does not apply to municipal firms

40
Q

Gifts and Gratuities

A
  1. compensation is not condition of sales or promise of sales
  2. employing member firms prior approval
  3. for year not exceed $100 per year
41
Q

Noncash compensation

A

acceptable not condition of sales target.

  1. member firms prior permission
  2. location appropriate
  3. no payment or reimbursement of guest
  4. payment / reimbursement not condition on sales target
  5. no payment or reimbursement for golf outings, cruises, tours, similar entertainment
  6. member firms create record of all compensation

SIE Exam (9 decks)

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