Ch 1 S2 Registration of Personnel

Question 1

REGISTRATION OF PERSONNEL GENERAL PRINCIPAL (SERIES #24)

Answer 1

Every person engaged in managing or supervising Series #7 registered persons must be registered as a general principal General Principals include: Sole Proprietors Officers, Partners, Managers of Office of Supervisory Jurisdiction Directors of Corporations • each new membership applicant must have at least 2 principals (outside of a Sole Proprietor) • prerequisite is the Series #7

Question 2

Registration of Personnel. LIMITED PRINCIPALS are:

Answer 2

Sales Supervisor (Series #9/#10) Financial and Operations Principal (Series #27) Limited Financial and Operations Principal (Series #28) Registered Options and Security Futures Principal- ROP (Series #4) Investment Companies and Variable Annuities Principal (Series #26) Direct Participation Program (D.P.P.) Principal (Series #39) Municipal Fund Securities Limited Principal (Series #51))

Question 3

Sales Supervisor (Series #9/#10) roles

Answer 3

supervising sales activities but cannot: • be involved supervising underwritings or market making • approve advertising or sales literature • be responsible for overall compliance pre-requisite is the Series #7

Question 4

Financial and Operations Principal (Series #27) role

Answer 4

a clearing finn’s supervising accountant responsible for the finn’s financial reports which are filed with FINRA and SEC

Question 5

Limited Financial and Operations Principal (Series #28) role

Answer 5

each non-clearing firm has one of these responsible for less-involved financial reports filed with SEC and FINRA

Question 6

Registered Options and Security Futures Principal- ROP (Series #4)

Answer 6

for supervising all options transactions this individual: • approves each options account; • reviews all options transactions; and • provides general supervision over options accounts in addition, each firm must have a Designated Registered Options Principal (a designated ROP) who is the main office compliance person in charge of options compliance and approval of options advertising, educational material, and sales literature

Question 7

Investment Companies and Variable Annuities Principal (Series #26)

Answer 7

for a firm that solely engages in the sale of redeemable securities and has no other securities business • these firms are allowed to participate in the original distribution of closedend funds, BUT no secondary market activity is allowed in these shares [§ prerequisite is the Series #6 or Series #7

Question 8

Direct Participation Program (D.P.P.) Principal (Series #39)

Answer 8

for a firm solely engaged in the sale of limited partnerships and has no other securities business prerequisite is the Series #22 (D.P.P. Registered Rep. exam) or Series #7

Question 9

Municipal Fund Securities Limited Principal (Series #51))

Answer 9

responsible for all of the dealer’s supervisory functions, but only as they relate exclusively to municipal fund securities broker-dealers who do not need a Series #53 principal, but have a Series #24 or #26 - thus, this is a limited principal for 529 Plans, this person supervises the following as it relates to municipal fund securities: • underwriting, trading, or sales • financial advisory or consulting services for issuers in connection with the issuance of municipal fund securities • processing, clearing, and safekeeping • research or investment advice • communications with the public • maintenance of records related to the above activities • training of municipal fund securities principals or reps

Question 10

GENERAL SECURITIES REGISTERED REPRESENTATIVE (SERIES #7)

Answer 10

anyone who solicits or conducts business in securities for a member firm; anyone who makes recommendations to customers who is NOT a RR: persons whose duties are solely clerical or who solely handle exempt securities employees of foreign dealers who deal exclusively outside the U.S.

Question 11

LIMITED REPRESENTATIVES:

Answer 11

Investment Companies/Variable Annuities (Series #6) • DPPs (Series #22) • Options (Series #42) • Municipals (Series #52) • Corporates (Series #62) • U.S. Govt’s (Series #72) ADDITIVE LICENSES • if all the above licenses are taken by an individual, that person has the equivalent (more or less) of a Series #7

Question 12

SECURITIES TRADER (SERIES #57)

Answer 12

licenses an individual to be an equity and options trader

Question 13

SALES ASSISTANT (SERIES #11)

Answer 13

can qualify new customers • accepts unsolicited orders only • works on an hourly or salaried basis • cannot hold any other license • Exempt from #11 if individuals only: • relay last sale price information for customers • write memoranda of unsolicited customer orders 8 then the person does not need # 11 • once again, the NYSE does NOT accept this license (only FlNRA)

Question 14

U-4 FORM

Answer 14

Uniform Securities Application
• to register as a representative or principal, this
form must be completed and filed with FlNRA

• the U-4 has a questionnaire in it that inquires
about arrests, convictions, etc. and includes
whether the applicant was convicted of
possession of drugs, assault. etc …
– the SRO is permitted by the SEC to approve
these individuals convicted of a nonsecurities
felony on a “case-by-case” basis
this application essentially asks, “Is this
person a risk to investors?”

Question 15

Uniform Securities Application

application includes:

Answer 15

applicant’s name and address

broker-dealer’s name and address

old broker-dealer’s address if transferring
from another firm

5 year consecutive residence history

10 year consecutive employment history

any other businesses in which registrant is
engaged

any aliases

disclosure of any arrests,
convictions, .. .involving investments,
fraud, …

disclosure of any felony charge or
conviction (including felony DUis); and any
misdemeanor charge or conviction involving
money, securities, theft, perjury, …
• misdemeanors not reported are DUis,
traffic offenses, assault/battery, and
not filing an income tax return

disclosure of any customer complaint settled
for more than $ l 5K

disclosure of any customer complaint
alleging a sales practice violation ( even ones
where the case is heard, decided, or settled)

Question 16

Uniform Securities Application

registration is only effective…

Answer 16

after the
appropriate exam(s) are taken and passed
if an exam is failed, 30 days must elapse
before another attempt

if the individual fails 3 successive times, a
re-attempt is only allowed after 180 days
elapse - if failed again, another 180 must
elapse before another attempt is allowed

Question 17

Additional U-4 infoL

Answer 17

if anything changes, the U-4 filing must be
amended promptly

individuals convicted of a non-securities felony
can be registered ( on a case-by-case basis)

the U-4 is signed by the applicant

principal verifies prior 3 years’ employment
history

dual registration is permitted if disclosed on U-4
(and approval of the employer is given)

Question 18

OUTSOURCING

The b/d can outsource…

Answer 18

functions to
third parties (like payroll, IT, asset allocation
software … ), provided that the functions
outsourced are NOT functions that can only be
performed by a registered persons
i.e. sales solicitation. determining suitability.
making a recommendation, or writing an
order ticket (these functions canNOT be
outsourced)

• furthermore, if functions are outsourced, the
member still has responsibility for supervision
and compliance over these functions

Question 19

CENTRAL REGISTRATION DEPOSITORY (CRD)

Answer 19

each registered person’s record is on file at CRD

• any disciplinary action is part of the U-4
information and is recorded in that person’s file

• one can find out about a rep’s disciplinary
record at www.finra.org

Question 20

CONTINUING EDUCATION

Answer 20

Regulatory Element

Firm Element

Question 21

Regulatory Element

Answer 21

computerized regulatory training session
must be completed on the registrant’s 2nd
anniversary of registration and every 3 years
thereafter

• if not completed within 120 days of
notice, the person’s registration is
suspended; the person cannot be paid
and cannot function as a RR until the
element is completed

Question 22

Firm Element

Answer 22

annual training plan must be prepared by
member firms to cover relevant compliance
issues

Question 23

MILITARY DUTY

Answer 23

if a registered rep. is called for active military
duty, that person becomes “inactive” and both
the CE Regulatory and Firm Elements are
suspended

• the employing broker-dealer sends a letter to
CRD along with the rep.’s name, CRD #. and
the date the firm received notification of the
“call to duty”

once the rep. is discharged from military
service, a copy of the discharge is sent to CRD
so that the person’s registration can be reinstated
(basically from the point where he/she left off)
note that the rep. can reassociate with the
same firm or with another broker-dealer at
this point
also note that the firm can still pay the
individual while on military duty and the
rep. can arrange for another rep. at the same
firm to service his/her customers and can
share commissions with that other rep.

the individual must reassociate with the
member firm within 90 days of returning to
civilian life, or the registration is terminated
12 Registration Rules

• lastly, “special inactive status” is granted to
currently registered individuals who are called
to active military duty AND to anyone who is
called up for active military duty in the 24
months following termination of association
with a member

Question 24

U-5

FORM

Answer 24

Should have happened to Andy Bunce.

terminates registration

• must be filed with FIN RA within 30 days of
termination (to be reinstated, another U-4 must
be completed)

• member firm is required to give a copy of the
U-5 to the representative upon termination and
must state the reason for the termination, either
voluntary or for cause

• if a person leaves a member and associates with
another member:
the person must provide a copy of the U-5 to
the new employer within either:
• 2 business days of request ifU-5 has
been obtained from the ex-employer;
OR
• 2 business days of receipt from the
ex-employer

_with Web-CRD, a member can get this
info electronically once it becomes
available, though the old rule is still on
the books and could still be tested!_

• if bank employee registered through a
separate broker-dealer is terminated. in addition
to the U-5, the member must promptly notify
the bank

• if information becomes known about the
individual that was not included on the U-5, the
member must amend the U-5 within 30 days,
regardless of when the information becomes
discovered (i.e. after 5 years ofleaving the
industry, for instance)

, NOT signed by applicant

• after 2 years being unassociated with a
member finn. individual must re-qualify by
exam

Hanging Licenses ls Prohibited

• FINRA retains jurisdiction over the terminated
person for 2 years

Question 25

FINRA “REPORTABLE EVENTS”

Answer 25

member firms must file a written report if the
firm or an associated person (which includes
those who are registered and non-registered) has
“gotten into trouble”

the reports are required even if there is no
proof or conviction!

Question 26

FINRA must be NOTIFIED in writing

(“reportable events”)

Answer 26

member firms must file a written report if the
firm or an associated person (which includes
those who are registered and non-registered) has
“gotten into trouble”
the reports are required even ifthere is no
proof or conviction!

• FINRA must be NOTIFIED in writing
PROMPTLY, but NO LATER THAN 30 CALENDAR
DAYS, after the firm knows or should have
known, if an associated person:
has violated any securities laws;

receives a written customer complaint

alleging theft, misappropriation of funds, … ;

is named as a defendant in any legal
proceeding alleging violations of securities
laws;

is denied registration, expelled or
suspended;

is indicted or convicted (except for traffic
violations);

is convicted of any felony or misdemeanor
(again, except for tratlic violations and
misdemeanor DUis);
s

is a defendant or respondent in any
securities or commodities civil litigation or
arbitration settled for an amount exceeding
$15,000 (or $25,000 if the settlement
involved the member finn itself); or

is subject of disciplinary actions by firm
involving suspension, termination,
withholding of commissions or imposition
of fines in excess of $2,500

• every firm must report to FINRA if the member
or associated person has violated any securities,
insurance, commodities, or investment-related
domestic OR foreign law

• statistical and summary infomiation must be
FILED QUARTERLY by the firm for written
customer complaints - on the 15th of the month
following the calendar quarter in which a
complaint was received

Question 27

FINRA BROKERCHECK

Answer 27

provides information on individuals who are
currently registered or have been registered
within the last 10 years;
http://brokercheck.finra.org/

• the information found includes the broker’s:
10-year consecutive employment history;
outside business activities allowing
customers to assess how much an associated
person’s time is spent devoted to his/her
work in the securities industry VS
elsewhere;
securities licenses and registrations; and
disciplinary record, which includes both
complaints; allegations that have not yet
been resolved; and a record of any
disciplinary or settlement actions taken
• specifically EXCLUDED (due to privacy
issues):
~ residence history; s.s. #; physical
characteristics (i.e. eye color, height,
etc … ), …
• infonnation is also available to customers via a
toll-free# for people who don’t have internet
access
• when a customer account is opened, FINRA
Rule 2267 mandates the customer be provided
with:
BrokerCheck toll-free#;
FINRA website address’
Statement as to availability of an investor
brochure incl. info about BrokerCheck
• FINRA mandates that the BrokerCheck website
link be included on the initial web page that a
member firm intends to be viewed by retail
investors - the reference must be of similar font
size to the surrounding text and cannot be
“buried” in the page (like placed in a footer or
in a color that blends into the surrounding
background)

Question 28

RULE 17-F-2 - FINGERPRINTING

Answer 28

all partners, directors, officers, and employees of
broker-dealers, clearing agencies, or transfer agents
must be fingerprinted

Question 29

RULE 17-F-2 - FINGERPRINTING

persons who do NOT have to be fingerprinted:

Answer 29

those not engaged in the sale of securities

• those not in access to the keeping or handling of
securities, cash, or accounting records

• those that have direct responsibility for the
above-mentioned

• also, many fully disclosed broker-dealers that
only sell mutual funds, variable annuities,
limited partnerships, or real estate investment
trusts are exempt because these broker-dealers
cannot accept customer funds or securities

pretty receptionists like Sophie and Ashley.

note that sales personnel at these firms
must be fingerprinted!