CH 5 General Supervision Flashcards
True or False: An office where the firm’s operations department processes securities trades is a branch office.
False. A back office/operations office (non-sales office) is NOT a branch office.
If a BD operates on a bank’s premises, how does it generally obtain a client’s acknowledgment of the potential risks?
The BD generally makes a reasonable effort to obtain written acknowledgment from clients.
True or False: A temporary location used less than 30 business days per year is a branch office.
False. If used less than 30 business days per year, a temporary location is a non-branch office (e.g., a vacation home).
True or False: RRs currently serving in the military can receive a CE waiver.
TRUE
What two choices does a firm have once it is notified that it has met the threshold established under the Taping Rule?
Begin taping within 60 days or reduce its staff level below the threshold within 30 days.
True or False: If a successful candidate discloses test information to a coworker who fails, no violation has occurred.
False. Both candidates may be disciplined for failing to maintain the confidentiality of the qualifying examination.
What types of transactions may a Series 79 Investment Banking Representative advise on or facilitate?
Public or private equity or debt offerings, M&As, tender offers, asset sales, or business combination transactions.
Jim left the securities industry more than two years ago. Why may he be able to rejoin without requalification?
Jim may have been serving in the military.
What is required for a foreign associated person to be able to visit a client located in the U.S.?
He must be accompanied by an appropriately registered U.S. person.
True or False: Failure to file a tax return would trigger an amendment to Form U4.
FALSE
If a producing manager is also the branch office manager, who supervises his activities?
A regional manager who is senior to the producing branch manager.
True or False: Only the person who discloses specific items found on his exam is subject to disciplinary action.
False. The person who discloses the information, as well as the person who receives the information, may be disciplined.
To not be a branch office, a location may not be used for securities business more than ____ business days per year.
To not be a branch office, a location may not be used for securities business more than 30 business days per year.
What is an office considered if its RRs make cold calls to prospective clients to solicit new accounts?
A branch office.
On an annual basis, when are representatives required to complete the Regulatory Element of continuing education?
31-Dec.
True or False: An employee of a BD who deals exclusively with the sale of REITs is NOT required to be fingerprinted.
TRUE
True or False: Firms failing to adhere to the Taping Rule requirements could be disciplined under the Code of Procedure.
TRUE
A person has been registered for nine years. When is she subject to her next Regulatory Element of continuing education?
December 31 of the current year.
Along with written complaints, what must be maintained in every OSJ?
A copy of the firm’s written supervisory procedures.
A branch office must be inspected every ____________.
A branch office must be inspected every three years.
A branch that supervises one or more non-branch locations must be inspected ____________.
A branch that supervises one or more non-branch locations must be inspected annually.
What is the CRD system?
A system that pools information concerning the employment and disciplinary histories of registered persons.
In a firm’s business continuity plan, how many emergency contacts must be provided?
Two, at least one of whom must be a member of senior management and a registered principal of the member firm.
If an associate requests a copy of his U5, how long does the member firm have to respond?
Response must be made within 2 business days of request.
True or False: Preparation of retail communication is the responsibility of an OSJ.
False. Preparation may be done by a branch; however, approval must be provided by the OSJ.
True or False: A general securities principal is responsible for financial reporting.
False, a Financial and Operations Principal performs that function.
When must RRs complete the Regulatory Element of Continuing Education?
Annually by December 31.
Who supervises a producing branch manager?
The regional manager (i.e., someone who is senior to the producing branch manager).
Where may Firm Element training occur?
On the BD’s premises, at a third-party vendor, or in a virtual, electronic classroom.
How often are firms required to evaluate their training needs?
Annually.
True or False: FINRA notification is NOT required if an associated person is disciplined by another SRO.
False. FINRA must be promptly notified of such disciplinary action.
A producing branch manager must be supervised by someone who is _______ to, and ____________ of, that manager.
A producing branch manager must be supervised by someone who is senior to, and independent of, that manager.
A non-branch office must be reviewed on a ________ cycle.
A non-branch office must be reviewed on a periodic cycle.
Invest Brokerage, a FINRA and MSRB member, has had its membership suspended by the MSRB. What action may FINRA take?
FINRA considers expulsion or suspension from membership with another SRO as grounds for statutory disqualification.
When is a firm’s business continuity plan made available to FINRA?
Promptly upon request.
If a BD operates on a bank’s premises, what must exist between the BD and bank?
A written agreement identifying the compensation agreement between the two firms.
True or False: An office established as a back-up, to be used during emergency situations, is a branch office.
False. A temporary office used as part of a BD’s contingency plan is not considered a branch office.
True or False: A registered person’s Continuing Education requirement is deferred while serving in the military.
TRUE
Once appointed as a principal, a candidate has ____ days to qualify for the position.
Once appointed as a principal, a candidate has 120 days to qualify for the position.
True or False: Geographic distance from another OSJ is considered when determining whether a branch is an OSJ.
TRUE
If the CEO of a BD participates in sales activities, give an example of who may supervise the CEO’s activities.
The compliance director of the BD, since this is someone who does not report directly to the CEO.
To determine whether a branch is an OSJ, is the number of registered persons conducting securities business considered?
Yes. If a large number of people are involved in securities activities, regulators may require an OSJ designation.
True or False: A member firm is not required to disclose its business continuity plan to its customers.
False. Member firms must present the plan when the account is opened and thereafter upon request of a client.
An office whose sole function is to ________ investment banking services is NOT considered a branch office.
An office whose sole function is to solicit investment banking services is NOT considered a branch office.
True or False: Firms subject to the Taping Rule only need to tape the phone calls of RRs hired from disciplined firms.
False. BDs subject to the Taping Rule must tape the conversations all RRs have with existing and potential clients.
Once notified that taping is required, firms have ____ days to start taping and tapes are retained for ______ years.
Once notified that taping is required, firms have 60 days to start taping and tapes are retained for three years.
True or False: An RR’s primary residence may NOT be used to meet with clients.
TRUE
True or False: Only registered personnel are required to be fingerprinted.
False. Any individuals handling funds or securities are required to be fingerprinted.
Registration status becomes __________ if the Regulatory Element of CE is not completed within the prescribed period.
Registration status becomes CE inactive if the Regulatory Element of CE is not completed within the prescribed period.
True or False: A non-OSJ branch office may be supervised by either a registered representative or a principal.
True. Firms may use a principal or designate one of the RRs to be in charge.
True or False: If producing branch managers service accounts of family/friends, independent supervision is not required.
False. The independent supervision ensures protection of accounts from inappropriate actions by managers.
What types of OSJ-performed responsibilities create the requirement that an office be supervised by a principal?
Final approval of account opening, review and approval of orders, and final approval of retail communication.
Define producing branch manager.
An individual who handles accounts as an RR, but also performs various supervisory functions.
True or False: All registered personnel of a BD must complete the Regulatory Element of Continuing Education.
TRUE
What must be addressed in a BD’s business continuity plan?
The process for communicating with regulators and mission-critical systems (computers) required to continue business.
On what form does an employing BD report disciplinary actions?
Form U4.
True or False: A Series 6 representative may sell a closed-end fund in the secondary market.
False. Series 6 representatives may participate only in the initial offering of a security (primary market).
Give some examples of situations involving associated persons that require prompt notification to FINRA.
Changing primary address, loss of securities license, termination, felony conviction, internal fines exceeding $2,500.
If a qualification exam has been failed for the third time, what waiting period applies?
After the third unsuccessful attempt, the waiting period is 180 days after each additional attempt.
Jim was convicted of insider trading and served a three-year prison term. May he now reenter the securities industry?
No. Statutory disqualification bars a person from the securities industry for 10 years from the date of the conviction.
Logan, an RR, has just obtained a Certified Financial Planner (CFP) designation. Must this be reported to FINRA?
No. SRO notification is not required due to obtaining a CFP or other designation.
True or False: A misdemeanor conviction within the last 10 years is grounds for statutory disqualification.
False. A misdemeanor conviction will only result in statutory disqualification if it involved funds or securities.
True or False: CRD provides a process for filing registration and withdrawal applications for individuals and BDs.
TRUE
What two types of securities registrations would allow an individual to offer variable annuities?
Series 6 or Series 7.
What type of principal may supervise a representative who has Series 7 registration?
A principal with Series 24 registration.
How often must all registered personnel participate in a compliance meeting?
Annually.
True or False: An RR serving in the military may continue to function as a registered person.
FALSE
True or False: A firm’s annual compliance meeting would discuss product knowledge.
False. Meetings focus on regulation and compliance (e.g., Internet communication or front-running on research reports).
What type of principal may supervise a representative who has Series 6 registration?
A principal with Series 24 or 26 registration.
True or False: A representative currently serving in the military may receive commissions during this period.
TRUE
True or False: A member firm’s written supervisory program requires that all RRs be supervised by a principal.
TRUE
How must disclosures be made to clients when an account is opened on the premises of a financial institution?
They must be made both orally and in writing.
What are the justifiable reasons for denying an individual’s registration?
Conviction for any felony or securities-related misdemeanor within the last 10 years.
What are the specific limitations to ensuring an office of convenience does not become a branch office?
It may only be used occasionally (always by appointment), and no signage may be used to suggest it is a branch office.
To determine whether a branch is an OSJ, the __________ and ___________ of the branch’s activities are considered.
To determine whether a branch is an OSJ, the diversity and complexity of the branch’s activities are considered.
May an associated person of a BD maintain a business relationship with a person who was banned from the industry?
No. Such a relationship is not acceptable and is considered grounds for statutory disqualification.
After completing her Series 7 exam, Kate discloses several of the test questions to her coworker. Is this acceptable?
No. SROs consider the content of their qualification exams confidential.
What is the purpose of BrokerCheck?
To allow investors to obtain information about registered individuals in the securities industry.
When is a non-securities business office (i.e., an insurance office) not considered a branch office?
When it effects fewer than 25 securities transactions annually.
True or False: A business continuity plan must address the impact of a disruption on its critical business constituents.
True. A BD’s critical business constituents include banks and lenders.
True or False: FINRA’s Public Disclosure Program provides investors with background details about registered persons.
True. Requests may be made through a toll-free number or FINRA’s BrokerCheck Web site.
True or False: All employees of a BD are required to be fingerprinted.
False. Clerical employees are not fingerprinted if they do not handle customer accounts, assets, or books and records.
When a BD operates on a bank’s premises, what happens if a BD employee (also a bank employee) is terminated for cause?
The bank must be notified.
Define branch office.
A location where a member firm effects or attempts to effect securities transactions (e.g., solicitations/cold calls).
What does a member firm’s supervisory program ensure?
Compliance with SRO rules and federal regulations.
True or False: Without exception, an RR’s primary residence is considered a branch office.
False. A number of exceptions exist allowing RRs to operate from home without it being considered a branch office.
True or False: A registered person with no disciplinary actions for 15 years is excused from the Regulatory Element.
False. All registered personnel must complete the Regulatory Element of continuing education annually by December 31.
If a BD operates on a bank’s premises, who must have access to the bank’s premises to inspect the BD’s records?
The SEC, FINRA, and the BD’s supervisory personnel
After resignation of registration, how long does FINRA’s jurisdiction last?
Two years
True or False: An office of convenience, used to occasionally meet with clients, may use signage if not too prominent.
False. Signage is not permitted for an office of convenience.
A firm that reduces its staff to prevent from having to tape its calls must wait _____ days before rehiring those RRs.
A firm that reduces its staff to prevent from having to tape its calls must wait 180 days before rehiring those RRs.
True or False: Provided the U.S. client is an institution, an associated person of a foreign BD may visit it alone.
False. To visit a U.S. client, an associate of a foreign BD must be accompanied by a registered person of a U.S. BD.
What program allows an RR to leave a BD and later rejoin the industry within five years and not need to requalify?
Using the Maintaining Qualifications Program (MQP), a person has five years before being required to requalify by exam.
True or False: An associated person whose registration is terminated must sign Form U5.
False. The former employer will provide a copy to the individual, but a signature is not required.
A branch office that is NOT responsible for supervising another office is inspected every ______ years.
A branch office that is NOT responsible for supervising another office is inspected every three years.
What must be kept by a firm that has some of its RRs working from their primary residence?
A list of all primary residence locations and written procedures for supervising the sales activities of these locations.
How often must clients be notified of the availability of the BrokerCheck system?
Annually
True or False: When a BD operates on a bank’s premises, SIPC must approve the arrangement.
False. There is no requirement for the SIPC to approve the agreement.
Any fine against an RR for greater than $______ must be reported to _______.
Any fine against an RR for greater than $2,500 must be reported to FINRA.
As stated in a BD’s supervisory program, with whom must the CEO annually conduct a meeting?
The BD’s Chief Compliance Officer (CCO)
True or False: If an RR works from her primary residence, her supervising branch office must conduct an on-site review.
TRUE
Any trades effected by representatives must be approved _________ by a principal.
Any trades effected by representatives must be approved promptly by a principal.
If an individual has regular access to the firm’s original books and records, is she required to be fingerprinted?
Yes, employees with regular access to books and records need to be fingerprinted.
True or False: An RR may handle his client’s funds and securities from his primary residence.
FALSE
True or False: Firm Element Continuing Education requires BDs to update employees on job and product-related subjects.
TRUE
If a firm becomes subject to the Taping Rule, what may it do to avoid the taping requirement?
Terminate enough of the new hires to fall under the threshold.
A BD is managed by a Series 24 principal and a Series 26 principal. Who approves discretionary secondary-market trades?
The General Securities Principal (Series 24) is the appropriately registered person to approve the trades.
Who must be designated by a BD to oversee its supervisory control system and report the results to management?
A supervising principal
To apply for a securities license, one must file Form _____ with FINRA.
To apply for a securities license, one must file Form U4 with FINRA.
As it is used in the Taping Rule, define disciplined firm.
A firm that has had its registration revoked or has been expelled by an SRO.
A brokerage office conducts market-making activities and maintains custody of clients’ assets. What is this office?
An office of supervisory jurisdiction (OSJ).
Firms subject to the Taping Rule must commence taping phone calls within _____ days.
Firms subject to the Taping Rule must commence taping phone calls within 60 days.
Emma is an RR who works primarily from her home. What address must be identified on Emma’s business cards?
The address of her branch office.
True or False: A back office (operations office) is considered a branch office.
False. Back offices (operations offices) are non-branch locations.
For accounts opened on the premises of a financial institution, what must BDs disclose regarding the products offered?
That the products are not insured by the FDIC and are subject to investment risk (potential loss).
Using the MQP, a person may be out of the securities industry for up to ____ years before having to requalify.
Using the MQP, a person may be out of the securities industry for up to five years before having to requalify.
A BD’s new applicant admits to a prior drug conviction (a misdemeanor). Is he subject to statutory disqualification?
No.
A registered employee of a BD is required to be ______________.
A registered employee of a BD is required to be fingerprinted.
True or False: An office of supervisory jurisdiction (OSJ) is inspected monthly.
False. An OSJ is inspected annually.
True or False: A Series 6 representative may only engage in primary market offerings.
TRUE
What is the purpose and responsibility of an OSJ?
To supervise RRs and associated persons under written procedures, review trades effected by RRs, and approve accounts.
If a registered person joins the military, what is her registration status?
She falls under the special inactive status designation.
What training would NOT be applicable for a BD’s Firm Element program?
Sales training.
