CH 6 Business Conduct Rules Flashcards
What actions may the hearing panel take regarding rule violations?
Censure, fine, suspension, request to requalify, or expulsion of the respondent
True or False: An OSJ is only required to maintain a file of written complaints received from its own clients.
False. An OSJ must maintain written complaints received from its own clients and those of other supervised branches.
When reviewing discretionary accounts for excessive trading, which factor should be reviewed first?
The client’s investment objectives
What is Sara required to do after being elected to the board of directors of a corporation?
Provide her BD with written notification of her position on the board
True or False: Penalties for violating the Code of Procedure may include a maximum prison sentence of 10 years.
False. A prison sentence may not be imposed under the Code of Procedure.
True or False: When determining if churning has occurred in an account, profit or loss is a key consideration.
False. Profit or loss is never a consideration when examining the excessiveness of trading.
True or False: People initiate arbitration by filing a Submission Agreement, a Statement of Claim, and the required fee.
TRUE
What is the makeup of the arbitration panel for industry disputes?
The panel may be comprised of industry arbitrators.
Where is the predispute arbitration agreement typically found?
In a new account form
A penalty imposed by a hearing panel is generally effective ____ days after assessment.
A penalty imposed by a hearing panel is generally effective 30 days after assessment.
True or False: FINRA regulates accounts of member firm employees opened at another firm.
True. The rule also covers accounts for the employee’s spouse or dependent children.
What is required for an RR to share in a client’s profits or losses?
Approval from the client and firm is required and any sharing must be in proportion to the money invested
Upon receiving a second notice from the Dept. of Enforcement regarding a complaint, firms must respond within ____ days.
Upon receiving a second notice from the Dept. of Enforcement regarding a complaint, firms must respond within 14 days.
What is the industry policy regarding an RR who sets up an outside business that involves paid public speaking?
This is considered employment and the RR must provide notice to his or her employer.
A client has signed a predispute arbitration agreement. What if she has some claims not covered by the agreement?
She may request that ALL claims be handled through arbitration.
True or False: Arbitration is the process used for rule violations.
False. Rule violations are handled through the Code of Procedure.
With simplified arbitration, if a client brings an action against a firm, how many public arbitrators hear the case?
One
Simplified arbitration procedures are used for monetary disputes not exceeding $__________.
Simplified arbitration procedures are used for monetary disputes not exceeding $50,000.
Once notified by a Code of Procedure hearing panel, the hearing must be held within ____ days.
Once notified by a Code of Procedure hearing panel, the hearing must be held within 28 days.
True or False: Selling away includes effecting personal transactions in mutual funds or variable contracts.
False. These transactions are not covered under selling away.
The______________________ covers disciplinary actions by FINRA against member firms and their employees.
The Code of Procedure covers disciplinary actions by FINRA against member firms and their employees.
Decisions made by an arbitration panel are ________ and may not be ________.
Decisions made by an arbitration panel are binding and may not be appealed.
Industry disputes are handled through ______________.
Industry disputes are handled through Arbitration.
True or False: The findings of an arbitration panel may be appealed.
False. Arbitration decisions are final and binding.
An RR receives a text message from a client who is upset, is this considered a written complaint?
Yes
Is it acceptable for a BD to give two tickets to a Broadway show (valued at $250) to an employee of another BD?
No. It is unacceptable. However, the gift limit would not be violated if the RR attends with the recipient.
True or False: An RR needs approval from his BD to work part-time for another member firm.
True. Specific consent of his primary employer is required.
Under the Code of Procedure, who has original jurisdiction over an alleged rule violation?
The hearing panel
True or False: Decisions arising from arbitration may be appealed to the federal court system.
False. Decisions are binding on both parties and may NOT be appealed.
True or False: A member firm may force a customer to resolve a dispute through arbitration.
False. Unless a customer has signed a predispute arbitration clause, a member firm may not force the use of arbitration.
An existing client of a BD has just started a career as an RR with another BD. What is the client required to do?
She must promptly notify the executing firm of her new employment.
If a written complaint relates to general securities activities, for how long are the records required to be maintained?
Four years
After receiving notice from the Dept. of Enforcement regarding a complaint, the firm must respond within ____ days.
After receiving notice from the Dept. of Enforcement regarding a complaint, the firm must respond within 25 days.
Dan, an RR of a BD, is the coach of his son’s Little League team. Must Dan notify his BD of his coaching position?
If no compensation is received (for hobbies or charitable service), written notification is NOT required.
Trades executed outside the scope of an RR’s employment with a BD are known as ___________________ transactions.
Trades executed outside the scope of an RR’s employment with a BD are known as private securities transactions.
What must be done by the carrying firm when opening an account for an employee of another FINRA member firm?
The carrying firm must receive written consent from the employer
True or False: An RR may lend money to a customer with whom he has an outside business relationship.
True. However, the RR must obtain written permission from his employer and the customer.
True or False: If a BD’s RR opens an account at another BD, the employer may request duplicate confirms/statements.
True. If requested, the executing BD must provide duplicate confirmations and statements.
True or False: Quarterly complaint reports must be sent to both FINRA and the SEC.
False. Complaint reports are sent to FINRA, not the SEC.
If a client requests a copy of the predispute arbitration agreement, when must it be provided?
Within 10 business days of the request
True or False: Tickets valued at $500 given to four people are considered excessive.
True. The gift limit considers both the dollar value and number of intended recipients.
When are clients provided with a copy of the predispute arbitration agreement?
The earlier of 30 days from signing the agreement or within 10 business days of request
May a wholesaler reimburse the expenses of a spouse traveling with an RR who is attending an educational seminar?
No. Covering legitimate travel expenses of the RR is acceptable, but not the spouse’s expenses.
What is it considered if a person fails to respond to a written complaint filed under the Code of Procedure?
A failure to respond is considered an admission of guilt.
By signing Form U4, to what is a person agreeing in the event of an industry dispute?
His willingness to accept arbitration, rather than litigation, to settle a dispute
Who pays the expenses incurred for mailing proxy materials or annual reports to clients whose assets are in street name?
The distributing corporation
True or False: Mediation is often cheaper and quicker than an arbitration proceeding.
TRUE
Under the Code of Procedure, the Hearing Panel has _________ jurisdiction, while the NAC has __________ jurisdiction.
Under the Code of Procedure, the Hearing Panel has original jurisdiction, while the NAC has appellate jurisdiction.
Under the Code of Procedure, a decision must be rendered within ____ days after collection of evidence stops.
Under the Code of Procedure, a decision must be rendered within 60 days after collection of evidence stops.
The $100 gift limit may be exceeded if the gift is given to a _______________.
The $100 gift limit may be exceeded if the gift is being given to a family member.
True or False: The manager of a syndicate giving each of its members a gift of $250 would violate the gift rule.
True. The maximum gift is $100 per person/per year and includes gifts between member firms.
If an RR is involved with a charity, does she need to provide written notification to her employer?
If compensation is not received, notification will NOT be required.
What is required of an RR participating in a private securities transaction where compensation is received?
Written approval and recording the transaction on the books of the firm
From which individuals may an RR borrow funds?
Friends, relatives, or business partners
True or False: A difference between arbitration and mediation is that mediation is binding and arbitration is not.
False. Arbitration is binding on all parties, whereas mediation is not.
True or False: When an RR purchases mutual fund shares through another BD, the employing BD must be notified.
False. If the account is limited to the purchase of mutual funds, annuities, or UITs, the BD need not be informed.
What is the makeup of the arbitration panel for disputes involving public customers?
A majority of the panel must come from outside the securities industry.
True or False: If an employee of a BD opens an account at another BD, each trade must be preapproved by the employer.
FALSE
Is it acceptable for an RR of one BD to take an employee of another BD to an NFL game costing $300 per person?
Yes. If the RR attends with the recipient, it is considered a legitimate entertainment expense.
Which SRO’s rules are NOT enforced under the Code of Procedure?
The rules of the CBOE since it has its own enforcement division
What will be stated in the predispute arbitration agreement?
Parties waive the right to sue in court, arbitrator decisions may not be explained, and possible rewards are unlimited.
True or False: A client must make written acknowledgement upon receipt of a predispute arbitration agreement.
TRUE
__________________________ expenses are not subject to the Gift Rule.
Entertainment/business expenses are not subject to the Gift Rule.
What is required if an RR effects a transaction outside her BD, but does NOT receive compensation?
Written notice to her employer
In a simplified industry arbitration, __________________ decides the case without a hearing.
In a simplified industry arbitration, one non-public arbitrator decides the case without a hearing.
True or False: Clients may reject the selection of any arbitrators appointed by the Director of Arbitration.
False. Clients have the right to reject the selection of one arbitrator on a peremptory basis.
What is required of an employee seeking part-time employment outside of her brokerage firm?
Firm notification before the activity starts
True or False: FINRA must approve all gifts in excess of $100.
False. FINRA approval is not required for gifts. Generally, gifts in excess of $100 are prohibited.
True or False: Complaints may be oral or written, including e-mail or text message.
False. A complaint is any written communication in which a customer complains about the activities of a member firm.
How many arbitrators are involved in simplified arbitration?
One
For a minor violation of FINRA rules, a maximum fine of $______ may be assessed.
For a minor violation of FINRA rules, a maximum fine of $2,500 may be assessed.
A customer complaint is defined as any grievance that is provided in _________ or ____________ form.
A customer complaint is defined as any grievance that is provided in written or electronic form.
May an RR and a client share in an account?
Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.
A client sends a letter to his BD alleging unsuitable recommendations. What is the letter and what steps are taken?
The letter is a written complaint and must be reviewed by a principal. Firms submit periodic complaint reports to FINRA.
Unless appealed, when do penalties become effective under the Code of Procedure?
No later than 30 days from the decision
Under the Code of Procedure, a sanction becomes effective ____ days after the firm has received final notice.
Under the Code of Procedure, a sanction becomes effective 30 days after the firm has received final notice.
True or False: For simplified arbitration, a hearing will be held before a five-member panel.
False. Simplified arbitration involves document submission, rather than a hearing.
True or False: All employee-to-employer disputes must be submitted to arbitration.
False. Sexual harassment and discrimination cases may be taken to court.
May a customer be forced to use arbitration?
No, but signed pre-dispute arbitration agreements are binding.
What’s required if any employee of a broker-dealer wants to open an account with another BD?
If a BD employee wants to open an account with another BD, he must obtain his employer’s prior written permission.
May a client whose securities are in street name request that his BD send proxy materials to his investment adviser?
Yes
True or False: Allegations of forgery or theft are reported to, and investigated by, FINRA.
TRUE
The maximum claim under simplified arbitration is $________.
The maximum claim under simplified arbitration is $50,000.
What is the maximum fine that may be imposed by FINRA?
Unlimited
Simplified industry arbitration uses a ___________ arbitrator.
Simplified industry arbitration uses a nonpublic arbitrator.
An arbitration award must be paid within ____ days.
An arbitration award must be paid within 30 days.
What are the requirements for a BD to open an account for an employee of another BD?
Written notification to the client’s BD, send the BD duplicate confirms (on request), and notify client of these steps
Any awards granted by an arbitrator must be paid within how many days?
30
True or False: Any response provided to clients regarding a complaint must be in written form.
False. There is no requirement indicating that responses must be written.
What is required for an agent to receive compensation for effecting transactions outside his BD?
1) Written notice and response from, his employer, 2) Employer approval and 3) Transactions recorded on the BD’s books
When does a decision to ban or expel a registered representative from association with a member firm become effective?
Immediately
Explain the rulings made by an arbitration panel.
The rules are binding and may not be appealed.
What is needed for an RR to receive compensation for selling limited partnership interests outside the scope of his BD?
1) Written notice to his employer, 2) Employer approval, and 3) Transaction recorded on the BD’s books
How is a business-related dispute between an employee and a member firm settled?
Through arbitration
What steps must a person take to initiate arbitration?
File a submission agreement, submit a statement of claim, pay the required fee, and make appropriate records available
True or False: A gift in excess of $100 is allowed if given to a family member employed by another BD.
True. Gifts to family members are excluded from the Gift Limit Rule.
When arbitration involves public customers, __________ of arbitrators must be from outside the securities industry.
When arbitration involves public customers, a majority of arbitrators must be from outside the securities industry.
Gifts exceeding $_____ are considered excessive.
Gifts exceeding $100 are considered excessive.
True or False: Members may charge customers for collecting dividends and for the safekeeping of securities.
True, as long as the charges are reasonable and do not discriminate unfairly between customers.
The hearing panel may not impose a ___________________ due to rule violations.
The hearing panel may not impose a prison sentence due to rule violations.
If an employee of a BD opens an account with an investment adviser, the __________ must notify the employing BD.
If an employee of a BD opens an account with an investment adviser, the employee must notify the employing BD.
Define selling away.
The execution of transactions by an associated person outside his employment with a member firm
How often are summaries of written customer complaints filed with FINRA?
Quarterly
Under the Code of Procedure, a __________ conference may be held to prepare for the conference and increase efficiency.
Under the Code of Procedure, a prehearing conference may be held to prepare for the conference and increase efficiency.
The statute of limitations for submitting an arbitration claim is ___ years from the occurrence of the event.
The statute of limitations for submitting an arbitration claim is 6 years from the occurrence of the event.
After a Hearing Panel decision, in what order may appeals be filed?
Appeals would first be heard by the National Adjudicatory Council (NAC), then the SEC, and finally the federal courts.
Unless requested otherwise, what is the composition of the arbitration panel for disputes involving public clients?
A majority of the arbitrators must be unaffiliated with the securities industry.
The Hearing Panel must give a member firm ____ days prior notice before a hearing is held.
The Hearing Panel must give a member firm 28 days prior notice before a hearing is held.
Do all outside activities of an RR require notification to an employer?
No. Notification is only required for employment activities, not hobbies.
The Code of Procedure sets the process used to discipline members who violate ____, ______, or _____ rules.
The Code of Procedure sets the process used to discipline members who violate SEC, FINRA, or MSRB rules.
True or False: The Code of Procedure can be used by a customer against a member firm to resolve a monetary dispute.
False. This situation would be handled under the Code of Arbitration.
True or False: A customer may share in the profits and losses with his member firm’s proprietary trading account.
False, a customer and a firm may not commingle their funds to form an account.
Due to the violation of a firm rule, Frank was fined $5,000 and suspended for three weeks. To whom is this reported?
To the appropriate SRO (e.g., FINRA)
Hearing Panel findings may be appealed to the ___________________________,then the _____, and then ________________.
Hearing Panel findings may be appealed to the National Adjudicatory Council (NAC), then the SEC, and then federal court.
Bill, an RR of High Mark Brokerage, has been hired as a bartender on the weekends. What step must Bill take with his BD?
Since Bill will be compensated as a bartender, he must provide written notice to his BD.
If an RR plans to engage in outside activities and receive compensation, who must the RR notify?
The RR’s firm must receive prior written notification from a principal. Notification to regulators isn’t required.
If an employee has a nonbusiness dispute (e.g., discrimination or harassment), is arbitration mandatory?
No. The client may or may not choose arbitration to settle the dispute.
For accounts opened for employees of another member firm, what is provided to the individual’s employer upon request?
Duplicate confirmations and statements
True or False: Under the Code of Procedure, the National Adjudicatory Council (NAC) has appellate jurisdiction.
False.
