Chapter 1 Flashcards
In which Act did most of the the terms we use in the industry originate?
The Securities Exchange Act of 1934
What is the definition of a “person” in the securities industry?
It is basically anyone or entity that has the legal capacity to open a brokerage account
What is the definition of a broker?
A broker is any “person” that is engaged in the business of effecting transactions in securities for the accounts of others
What is a dealer?
A dealer is any “person” engaged in buying and selling securities for its own account, either through a broker or otherwise as part of its regular business.
Why are some entities referred to as a broker/dealer?
In some transactions they may act in both capacities.
The US Supreme Court in the Howey decision defined what as the primary characteristics of a security?
Constitute an investment of money, in a common enterprise, with the expectation of profits, to be derived primarily from the efforts of a third party.
What does SRO stand for?
Self-regulatory organization
What is the priority of any SRO?
Promote ethics and equality and protect investors
Give some examples of SROs
NYSE, MSRB, registered clearing agencies, FINRA
What does F’INRA stand for?
Financial Industry Regulatory Authority
What SRO is the largest in the US for securities firms?
FINRA
What form does a firm file to become a FINRA member?
BD
What items must accompany a form BD from a firm applying for membership to FINRA?
A new member assessment report, new member contact questionnaire, a check for the appropriate fee, and U4 forms and fingerprint cards for each associated person in the firm.
Besides a check and a form BD what must a firm applying for membership to FINRA do?
Register with the SEC as a broker/dealer
Applying to FINRA commits the firm to what three things?
- comply with federal securities laws 2. comply with FINRAs rules and regulations 3. pay any dues, etc. set by FINRA
Is FINRA membership available to banks?
No. but it is to a bank holding company.
Where does a firm apply for membership?
The FINRA district office where the firm has its headquarters.
Who approves the firms application to FINRA?
The district committee where the firm submitted the NMA or new member application with the BD, etc.
Before the district committee can approve a firms membership what must the committee do?
Schedule the PMI or pre-membership interview
What is the purpose of the PMI?
To make sure the firm has the resources, both financially and practical knowledge, to operate without posing an obvious risk to the investing public.
How soon after the PMI will the firm receive the committees determination?
Within 30 days.
What is an executive representative?
A member of senior management with a member firm who votes and acts on the firms behalf on FINRA matters
What is the Public Disclosure Program?
It is information that must be provided to customers in writing at least once per calendar year.
What information must be provided to customers to satisfy the Public Disclosure Program every year?
FINRAs BrokerCheck hotline number, FINRAs website address, and a statement providing the availability of a brochure that describes the PDP
Disciplinary actions by any SRO within how many years results in statutory disqualification(SD) from FINRA membership?
within 10 years
What kind of misdemeanors could result in an SD?
Securities or money related misdemeanors within the past 10 years.
What form does an individual subject to an SD submit to initiate eligibility proceedings with FINRA and gain membership?
MC - 400
What form does a firm subject to an SD submit to initiate eligibility proceedings with FINRA to gain membership?
MC - 400A
How much is the filing fee for firms or individuals initiating eligibility proceedings with FINRA to gain membership in spite of an SD?
$1500
Who makes the determination either way about firms and individuals who initiated eligibility proceedings with FINRA to gain membership because of an SD?
The National Adjudicatory Council(NAC) must review and approve the case and the decision is rendered by the Department of Member Regulation
