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Series 10 - Self Study 2021 > Chapter 1: Sales Supervision > Flashcards

Chapter 1: Sales Supervision Flashcards

1
Q

FINRA is…

A

“Merged regulator” that combines NYSE and NASD regulatory units

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2
Q

FINRA Conduct Rules

A

Govern the relationship between customers and member-firms. Clients are to be treated in a “just” and “equitable” manner with a high degree of ethical standard.

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3
Q

FINRA Uniform Practice Code

A

Governs relationship between member firms. Settlements, good delivery, disputes among members, etc.

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4
Q

FINRA Code of Procedure

A

The rules by which customers can dispute infractions against member firms

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5
Q

FINRA Code of Arbitration

A

Rules by which member firms can dispute infractions between one another.

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6
Q

FINRA Disciplinary Powers

A

Can censure, suspend, expel, and/or fine member firms

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7
Q

Exempt from FINRA membership

A

Deal solely in exempt securities: Govt, municipals

Or

Business exclusively outside US

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8
Q

Exempt securities under FINRA

A

Government and Municipal secs; unless packaged products

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9
Q

When would you need to join FINRA if you only deal on exempt securities?

A

When packaging exempt securities in products such as mutual funds, unit trusts, or CMOs

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10
Q

Form for FINRA membership application

A

Form BD

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11
Q

Statutory Disqualification

A

Disqualified from FINRA membership by:

  • previously suspended or expelled from any other SRO domestic or foreign
  • subject to SEC order suspending or revoking registration or associated with such a firm or entity
  • willfully filed false or misleading application or material omission of fact
  • willfully violated federal securities or commodities law or aided or abetted or counseled or commanded such acts; also failed to supervise such individuals
  • convicted of any securities or “money” related misdemeanor or felony within the past 10 years
  • temporarily or permanently enjoined from engaging in the securities business
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12
Q

Eligibility Proceeding

A

Form can appeal FINRA after statutory disqualification; If approved, SEC must also approve the re-admittance

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13
Q

FINRA Application Information

A
  • Copy of Registration submission to SEC
  • Trial balance and net capital computation
  • member’s written supervisory procedures
  • list of officers, partners, and associates persons at time of application
  • any other info requested by FINRA district office
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14
Q

FINRA pre-membership interview

A
  • Level of Net capital and any future requirements
  • internal and compliance procedures
  • familiarity with FINRA rules
  • business plan; including details about persons associated with the firm
  • planned facilities, clearing arrangements, and supervisory personnel
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15
Q

of FINRA district offices

A

11 - same as federal reserve banks

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16
Q

Notification of applicant occurs within ___ days after the interview

A

30

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17
Q

Membership termination procedure

A

Given in writing and not effective until 30 days after submission of written notice

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18
Q

Resignation term with customer complaints

A

Resignation is not effective for 2 years after submitted in writing if there are any complaints or pending actions against the member firm

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19
Q

Transfer of registration to another firm

A

NO transfers are permitted. New firm must go through application and approval process

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20
Q

Designation of OSJ

A

Office of Supervisory Jurisdiction (OSJ) must be designated by member firm. Any branch or centralized branch may act as OSJ but must be supervised by resident principal.

Creates and enforces written supervisory practices.

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21
Q

OSJ

A

Office of Supervisory Jurisdiction; creates and enforces written supervisory procedures for member firm branches

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22
Q

Form BR

A

Branch registration form for FINRA with CRD.

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23
Q

Form BR changes submitted within ___ days

A

30 days after applicant learns of facts and circumstances giving rise to amendment

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24
Q

Exceptions to “branch” definition

A

Back offices, primary residences of representatives, “offices of convenience” and satellite offices

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25
Q

When is a vacation home considered a branch?

A

If used 30 or more business days out of the year

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26
Q

Satellite office definition

A

No more than 25 securities are traded per year

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27
Q

“Not-Not-May” rule

A

RSNIP; Must be displayed in any location where bank products are also offered

NOT FDIC insured
NOT deposits and not guaranteed
Securities are subject to risk and MAY lose value

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28
Q

General Principal

A 
Sole Proprietor
Officer
Partner
Managers of OSJ
Directors of Corporations

Must be Series 24 registered

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29
Q

Series 24 registration

A

For General Principals of securities firms

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30
Q

To become “Principal”

A

Must be series 24 registered and have been a registered rep for at least 18-months out of a preceding 5 year window

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31
Q

Principal has ____ days to pass qualifications exams

A

120 days after being appointed principal

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32
Q

General Sales Supervisor

A

Series 9/10 registered BOM, only supervises general sales practices.

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33
Q

“FinOP” Financial and Operations Principal

A

Must have at least 1 for clearing firm, Series 27 registered. Generally, the firm’s supervising accountant and preparer of financial reports for FINRA and SEC

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34
Q

Limited FinOP

A

Series 28 registered; each non-clearing firm must have at least 1. Prepares firm’s financial reports for FINRA and SEC

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35
Q

Registered Options Principal

A

Series 4 and 7 registered; for any firm engaging in options trading with customer accounts. Must have a “designated ROP” - name given to FINRA. Main office compliance individual for options advertisements, sales literature, and general supervision.

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36
Q

Investment Companies and Variable Annuities Limited Principal

A

Series 26; allows initial offering of CEFs and sale of redeemable securities and Variable annuities

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37
Q

Series 39

A

Direct Participation Program; Series 22 or Series 7 required

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38
Q

Exemptions to registered rep

A

Dealing solely with clerical work or exempt securities and foreign associates who do not deal in US.

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39
Q

Series 6

A

Limits authority to deal on redeemable shares or variable annuity contracts

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40
Q

Series 22

A

Direct participation program representative exam

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41
Q

Series 52

A

Muni bonds license

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42
Q

Waiting periods for failed exams

A

30 days after failure, must wait 180 days after 3 successive failures. Another 180 days for each successive failure after 3

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43
Q

Statutory disqualification of Rep with amendment

A

Must be submitted within 10-days if rep would be disqualified by changes to U4.

**Normally 30 days without disqualifying event

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44
Q

Principal must verify ___ years of employment history and applicant’s will ___________ _________

A

3 years; applicants good character

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45
Q

CE requirement

A

Regulatory on 2nd anniversary of registration and then every 3 years thereafter

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46
Q

Regulatory element may be completed within ____ days of notice

A

120 days; thereafter, license is considered “inactive” until requirement is complete

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47
Q

Registration with military duty

A

Considered “inactive.” CE requirements are suspended and firm must submit notice to CRD in writing. Upon return from service, registration is reactivated at point left off.

Can return to another B/D, can maintain clients with another broker and share commissions.

Must reassociate within 90 days before registration is terminated.

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48
Q

Returning military must reassociate within ___ days to prevent registration termination.

A

90 days

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49
Q

Special inactive status for called-up military

A

FINRA will place a 24 month hold on termination if active military rep has terminated association with member firm.

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50
Q

U5

A

Termination form

51
Q

U5 must be filed with FINRA within ___ days of termination

A

30 days. A copy must also be supplied to terminated individual

52
Q

New employer must review U5 of new employee within ___ days of association

A

60 days. Also a new U4 must be submitted

53
Q

U5 obtained from

A

Web-CRD

54
Q

U5 must be amended within ___ days of discovery

A

30 days. Same as U4, without statutory disqualifying event

55
Q

Must regularity by exam after __ years of non-association with member firm

A

2 years. FINRA also retains jurisdiction over the individual if there is a customer complaint for this same period.

56
Q

U5 cannot be filed if

A

There is a customer complaint or pending action until such issues are resolved. Then begins the 2 year waiting period

57
Q

Generally, changes to any material information must be given to FINRA within ____ days

A

30 days, **Unless U4 is amended with potentially disqualifying event - 10 days.

58
Q

FINRA Rule 2267

A

Requires customer be provided information on checking Broker records through BrokerCheck and FINRA, annually

59
Q

Customer account conduct rules

A

1) cannot guarantee against loss
2) cannot share in G/L
3) must share in proportion unless immediate family member
4) cannot borrow or lend to client

60
Q

Installment Sales allowed?

A

No, Prohibited

61
Q

Client Gift Limit

A

$100/yr/client

62
Q

FINRA Rule 2030

A

Anti-bribery rule discouraging pay-to-play practices with state and local governments

63
Q

Maximum political contribution (able to vote)

A

$350/candidate/election with potential to vote

64
Q

Maximum Political Contribution (not able to vote)

A

$150/candidate/election

65
Q

Ban on political contributions if over limit

A

2 years if contribs. exceed minimum

66
Q

Problems with Registered Non-Traded REITs

A

Distributions not guaranteed
Illiquid
High Fees
Lack of Transparency

67
Q

Inspect Supervisory Branch

A

Every year

68
Q

Inspect non-supervisory branch

A

Every 3 years

69
Q

Branch Inspection Report Items (at a minimum)

A
  • Safeguarding of customer securities
  • Maintenance of books and records
  • Supervision of customer accounts services by branch managers
  • Transmittal of funds between representatives and customers and to third parties
  • Validation of customer account changes
  • Validation of changes in customer info
70
Q

When hiring new rep…

A

Must review U5 within 60 days of filing the U4

71
Q

SIPC required on Sales Literature?

A

No

72
Q

SEC research interpretation

A

Provides information reasonably sufficient upon which to base an investment decision

And

Is distributed to +15 people

73
Q

Rule 134a

A

“Amended Tombstone Rule”

74
Q

Rule 135a

A

“Generic Advertising Rule”

75
Q

Rules 134a and 135a govern:

A

Mutual Fund and Options Advertising

-Basically cannot add any ameliorative, promotional language beyond basic description of the issue and the companies and functions associated.

76
Q

FINRA Taping Rule

A

If sales force of member firm contains 20-40% employees from previously expelled or revoked registration firms, that firm is required to tape conversations

77
Q

Adherence to taping rule

A

If determined by FINRA:

Must comply within 60 days and retain records for 3 years

78
Q

Answer to a complaint

A

Must be given to OHO within 25 days; thereafter another notice is sent and 14 days allowance.

If no answer is received it is treated as default and decision is made by Chief hearing officer

79
Q

Pre-hearing conference held within ___ days of answer to complaint.

A

21 days

80
Q

Decision on complaint rendered within ___ days of hearing panel

A

60 days

81
Q

Hearing panel consists of

A

Chief Hearing Officer and 2 other industry panelists

82
Q

First appeal after hearing panel

A

Goes to NAC - National Adjudicatory Council

83
Q

Hearing panel decisions can be appealed for ____ days

A

25 days after Hearing Panel decision rendered

The decision is not final until 25 days after hearing decision with no appeal

84
Q

When is a hearing decision final?

A

25 days after decision rendered with no appeals

85
Q

NAC can review hearing panel decision for ____ days.

A

45 days after decision rendered

86
Q

Second appeal of hearing panel decision

A

To SEC after NAC decision

87
Q

Third appeal of Hearing panel decision

A

To Federal Appeals court after SEC decision

88
Q

How many appeals possible of Hearing Panel Decision?

A

3

1) NAC within 25 days, NAC has 45 days to review
2) SEC after NAC decision reached
3) Federal appeals court after SEC decision reached

89
Q

MRVP

A

Minor Complaints - “Minor Rule Violation Plan”

Max $2,500 fine

90
Q

FINRA may summarily suspend a member who:

A

Was suspended or expelled from another SRO.

Or

Experiences financial or operating difficulties

91
Q

After summary suspension, member firm may:

A

Request a hearing within 7 days, and hearing will be held within 7 days of submission for hearing

92
Q

Dispute between 2 associated persons must go to:

A

Arbitration

93
Q

Optional All Public Panel Rule

A

Customer can elect 3 public arbitrators if desired

94
Q

Statute of limitations for Arbitration

A

6 years from the event

95
Q

Arbitration awards paid:

A

Within 30 days, 15 day grace period with threat of suspension or revocation of firm registration if missed

96
Q

Mediation can be used if:

A

Both parties agree to mediation

97
Q

Technical insider defined as:

A

Officer
Director
>10% shareholder of equity secs

98
Q

Insiders required to report trades to SEC within ___ days

A

2 days of event

99
Q

Short swing disgorgement

A

Any profits from trades within 6-month period must be paid back to corporation

100
Q

Insiders cannot short stock but can…

A

“Short against the box” at year end to lock on gains, but must close position within 20 days

101
Q

Rule 10b-5

A

“Catch-all” fraud rule; covers all undefined activity that would operate as fraud

102
Q

Penalties for Insider Misuse of Information

A

Up to 3 times the profit or up to $5,000,000 and up to 20 years in prison

103
Q

Penalty for firm with controlling person knowing of misuse of information

A

$25,000,000

104
Q

Controlling person knowing of misuse of information by insider?

A

Will not be penalized unless they knew or recklessly disregarded the fact

105
Q

Fines are payable to:

A

The US Treasury

106
Q

Informer bounty

A

10-30% of amount recovered under civil penalties

107
Q

Insiders can be sued by any person that traded the security for ___ years

A

6 years

108
Q

10b5-1 is what?

A

Trading plan or “safe harbor” rule

109
Q

2 & 5 rule

A

Unlawful practices suits statute of limitations, 2 years within discovery but no more than 5 years after violation occurred

110
Q

Rule 10b-1

A

Covers manipulation of exempt and non-exempt securities

111
Q

Rule 10b-3

A

Unlawful for broker-dealers and municipal bd’s to employ deceptive or manipulative practices

112
Q

Rules 14e-1 through 14e-5

A

Cover tender offer unlawful practices

113
Q

When must a company submit opinion to shareholders under tender offer?

A

Within 10 days

114
Q

During a tender offer:

A

Insiders cannot buy stock nor can maker of offer buy company shares in the market.

115
Q

SEC Section 15

A

Rules on broker dealers

116
Q

Penny stock rules

A

15g-1 through 15g-6

117
Q

Penny stock defined as

A

Equity securities that are not exchange listed or are not included in NASDAQ and have a price of

118
Q

Unsolicited calls times

A

Between 8:00am and 9:00pm

119
Q

Cold calling statements needed

A

Name, firm name, address or telephone from which the caller is dialing

120
Q

Cold calling rules also cover…

A

Unsolicited faxes and anything conducted over telephone

121
Q

Who enforces cold calling rules?

A

FTC

122
Q

Established business relationship (cold calling)

A

“EBR” person contacted made a transaction or had a security with firm within the past 18 months

Or

Has contacted member firm to inquire about products or services within the past 3 months

123
Q

Exemption from out-of-state registration

A

Customers vacationing in state or effects trades with other BDs, banks, institutions

124
Q

Research report restriction for (co)manager of issue

A

10 days for IPO, 3 days for secondary

Series 10 - Self Study 2021 (2 decks)

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