Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Chapter 11 > Chapter 11.1 > Flashcards

Chapter 11.1 Flashcards

1
Q

Institutional Communications

A

Any written communications to institutional investors only. This does not include internal communications.

- If a firm has "reason to believe" that a communication directed to institutional investors will be distributed to retail investors, it must treat the communication as a retail communicaiton
- Generally, appropriate qualified Principal approval is NOT required.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Retail Communicaitons

A

Any written communications to more than 25 retail investors within any 30 calendar day period. This category includes advertisements and sales literature and independently prepared reprints.

 - Principal approval is required before the earlier of its use or filing with FINRA. 
 - Research reports require principal approval, in writing, but a supervisory analyst is also allowed to approve research reports on debt and equity securities.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Exceptions to the principal pre-use approval requirement for retail communications

A
  • If another member firm has previously filed the retail communication with FINRA and has an approval letter from FINRA, and the firm now wanting to use the literature will not materially alter it and will use it consistent with the conditions of the FINRA approval letter.
  • If the retail communication is not a research report, unless it makes financial or investment recommendations
  • If the retail communication is posted on an online interactive electronic forum
  • If the retail communication does not make investment recommendations nor promote the products or services of the firm
  • An exemption may be granted by FINRA on a case by base basis, after all factors are taken into consideration and the exemption still protects the investors and the public.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Advertisements

A

Include written retail communications that do not have a limited audience. Examples include:

  • Newspapers
  • Magazines
  • Television
  • Radio
  • Billboards
  • Websites which are publicly available and/or include an RR’s personal profile on the member firm’s website
  • Motion pictures
  • Video displays
  • Tape recordings
  • Blogs with “static” content such as profiles, background, and wall information.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Advertisements, which require Principal approval include:

A
  • Publicly-available web sites
  • RR’s “personal” profile on the member firm’s website
  • Blogs with static content(profiles, background, and wall information).

**Exception: Personal web sites which may contain a short biography or profile describing the individual as being an RR, provided securities or investment activities are not the focus of the information on the site, are NOT considered advertisements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Sales Literature

A

Includes written retail communications that have a more targeted audience, such as:

  • Brochures
  • Performance Reports
  • Telemarketing Scripts
  • Seminar Scripts
  • Form Letters
  • Market Letters
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Correspondence

A

Includes any written communications to 25 or fewer retail investors within any 30 calendar day period.

  • Principal approval is not required if the correspondence does not make any financial or investment recommendation or promote a product or service of the firm. All correspondence is subject to supervision and review
  • Correspondence includes written letters, electronic mail, instant messages, seminar handouts, and market letters sent to 25 or fewer retail investors within any 30 calendar day period.

**The term “retail investor” includes both prospective and existing clients.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Filing with FINRA at least 10 business days prior to first use and FINRA clearance for use requirements include:

A
  • New Member/one year filing: Firms that have not previously filed promotional material with FINRA must file their initial communications. This filing requirement continues for 1 year after the firm’s membership became effective including any retail communication which includes generally accessible websites, newspapers, magazines, telephone, directory, or other advertisement including tv, radio, telephone or audio recordings, video displays, signs, billboards, and motion pictures.
  • Delinquent firms: If FINRA determines that a firm has departed from the communications standards, the firm may be required to file materials and get FINRA clearance for use.
  • Certain retail communications such as:
    • Registered investment companies with self-created rankings
    • Securities futures
    • Retail communications that contain bond mutual fund volatility ratings
    • Retail communications that include ranking or performance comparison information that is not generally published or that is created by the investment company
    • Options retail communications used prior to the delivery of the Options disclosure document(ODD)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Concurrent with use FINRA filing requirements - within 10 business days of first use:

A
  • Retail communications that promote registered investment companies with rankings created by ranking entities.
  • Retail communications concerning public direct participation programs.
  • Retail communications offering of an investment analysis tool and any templates for written reports produced by, or concerning, an investment analysis tool.
  • Retail communications concerning registered CMOs
  • Retail communications concerning registered derivative or structured products.
  • A final filmed version of a prior filed “story board” of a television or video retail communication.
  • *Advertising concerning government securities do not require filing
  • *Filing must include the anticipated date of its first use and the date that the approval was given
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Other FINRA filing rules

A
  • The registered principal’s CRD number must be included with any FINRA filing
  • All communications with the public are subject to routine “spot checks” by FINRA
  • Option ads must be approved by a Registered Options Principal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Exclusions from FINRA filing requirements:

A
  • Advertisements and sales literature that have been previously filed with FINRA and is to be used again without material changes
  • Statistical updates to pre-existing templates that have been previously filed with FINRA
  • Advertisements and sales literature solely related to recruitment or changes in company name, location, personnel, etc.
  • Advertisements and sales literature that simply identifies the firm’s trading symbol or a security for which the firm acts as a market maker
  • Tombstone ads
  • Press releases only available to the media
  • Prospectuses, preliminary prospectuses, and offering circulars
  • Issuer-created Free writing prospectuses, whether they are filed with the SEC or exempt from SEC filing
  • Independently prepared reprints of articles or reports(principal approval would be required if it is sent to more than 25 retail investors in any 30 day period)
  • Correspondence
  • Communications that only list the products or services of a firm
    • Announcement that a member has participated in a Private Placement
    • Retail communications that do not make any financial or investment recommendation or promote a product or service of the member firm
  • Posting on interactive online electronic forums
  • Research reports concerning only exchange-listed securities including exchange-listed closed-end funds or master limited partnerships. Research reports on open-end investment companies, unit investment trusts or any face-amount certificate company must still be filed within 10 days of distribution of the material.

**The firm must maintain supervision and review standards for these communications

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Recordkeeping requirements for advertisements, sales literature and independently prepared reprints

A

Must be kept in a separate file for 3 years from the last use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Must must the recordkeeping file contain?

A
  • The name of the registered principal who approved the use and the date of the approval
  • A copy of the communication and the dates of use and
  • Information as to the source of any table, chart, graph or illustration used in the communication
  • If a retail communication did not require principal pre-use approval, the name of the person who distributed the communication
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

General content standards for communications

A
  • All communications are to be fair, balanced and in good faith
  • The rules prohibit false, exaggerated, unwarranted, misleading statements or omitting material facts
  • Information may be placed in a legend or footnote if it does not inhibit an investor’s understanding of the communication
  • Member’s must consider the nature of the audience
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Predictions and Projections of Performance

A

Are generally prohibited. There are two exceptions to this prohibition:

  • Reports produced by an investment analysis tool that meets certain standards
  • Research reports may include price targets under certain circumstances
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Hypothetical illustrations of mathematical principles

A

Are permitted

17
Q

Comparisons are permitted if:

A

All material differences are disclosed, including costs, risks, taxes, etc. The name of the firm sponsoring the comparison must be disclosed.

18
Q

Content standards for taxes

A
  • When “tax free” or “tax exempt” is used in an ad, the sponsoring firm must disclose which, if any, taxes do apply. Such terms may not be used when the taxes are simply deferred.
  • Tax deferral illustrations must satisfy certain specific requirements.
19
Q

Testimonials are permitted subject to the following rules:

A
  • If the testimonial is about a technical aspect of investing, the person must have the requisite qualifications to form a professional opinion.
  • If the testimonial is about investment performance, the ad must say that the person’s experience may not be the experience of others and that past performance is not a guarantee of future performance.
  • If the person giving the testimonial is being paid for the testimonial, the fact must be disclosed if the compensation is more than a nominal sum(generally $100).
20
Q

If there is a possible conflict of interest, certain disclosures are required:

A
  • When the firm is acting as a market maker or maintains a position in the security recommended
  • If the firm or a principal of the firm has a financial interest or maintains a position in the securities recommended
  • If the firm was the manager or co-manager of a public offering of the issuer of the securities in the last 12 months
21
Q

What must the firm provide if giving a recommendation of a security?

A

Must provide the price of the security at the time of the recommendation and investment research information about the security recommended upon request.

22
Q

Pas recommendations

A

The firm may not list certain past recommendations that were profitable without offering to provide information about all recommendations made in, at least, the last year.

23
Q

When sponsoring or participating in a public appearance, persons associated with members:

A
  • Are subject to the “fair and balance” standard
  • When making recommendations, they must be reasonable and the person must disclose if there is any conflict of interest or financial interest involved
  • Firms must have written policies governing public appearances and maintain a log of talks and lectures
  • Public appearances are not subject to the principal pre-use approval requirements and are not subject to the FINRA filing requirements
24
Q

Use of investment analysis tools

A
  • If the firm offers an investment analysis tool, the offer must be filed within 10 days of first use.
  • The firm must provide FINRA with access to the tool and any template for written reports within 10 days of first use
  • Under the FINRA rules, an “investment analysis tool” is an interactive technological tool that produces simulations and statistical analysis that present the likelihood of various investment outcomes if certain investments are made, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices.
25
Q

Securities futures contracts

A
  • Communications must be preceded or accompanied by a securities futures risk disclosure document
  • If the communication contains past performance, all relevant costs must be reflected in the performance
26
Q

Can a B/D imply that a regulatory organization has endorsed the B/D?

A

No

27
Q

Offers of free services

A

Must be without condition or obligation

28
Q

Who must approve research reports on debt and equity securities and research related communications?

A

A supervisory analyst.

**The supervisory analyst does not need to be a Chartered Financial Analyst

29
Q

Prospectuses filed with the SEC:

A

Are not subject to the FINRA content standards

30
Q

What must all retail communications and correspondence do?

A
  • Prominently disclose the member’s name
  • Reflect any relationship between the member and non-members or individual who is named in the communication
  • Reflect the products and services offered by the member

Chapter 11 (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions