Chapter 15/16/17

Question 1

What info is required to be obtained by a RR during the account opening process?

Answer 1

• Customer’s name & address
• Whether customer is of legal age
• Name of RR(s) - this doesn’t apply to institutitonal accounts
• The signature of the partner, officer, or manager (principal) who approves the account
• If account is for a business, names of authorized individuals for transactions is required.

• Verification of this info must be sent to the customer within 30 days of the account opening

Question 2

Institutional account

Answer 2

Any account > $50MM

Question 3

What info must RRs make a reasonable effort to obtain prior to the settlement date of the initial transaction?

Answer 3

• Taxpayer ID #
• Occupation, name, & address of employer
• Whether the customer is associated w/ another member firm

This doesn’t apply to institutional accounts

Question 4

True or false: FINRA mandates that a principal must provide a signature on all new cash, margin, and option account openings?

Answer 4

False, just for magin and option accounts

Question 5

Rule 17a-3

Answer 5

Details information that broker-dealers must keep about their clients

• RRs must make a best effort in obtaining all the info. The customer may refuse

Question 6

Trusted contact person

Answer 6

When opening an account, customers must list a trusted contact person. he purpose of any disclosure is to address possible financial exploitation or to confirm the specifics of the customer’s current contact information, health status, or the identity of any legal guardian, executor, trustee, or holder of a power of attorney.

Question 7

True or false: Periodic updates and verification of account information must be sent to the customer at least every 36 months?

Answer 7

True

Question 8

What must RRs do if a customer revises their info after account opening?

Answer 8

The broker-dealer must send a copy of the revised account record to the customer. Member firms are required to send the updated documentation within 30 days after it received notification of the change or at the time the next statement is mailed to the customer.

Question 9

Suitability

Answer 9

An ethical, enforceable standard regarding investments that financial professionals are held to when dealing with clients. Every investment recommendation should be in the client’s best interest. Just because a customer agrees to a recommendation does NOT relieve a RR of their suitability obligation.

Question 10

FINRA’s 3 primary suitability obligations

Answer 10

1. Reasonable basis obligation: RRs must have a reasonable basis to believe that an investment is suitable for the investor
2. Customer-specific obligation: RRs must believe that an investment recommendation is suitable for the specific customer
3. Quantitative obligation: RRs must believe that the amount of the given investment is appropriate for each investor

Question 11

True or false: An investor’s age is a factor when determining the suitability of a risk?

Answer 11

True

Question 12

Guidelines for suitability obligations regarding institutional customers

Answer 12

• RRs ust have reason to believe that the institutional customer can evaluate investment risks independently.
• The institutional customer must affirmatively state that it’s exercising independent judgment in evaluating the recommendations.

• When dealing with institutional customers, firms are exempt from the customer-specific obligation that was listed previously. However, the reasonable basis and quantitative obligations standards still apply.

Question 13

Retail customer

Answer 13

a natural person, or this person’s non-professional legal representative who uses investment recommendations primarily for personal, family, or household purposes.

Question 14

Client relationship summary (CRS)

Answer 14

Provides retail investors with info about the nature of their relationship w/ their financial professional in a understandable format. New retail investors must receive a copy of Form CRS by no later than the time they open a brokerage account, place an order, or receive a new recommendation for an account type, securities transaction, or investment strategy.

• Broker-dealers must file Form CRS with the Central Registration Depository (CRD), while registered investment advisers must file Form CRS with the Investment Adviser Registration Depository (IARD)

Question 15

3 phases of money laundering:

Answer 15

1. Placement: illegal cash is placed into the flow of a broker-dealer’s business, most often through the purchase of securities.
2. Layering: transactions occur separately to avoid detection.
3. Integration: proceeds from the transactions back into the stream of commerce, making them appear to be from a legitimate source.

Question 16

Structuring

Answer 16

A type of layering in ML that invovles the purchase of several blocks of securities each with cashier’s checks that are drawn on different institutions and in amounts of less than $10,00

Question 17

True or false: Every firm must have a control person that reports to FINCEN?

Answer 17

True

Question 18

CTRs vs SARs

Answer 18

CTRs: Firms must file if customer transactions are > $10,000 or aggreate to $10,000 in one day

SARs: a firm must file an SAR whenever a transaction (or group of transactions) equals or exceeds $5,000 and the firm suspects suspicious activity.

CTR and SAR filing is confidential

Question 19

AML Compliance Programs

Answer 19

Every broker-dealer must have an AML Compliance program that includes policies/procedures, a compliance officer in charge of the firm’s AML program, employee training program, independent audit function. FOUR PILLARS.

• The independent audit occurs annually, unless the member firm doesn’t execute transactions for customers, then it can be performed every two years.

Question 20

Specially Designated Nationals and Blocked Persons List

Answer 20

Firms cannot do business w/ customer names on OFAC’s SDN list.

Question 21

True or false: A broker-dealer that receives an application to open an account may waive the obligation of obtaining a taxpayer ID number if the person has applied for, but not yet received, the number. However, in lieu of the number, the broker-dealer must retain a copy of the person’s taxpayer identification application?

Answer 21

True

Question 22

True or false: Under the CIP rules, a broker-dealer must maintain records of the methods it used to verify a customer’s identity for ten years following the closing of the account?

Answer 22

False, five years, and broker-dealers are required to retain records related to transmittals or transfers of funds that exceed $3,000.

Question 23

Penalties for violating AML

Answer 23

A RR who is found guilty of facilitating money laundering may be sentenced to 20 years in prison and may receive a fine of up to $500,000 per transaction or twice the amount of the funds involved—whichever is greater.

• RRs and their firms may be held liable for being willfully blind to the activity.

Question 24

Reg SP

Answer 24

Firms are required to have policies and procedures addressing the protection of customer information and records. Firms must have policies/procedures for this. Firms must provide their customers with a description of their privacy policies at the account opening and annually thereafter. Reg SP divides clintel into:
A consumer is a person who is in the process of providing information to the firm in connection with a potential transaction. A customer is a person who has an ongoing relationship with the firm.

A firm MUST provide a privacy notice if the firm intends to disclose information about the consumer

• Disclosure of a customer’s publicly available information is not restricted under the regulation.

Question 25

Federal Trade Commission (FTC) Red Flag Rules

Answer 25

Requires many financial institutions, to create and implement a written Identity Theft Prevention Program. Each firm must have policies and procedures that address the appropriate actions to take if identity theft is suspected and/or detected.

Question 26

Can a firm that’s acting as a trustee for a corporation use a shareholder list to cold-call or prospect in other matters?

Answer 26

No, this is generally a violation. SRO rules don’t allow a trustee to use stockholder information for solicitation purposes unless the member firm is specifically directed to do so by, and for the benefit of, the corporation.

Question 27

True or false: At least quarterly, broker-dealers are required to provide customers with account statements. Most firms provide monthly statements for any account in which activity has occurred?

Answer 27

True, the account statement should contain a description of the security position, balances, and all account activity.

Question 28

Confirmation statements

Answer 28

The SEC requires broker-dealers to provide customers with a detailed confirmation of each purchase or sale at or before the completion of any transaction- generally the settlement date.

• Even if an RR has discretion over a customer’s account, confirmations for all transactions must be sent to the customer.
• Statements and trade confirms may also be sent to an investment adviser or other third party, but only if the written consent of the customer is obtained.

Question 29

Can a firm hold mail for a client?

Answer 29

Yes, provided that the firm receives written instructions from the customer. If the period requested exceeds three consecutive months, the customer’s instructions must include the valid reason for this request. The firm must also give written disclosure of alternative method the client can monitor their account.

Question 30

Correspondance

Answer 30

1/3 types of communications according to FINRA. This is written or electronic messages that a member firm sends to 25 OR FEWER retail investors within any 30-calendar-day period.

* These are subject to review butnot approval by a principal

• DO NOT have to be filed w/ FINRA

Question 31

Institutional communications

Answer 31

1/3 types of communications according to FINRA. This is written or electronic communication that’s distributed or made available only to institutional investors, but doesn’t include a member firm’s internal communications.

* These are subject to review but not approval by a principal

• Do NOT have to be filed w/ FINRA
• If a member firm becomes aware that an institutional investor (e.g., another broker-dealer) is making institutional communications available to retail investors, the firm is required to treat future communications to that institutional investor as retail communications.

Question 32

Retail communications

Answer 32

1/3 types of communications according to FINRA. This is written or electronic communications that are distributed or made available TO MORE THAN 25 retail investors within a 30-calendar-day period.

* These are subject to review & pre-approval by a principal

• These communications may be subject to filing w/ FINRA

Question 33

SRO rules regarding cold calling

Answer 33

• Cold calling can only be done between 8am and 9pm local time, unless given prior approval by the household.
• The callers must give basic info about themselves and the firm
• Each broker-dealer is responsible for creating a Do Not Call List.
• RRs may not harrass the people being called.
• Firms must ensure that the phone # is not being blocked by caller ID.
• Pre-recorded messages are prohibited unless the person being called gives consent.

Question 34

True or false: The 8am-9pm rule applies to the firm’s clients as well?

Answer 34

False

Question 35

SEC Rule 15c3-3

Answer 35

Contains provisions to ensure the safekeeping of both customer securities and customer funds. A broker-dealer is required to promptly obtain and thereafter maintain physical possession or control of all fully paid and excess margin securities that belong to its customers in a secure location (the firm’s office or DTC).

Question 36

Excess margin securities

Answer 36

securities whose value exceeds 140% of the debit (loan) balance of a customer

ex: A customer who owns stock worth $10k and has a debit balance of $5k would have an excess margin balance of [ $10k - (.14 * $5k) ] = $3k

Question 37

True or false: On a daily basis as of the close of the preceding business day, a broker-dealer is required to compute the quantity of fully paid and excess margin securities that are in its possession or control and those that are not in its possession or control?

Answer 37

True, if not in their posession they must promptly take action. If a customer sells securities and fails to deliver the securities within 10 business days of the settlement date, the broker-dealer must buy in the customer. Under exceptional circumstances, the broker-dealer may apply to FINRA for an extension.

Question 38

Free credit balances

Answer 38

the funds that are available to customers, but that are currently on deposit in their accounts (e.g., sales proceeds that haven’t been reinvested or withdrawn). Broker-dealers must advise clients on free credit balances at least quarterly.

Question 39

True or false: FINRA requires member firms and MSRB firms to send clients the firm’s b/s every six months or more upon request?

Answer 39

True

Question 40

Business Continuity Plan (BCP)

Answer 40

Essentially a disaster plan. Should include data backup/recovery, financial assessments, alternative communications, alternative physical locations, and regulatory reporting. The BCP is not required to be filed with FINRA, but it must be made available to an SRO upon request.

• Each member firm must disclose to its customers how its business continuity plan addresses the possibility of a future significant business disruption and how the member plans to respond to these events. This disclosure must be provided in written format at the time an account is opened and must be posted on the member’s website.

Question 41

Firm record lengths:

Answer 41

Records that should be kept for the entirety of the firm’s lifetime: Corporate/partnership docs

Records that should be kept 6 years: records of original entry), municipal complaints, new account forms, account statements, PoAs

Records that should be kept 3 years: Trade tickets, confirms, Forms U4/U5 and employee records, all communications, trial balances, etc.

• FINRA requires that complaint records be maintained for four years at the OSJ.

Question 42

Rule 10b-5

Answer 42

A section of The Securities Exchange Act of 1934 that deals w/ manipulative and deceptive practices.

Question 43

Rule 10b-1

Answer 43

states that the prohibition cited in 10b-5 also applies to securities that are exempt from SEC registration.

Question 44

Rule 10b-1

Answer 44

states that the prohibition cited in 10b-5 also applies to broker-dealers.

Question 45

Rule 15c1-3

Answer 45

it’s a manipulative act for any brokerage firm to represent that a firm’s registration with the SEC implies that the SEC has approved the firm. Instead, the SEC only requires registration; it doesn’t approve the firm or its activities.

Question 46

Reg M

Answer 46

The rule covers issuers distributing IPOs as well as those distributing additional securities to the public. It was put in place after issuing firms use to condition the market in order to sell the securities at a high value, and then the value would drop after the issuers go their money leaving retail investors w/ losses. The SEC restricts distribution participants (such as underwriters and issuers) from aggressively bidding for or making purchases in the secondary market of a stock that’s currently being offered in a distribution. However, many of these participants are allowed to make passive markets (i.e., not driving up the price). This restriction is in effect for a limited period that revolves around the effective date. The SEC specifies that broker-dealers and underwriters are prohibited from promising to repurchase shares of an IPO at no less than the original sales price.

• certain exceptions are permitted when the SEC believes the chances of manipulation are low.
• the SEC also makes exceptions for market makers and syndicate members that are seeking to support (stabilize) the price of the new issue.

Question 47

Laddering

Answer 47

The intent of laddering is to inflate the aftermarket price of an IPO and cause other market participants to buy or bid for the security at higher prices.

Question 48

True or false: It’s a violation to encourage clients, prior to the trading of an IPO, to provide info on the price and # of shares they’re willing to purchase in the aftermarket?

Answer 48

True

Question 49

Pump-and-dump

Answer 49

When informed individuals create rumors to manipulate a stock price. This involves spreading positive news if they want the price to rise or spreading negative news if they want the price to fall.

Question 50

Front-running

Answer 50

If a broker-dealer or any persons are aware of a large impending order (block trade) that has not yet been executed, it’s prohibited for them to execute an order for a proprietary account or an account in which they have discretion.

Question 51

Trading ahead of research

Answer 51

When a firm’s sales team trades right before the release of a research report. FINRA created a rule that prohibits a member from establishing, increasing, decreasing, or liquidating an inventory position in a security or derivative of that security based on material, non-public, advanced knowledge of the content and timing of a research report in that security. This includes debt/equity/derivatives, exchange and non-exchange-listed securities.

Question 52

True or false: FINRA requires firms to have info barriers between the research department and sales department?

Answer 52

True

Question 53

Marking-the-close vs marking-the-opening

Answer 53

Marking-the-close: a series of transactions, at or near the close of trading, at or within minutes of 4:00 p.m., which either uptick or downtick a security. Firms may mark the close since the closing price is used to determine margin requirements each day. When the stock drops to the predetermined price level, firms raise their requirements to 100% equity, which means that they require full cash payment for the security. Another reason is that security’s closing price is the price that’s shown in the newspapers as the final price for that security for that trading session. This strategy can also affect index values.

Marking-the-opening: Same as marking-the-close but at the opening.

Question 54

Backing Away

Answer 54

If a market maker is contacted by another dealer or customer and fails to honor its quote, it’s considered a backing away violation. In doing so, the market maker violates FINRA and SEC rules and is subject to disciplinary action. Failing to honor a quote can result in a monetary fine and/or suspension of the firm’s ability to engage in market-making activities.

Question 55

When must customers pay for securities in their brokerage accouts?

Answer 55

When a customer purchases securities in either a cash or margin account, Regulation T requires that he promptly make payment. Typically this is 2 business days after settlement, or 4 days total. If the customer doesn’t pay, the broker-dealer is required to close out the transaction by selling out the securities and will then freeze the account for 90 days. During the period in which the account is frozen, the customer must pay for all purchases in advance. If payment is made in advance for the 90-day period, the customer is considered to have reestablished credit and may once again be extended normal credit terms.

Question 56

Free riding

Answer 56

This practice is illegal and prohibited by the SEC and FINRA. It’s when a customer pruchases a security in the hopes of rising value, but before making the payment the seucrity rises in value. The customer directs his firm to liquidate a portion of the securities and to use the sales proceeds to cover the payment requirement. Since the customer’s payment requirement is satisfied without having deposited funds, it’s considered freeriding.

Question 57

Other prohibited trading practices

Answer 57

1. coordinating prices (including quotes), trades, or trade reports with any other member or person associated with a member
2. To request another member to alter a price (including quotes)
3. Any form of extortion
4. To engage in conduct that retaliates against or discourages the competitive activities of another market maker or market participant

Question 58

True or false: If a broker-dealer fails to use reasonable diligence to assist customers in obtaining the best price on purchases and sales, it’s a violation of FINRA and MSRB (for municipal securities) rules?

Answer 58

True

Question 59

MSRB Rule G-47

Answer 59

requires dealers to disclose to customers, at or prior to the time of trade, all material information known or available publicly through established industry sources. This includes solicited/unsolicited bids.

Question 60

Interpositioning

Answer 60

Assigning an unnecessary third party, generally another broker, to act as a go-between with a customer and the best attainable market. This is prohibited as the goal is usual to generate additional commissions. interpositioning ISN’T prohibited if a member firm can demonstrate that an execution was advantageous to its customer

Question 61

Trading Ahead of the Customer

Answer 61

A firm is in violation of FINRA if it accepts and holds a customer’s order for a security and then buys the security for its own account before buying it for the customer. An exception is granted if the firm had different departments that traded the same security under certain conditions, however, the two departments must have proper information barriers in place for this exception to apply.

Question 62

True or false: FINRA allows member firms to display different quotes in different markets?

Answer 62

False, FINRA allows firms to display quotes in different markets but itmust be thesame price.

Question 63

True or false: Under certain conditions, a mutual fund is permitted to buy securities from and/or sell securities to another mutual fund without being subject to trading restrictions?

Answer 63

True, typically it’s permitted if the mutual fund is controlled by the same investment company.

Question 64

Insider Trading

Answer 64

The purchase or sale of securities using material, non-public information about those securities in a fraudulent manner. If a corporation has material information, it must release it to the public before any person may use the information to complete a transaction.

Question 65

True or false: Trading by a firm or individual that’s based on info regarding a large client’s potential buying or selling is insider trading?

Answer 65

False, front running

Question 66

Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)

Answer 66

Required broker-dealers to establish, maintain, and enforce written policies/procedures that are designed to prevent insider trading. The procedures must contain:
* Monitoring of employees’ person trading and the firm’s proprietary accounts
* Educating employees on insider trading
* Restricting or monitoring the trading of securities in which the firm has access to insider info
* Procedures to restrict access to files containing confidential info, including the establishment of information barriers.

Question 67

Restricted and Watch Lists

Answer 67

Firms that engage in investment banking, research, or arbitrage activities are required to maintain restricted and watch lists. These lists must nclude securities that employees are either restricted or prohibited from trading, or issues that are subject to closer scrutiny by the member firm. The restricted list must be distributed to employees; however, the content of the watch list is generally known only to selected members of the legal and compliance departments.

Question 68

What should an employe do if they encounter material nonpublic info?

Answer 68

Talk to their compliance department. At that point, the Compliance Department can put the issue on the firm’s watch list.

Question 69

The New Issue Rule

Answer 69

Since IPOs can dramatically increase in price immediately after shares are sold to initial investors, FINRA mandates that issuers cannot withhold any of the initial investments for themselves.

• An exemption exists that allows personnel of a limited broker-dealer to purchase shares of a new issue. A limited broker-dealer is one that restricts its business to investment company/variable contract securities or direct participation programs.

Question 70

Preconditions for sale

Answer 70

Prior to selling a new issue to any account, a firm must meet certain preconditions for sale. A firm must obtain a written representation from the account holder, or any authorized party of the account, which states that the account is eligible to purchase new issues. The representation from the account holder may be in the form of an affirmative statement that positively declares that the account is eligible. This information must be verified every 12 months.

Question 71

Restricted persons

Answer 71

• FINRA member firms and any employee of the member firm.
• An immediate family member of an employee of a member firm. This only applies if the immediate family member is gifted/gifts support (25% or more of the employee’s income) from/to the employee, the employee is employed by the member firm that’s selling the new issue, or the employee has the ability to control the allocation of the new issue.
• Finders and fiduciaries (ex: attorneys or accountants)
• Portfolio managers purchasing for their own account
• Persons who own a broker-dealer

Question 72

Exemptions to the New Issue Rule

Answer 72

• Investment companies that are registered under the Investment Company Act of 1940
• Insurance company accounts
• A common trust fund
• An account in which the beneficial interest of all restricted persons doesn’t exceed 10% of the account.
• Publicly traded entities, other than a broker-dealer or its affiliates, that engage in the public offering of new issues
• Foreign investment companies
• ERISA accounts, state and local benefit plans, and other tax-exempt plans under IRS Code 501(c)(3)

Question 73

True or false: Another exemption to The New Issue Rule is that if an issue is undersubscribed, an underwriter can place shares in its own investment account as long as all public demand for the shares has been met?

Answer 73

True. However, an underwriter cannot sell shares of an undersubscribed issue to other restricted persons.

Question 74

True or false: SRO rules permit the parent company of an issuer, the subsidiary of an issuer, or employees/directors of an issuer to purchase shares of a new issue as long as the issuer specifically directs securities to them?

Answer 74

True

Question 75

Can FINRA and MSRB firms share in profits or losses of member firms?

Answer 75

Generally no unless the RR has made a contribution of their own in the customer’s account, the customer’s prior consent is given, the employing broker-dealer’s prior written consent is given, investment advisory accounts

Question 76

True or false: Employees of member firms may neither guarantee against losses in customer accounts or transactions within customer accounts, nor may they reimburse a customer for any losses that at are incurred?

Answer 76

True

Question 77

Can RRs borrow/lend money to a customer?

Answer 77

Generally no unless
* The customer and the RR are immediate family members
* The customer is a financial institution that’s regularly involved in the business of extending credit or providing loans.
* Both the customer and RR are registered w/ the same firm
* The loan is based on a personal relationship between the customer and registered person.
* The loan is based on a business relationship that’s independent of the customer-broker relationship.

If any one of these conditions are met, the RR is required to notify the firm prior to the entering of these arrangements. The firm is also required to provide written preapproval of these arrangements and maintain the approvals for a period of at least three years after the arrangements are terminated. If the registered person involved in these practices is terminated, the approvals must be maintained for at least three years after termination.

Question 78

FINRA Rule 2165

Answer 78

The rule was designed to mitigate financial exploitations of specific adults. A specificed adult is someone >= 65, an adult who has a mental or physical impairment. A trusted contact person must be appointed for specified adults. The trusted person’s contact information IS NOT required to open the account, but a firm should make a reasonable effort to obtain their info. A firm may place a hold on an account if they believe there is possible financial exploitation. If a member firm places a temporary hold, the rule requires the firm to immediately initiate an internal review of the facts and circumstances

Question 79

Rule 2165 Notification of Hold

Answer 79

If a hold is placed on a specified person’s account, by no later than TWO BUSINESS DAYS after the date that the member first placed the temporary hold on the disbursement of funds or securities, the member firm must provide notification, either orally or in writing to all parties who can transact in the account and the trusted contact person. Once a temporary hold is initiated, the firm is permitted to terminate it only after contacting either the customer or the trusted contract person and discussing the situation. A temporary hold will expire by no later than 15 business days after the date that it was first placed on the account, unless it was otherwise terminated or extended by another authorized regulatory entity. the firm may extend the temporary hold for an additional 10 business days, unless otherwise terminated or extended by another authorized regulatory entity. The firm can extend it for another 30 days after this (55 days total) if it still hasn’t been resolved.

Question 80

Can employees of member firms trade on their own?

Answer 80

Yes, but the accounts must be monitored and the employee must obtain written approval from their firm prior to beginning trading. If an employee had opened an account prior to the time that he became associated with a broker-dealer, the employee is required to obtain the written consent of his employer within 30 days of the beginning of his employment to maintain the account, also, the employee is required to provide written notification to the executing firm of his employment with another broker-dealer.

Each trade the employee makes DOES NOT need to be approved

Question 81

True or false: If an employee has a personal trading account outside of the firm he works with, the firm cannot access confirmations, statements, or any other transactional information from the employee’s trading account?

Answer 81

False, the executing firm is required to give the info the firm where the employee works. he requirements of this rule don’t apply to accounts that are limited to transactions involving redeemable investment company securities (mutual fund shares), unit investment trusts, variable contracts, or 529 plans.

Question 82

Can a broker-deal provide payment to an unregistered person?

Answer 82

No

Question 83

True or false: If a firm decides to use electronic storage media, it must notify its primary regulator prior to the beginning of its use. Also, if a firm changes the form of electronic storage media that it’s currently using, it must notify its regulator at least 90 days prior to using the other method?

Answer 83

True

Question 84

When maintaining records using electronic storage media, the firm must:

Answer 84

• Maintain records in non-rewriteable and non-erasable formats
• Automatically confirm the quality and accuracy of the media recording process
• Maintain records in serial form w/ time & date info that documents the required retention period for the information stored
• Be able to download the indexes and records maintained to any medium that’s accepted by the SEC or other SRO of which the firm is a member
• Be able for the SEC and an SRO to immediately review files

Question 85

If a new stock issue is selling very slowly, can an underwriter place a stabilizing bid?

Answer 85

Only if the bid is placed at the POP

Question 86

Associated Persons According to FINRA

Answer 86

1. Officers, directors, partners, or branch managers of a member firm
2. Employees of the firm
3. Person(s) engaged in investment banking or securities business that’s controlled by the member firm

Question 87

Non-registered broker-dealer employees

Answer 87

Can only have limited contact w/ customers. Unregistered employees may extend invitations to firm-sponsored events, Inquire as to whether a prospective customer wishes to discuss investments w/ a RR, or inquire whether a prospective customer wishes to receive investment literature from the firm. When performing the activities just listed, unregistered employees must be closely watched by the firm. A registered person MAY NOT offer commissions or fees to an unregistered person but may give them referrals.

Question 88

Can an unregistered person accept customer orders

Answer 88

Generally no. When an appropriately registered person is unavailable, the unregistered person may transcribe the order details as long as a registered person contacts the customer and confirms the details.

Question 89

RRs vs principals

Answer 89

RRs are usually employees whereas principals are generally officers.

Question 90

Series 50

Answer 90

Allows a person who is associated with a municipal advisor to engage in municipal advisory activities on behalf of the municipal advisor.

Question 91

Series 52

Answer 91

Allows a person to be involved in underwriting, trading or sales of municipal securities.

Question 92

Series 9/10

Answer 92

Allows a person to supervise sales of Corporate securities, investment company products and variable contracts, munis, options, gvt securities, and DPPs.

This person DOES NOT supervise underwriting, trading, or overall firm compliance with financial responsibilities.

Question 93

Series 24

Answer 93

Allows a person to supervise all areas of the member firm’s investment banking and securities business.

However, this person doesn’t supervise activities related to munis or options.

Question 94

Series 27

Answer 94

Allows a person to supervise back office operations; preparation and maintenance of a member firm’s books and records; compliance with financial responsibility rules that apply to self-clearing broker-dealers and market makers

Question 95

Series 26

Answer 95

Allows a person to have regulatory compliance over sales of the following: mutual funds; closed-end funds (initial offering only); variable annuities; and variable life insurance

Question 96

Series 51

Answer 96

Alows a person to manage, direct, or supervise actvities related to munis

Question 97

Series 53

Answer 97

Essentially the same as Series 51

Question 98

True or false: Each registered representative must be assigned to a specific supervisor or principal who has passed the appropriate regulatory examination?

Answer 98

True, On the actual examination, if a scenario-based question is asked regarding the potential clarification of a rule, the correct answer may be to contact the designated supervisor.

Question 99

Form U4—the Uniform Application for Securities Industry Registration or Transfer

Answer 99

The registration process typically begins with the filing of an application with the regulators. Each individual who is to be registered under SRO rules must complete Form U4. This application is filed with FINRA’s CRD.

Question 100

Statutory Disqualification

Answer 100

A broker-dealer may be prohibited from employing an individual who is subject to statutory disqualification in any capacity unless FINRA provides specific permission. Intentional submission of false information or the omission of pertinent facts will result in the immediate statutory disqualification. To hire or continue to employ an SD person, a firm must file an application with FINRA requesting special permission through a process referred to as an Eligibility Proceeding. FINRA’s Department of Member Regulation evaluates the application and makes a recommendation to the National Adjudicatory Council (NAC) to either approve or deny the request.

Question 101

Supervisory Plan

Answer 101

When considering whether a firm may employ a statutorily disqualified person, FINRA requires the firm to engage in heightened supervision of the person and to include its supervisory plan for the person in its application. The supervisory plan must be tailored to the specific SD person being supervised. The firm should:
* Supervise all of the SD persons order ticket and new account forms
* Keep supervisory records of all documentation related to the SD
* Immediately reviewing customer complain

Question 102

U5 Form

Answer 102

Provides information regarding the reason for the termination of a registration with a member firm, as well as any potential claims regarding investment misconduct or other derogatory activities.

Question 103

True or false: if a person comes into contact with funds, securities, or the firm’s books and records, the fingerprinting requirement applies?

Answer 103

True

Question 104

True or false: RRs will need to be properly registered as agents in each state in which they conduct business?

Answer 104

true, Similar issues arise regarding the registration of securities. Each security that’s sold to a customer must either be registered (blue-skyed) under state law or be exempt from registration. If more than one state is involved, such as when the representative is in one state and the client is in another, the security must generally be registered or exempt in each jurisdiction.

Question 105

Continuing Education (CE) Program

Answer 105

RRs are required to participate in Regulatory Element training on an annual basis for each registration that they hold. The program is divided into two parts:
1. The Regulatory Element—which is created and administered by regulators
2. The Firm Element—which is the responsibility of each broker-dealer: At least once per year, firms must demonstrate to the regulators that they have analyzed and prioritized the training needs of their covered personnel and have developed a written training plan based on that needs analysis.

If the person doesn’t complete the training within the prescribed time frame, that person’s registration will become inactive. An RR with an inactive registration is prohibited from performing any activity or receiving any compensation that requires securities registration.

Question 106

Maintaining Qualifications Program

Answer 106

Individuals who terminate any of their representative or principal registrations are able to maintain their qualifications by completing their annual CE requirement. Individuals who pay a $100 annual fee to utilize this program are given a maximum of five years to reregister with a member firm without being required to requalify by exam.

Question 107

Qualifications to be eligble to meet MQP

Answer 107

1. They must have been registered in the terminated registration category for at least one year immediately prior to the termination in that category.
2. They must elect to participate in the MQP within two years from the date of termination.
3. They must complete all of their CE requirements by their due dates.
4. They cannot have been CE Inactive for two consecutive years.
5. They cannot be SD

Question 108

How does CE work for active duty military members?

Answer 108

While in active military service, a registered representative is placed on special inactive status. During this period, the individual is not required to satisfy continuing education requirements, may continue receiving compensation based on existing client transactions, but may not contact customers. The individual is not required to retake the exam unless they’re no longer in the service and inactive for more than two years.