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Series 7- Passed with 83% > Chapter 17- SEC And sRO Rules And Regs 15-20 > Flashcards

Chapter 17- SEC And sRO Rules And Regs 15-20 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Securities and exchange Commission

A

Primary regulatory body

Must apply and be approved by SEC to trade

Cannot claim that the SEC has passed upon or approved a broker dealer financial standing, business or conduct

Broker dealers that do not comply with SEC rules will be:
Censured
Limited in activities, functions, operations
Suspended of registration
Revocation of registration or
Fined

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2
Q

Associated persons

A

May also be disciplined individually

SEC can bar an associated person from working unless approved by the commission

Member firm can also suspend

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3
Q

Fingerprinting

A

Registered broker/dealers must be fingerprinted along with most employees

Submit to US attorney general

Exceptions:
Not involved in securities sales
Do not have access to cash or securities or to the books and records of original entry
Do not supervise other employees engage in these activities

Clerical workers do not need fingerprinted

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4
Q

Self regulatory organizations

A

Function under oversight of SEC

Accountable to SEC for enforcing securities laws

Some of the largest SROs are:
1. FINRA- regulates investment banking, trades in OTC, NYSE and FINRA member firms. Also Invest companies and LPs

  1. Municipal Securities Rulemaking board (MSRB)- all maters related to trading of state and municipal securities

3 Chicago Board Options Exchange (CBOE)- matter related to options and related contracts

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5
Q

FINRA overview of objectives

A

Promote I banking, standardize principals and practices, promote commercial honor, encourage Fed and state securities laws

Provide medium for communication amongst members

Adopt, administer and enforce rules to prevent fraud

Promote self discipline among member and investigate resolve grievances

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6
Q

FINRA funding

A

Funded by membership dues, assessments of member firms registered reps and annual fees

Basic membership fee
Assessment based on gross income
Fee for each rep and principal
Charge for each branch

Failure to pay results in suspended/revocated license

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7
Q

Four rules/codes of FINRA

A

Conduct rules- fair and ethical trade practices in regards to dealing with public

Uniform Practice Code- establishes settlement, good delivery, ex date, confirmations, don’t know procedures and other guidelines

Code of procedure- how violations will be heard and handles

Code of Arbitration Procedure- governs resolutions of disagreements and addresses monetary claims between member and the the public

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8
Q

National Adjudicatory Council

A

Establishes rules, regs, and membership standards

Any broker dealer registered with SEC can be member of FINRA, municipal bond firms can also register.

Members will comply with law and regulations and pay dues

District committee must approve membership

Home offices are allowed if approved by specific SRO

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9
Q

Associated person registration with NAC and FINRA

A

Any person associated with a member firm who intends to engage in investment banking or securities must be registered

Must be sponsored by member

Member firm must do a background check before

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10
Q

Continuing education and annual compliance reviews

A
  1. Continuing Education
    Regulatory and firm elements

Regulatory- computerized training session within 120 days of second anniversary and every three years after. (FINRA inactivates registration if not completed)

Firm element- annual training in regulatory developments, business activities, performance

  1. Annual compliance review
    Must ensure rep was there for entire meetings and be able to ask questions periodically

Must also complete annual training program

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11
Q

Registered persons changing firms

A

Nontransferable

Must fill out a U-5 to terminate registration

Reapply on U-4

Must register with another firm within 2 years or will have to re qualify for exams

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12
Q

Continuing commissions

A

Registered reps may continue to receive commission after retirement for business placed

Must have contract in place

Heirs can also receive

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13
Q

Notification of disciplinary action

A

Member firm must notify FINRA if an associated person is subject to disciplinary action

Must include name and nature of action

Must notify of action taken against employee

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14
Q

Terminations

A

Must notify FINRA within 30 days

Member firms cannot cease business relationship until investigations are completed

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15
Q

Registered reps

A

All associated persons engaged in investment banking and securities business are registered reps including:

Assistant officer not acting as principal
Supervise solicit or conduct business in securities

Series 7 allows reps to solicit, purchase, and/or sell almost all Security products,

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16
Q

Registered principals

A

Anyone who manages/supervises ibank or securities business must register as a principal with FINRA (including trainers)

Must employ at least two registered principals unless sole proprietorship

Must pass the Series 24

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17
Q

Statuatory Disqualification of membership

A

Disciplinary action may be cause for disqualification of FINRA membership

An individual applying for registration will be rejected if:

Been expelled or suspended by any SRO or foreign equivalent

Under SEC order or foreign revoking or barring from broker/dealer

Been found to be cause of another person being expelled or suspended

Auto disqualified if

  1. Misstatements willfully made on application
  2. Felony or misdemeanor related to securities in past 10 years
  3. Court injunctions
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18
Q

Central Registration Depository

A

Info on all discipline history

Website called Broker Check

Hyperlink must be on all member firms on initial web page for retail investors and on any other pag that includes a professional profile

Goes back 10 years

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19
Q

Investigation by FINRA

A

Must provide information, testimony under oath and access to books if a complaint, examination or investigation takes place

If not complying, National Adjudicatory Council will give 20 days notice before suspending member and revoking registration of associated persons

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20
Q

Code of procedure

A

Deals with alleged violations of FINRA, MSRB and fed securities laws

If a violation is found, Department of Enforcement will issue a formal complaint

Will also form a panel led by an officer to preside over hearing

Respondent has 25 days to admit, deny or state that they do not know

Designated supervisor is usually also charged

21
Q

Offer of settlement

A

Respondent can propose to settle by writing letter describing the:

Rule allegedly broken
Acts alleged to have engaged in
And include statement consenting to findings
And proposal of sanctions consistent with guidelines

Submitting offer of settlement waives right of a hearing and right to appeal

Unconsentted offer- the offer was accepted

Contested offer- department of enforcement rejects. Arbitration hearing takes place or NAC accepts offer. If sent to NAC and rejected then hearings take place and offer of settlement is thrown out

Acceptance, Waiver and Consent-
Respondent does not dispute and must sign letter accepting violations, imposition of sanctions and waiving of a right to a hearing

Minor Rule violation- Respondent may have to sign MRV letter and will pay a max fine of 2500

22
Q

Minor rule violations

A

Failure to:

  1. Get advertising approved by principal
  2. Maintain file for advertising and sales lit
  3. File ad/sales lit with FINRA in time
  4. File timely reports on short positions
  5. Accurate accounts for options and exercise limits with OCc
  6. No books and records in accordance with SEC
  7. Submit trading date requested by FINRA
23
Q

Hearing and Sanctions and appeals

A

Prosecution (Department of Enforcement) proceeds first in hearing, cross examination of witnesses permitted, will get verdict in 60 days

Sanctions may include:
Censure
Fine
Suspension for defined period (begins at least 30 days after written decision)
Expulsion of member 
Barring Association with members
Any fitting sanction

During a suspension, no payment to the associated person can be made

Appeals are made to NAC, within 25 days of decision date
May escalate appeal to NAC, SEC or Fed courts

Stays effective date on everything but a bar or expulsion

24
Q

Code of arbitration

A

Mandatory with anyone but the client

Meant to resolve industry disputes

Clients must sign arbitration form to be mediated by code of arbitration (may request form and firm must give in 10 business days)

Class action law suits are not included or sexual harassment

Saves time, money and saves against appeals

Pre dispute arbitration agreement is regularly signed upon opening new accounts now

25
Q

Statement of Claim

A

Filed with Director of Arbitration at FINRA

Details the complaint, includes documentation in support of claim, and states remedy being sought

Respondent has 45 calendars days to respond to both director and claimant

Hearing is still had if respondent files nothing

Party seeking relief must have a solid claim

Mediator can be brought in to settle dispute before hearing if both parties agree

26
Q

Selection of arbitrators for code of arbitration

A

FINRA maintains list of nonpublic and public arbitrators

Nonpublic- anyone who has worked in financial industry
Any financial industry professional who regularly reps or provides services to investor parties in disputes (can become public if 5yrs out on own or 2yrs out by someone else

Public- anyone else

27
Q

Arbitration thresholds and simplified arbitration

A

50k or less- 1 arbitrator
50-100K- 1 unless both parties agree to three
100k plus- 3 unless agrees to one (customer can request public for all 3)

Simplified arbitration take place for disputes under 50k… 30 business days for a decision

6 year statute of limitations

30 days after decision to pay monetary awards

28
Q

NYSE board of directors

A

10 exchange members
10 public representatives
And a chair person

Sets policy
Supervises exchange and member activities
Lists Securities
Oversees transfer of member seats on exchange
Whether someone is qualified to be a specialist

29
Q

NYSE membership

A 
Set number of seats
Must buy a seat to become a member
Must be board approved
Only individuals allowed
Most seat ownerships are sponsored and funded by firms
30
Q

Allied members on NYSE

A

Executive officers, directors or holders of more than 5% of a member firms voting stock

Not allowed to trade on exchange floor

Unlimited amount

31
Q

NYSE training program

A

No longer imposed by NYSE

120 days to pass series 7 after enrollment notification unless an extension is granted

Not likely to be granted

May not receive commissions until registered

32
Q

Retail, correspondence and institutional communications from FINRA

A
  1. Retail Communications- any communication to more than 25 retail investors within any 30 calendar day period. Any investor other than institutional
  2. Correspondence- 25 or fewer within 30 day window
  3. Institutional- only distributed to institutional investors excluding internal communication
    Ex: bank, registered rep, insurance company any entity over 50MM in assets

If a communication will make its way to public, then retail

33
Q

Public appearances

A

Must be principal supervised or approval of material is required

34
Q

Approval and filling requirements

Prefiling

A

Retail communication: Must be approved by member firm of FINRA ad Reg department

Pre approval not needed if:
Another member firm filed with FINRA

Member is using ad based on FINRA letter already received and is following conditions

Posted online in interactive forum

Does not promote a product or service

Filing with FINRA Ad Reg Department must be done 10 days in advance during BD first year

Still 10 days if not a regularly published PER is used or one investment company publishes itself

35
Q

Not pre-filling, within 10 days of first use

A

Applies to retail communications concerning:

  1. Registered investment companies
  2. Direct Partnership Programs
  3. Collateralized Mortgage obligations
  4. Securities registered under securities act derived from single security, securities, index, commodities, debt issuance or foreign currency

Firm procedures must be made or employees must be trained

Filing correspondence with FINRA not required
Filling institutional communications must be supervised and is subject to review with FINRA

36
Q

Investment Companies and DPPs and Options filling requirements retail communications

A

10 days prerefiling if not a normal performance ranking or if company created

Within 10 business days of first use if communication not including a performance ranking

DPPs-
10 business days of first use

Options-
10 prefiling required

37
Q

Exempt retail communications

A

Previously filed with FINRA not materially changing

Non financial communications

Listing of products and services offered

Retail communications posted online

Prospectuses, red herrings, fund profiles and other material filed with SEC proviously

38
Q

Record keeping

A

All communications should be held for at least 3 years and media held for 2, readily available for two

Recommendations should include stocks current price

If referencing past performance in recommendation, should include:
Price or price range
Market general direction
Information supporting recommendation
Any recommendations similar in past 12 months and nature
All recommendations made over the time period

39
Q

Recommending investment companies

A

Broker dealer should:

  1. Use charts of PER showing variations of market (10 years or more)
  2. Reveal source of graphic
  3. Separate cap gains and dividends when stating Dollar return
  4. Not comparing to other securities
  5. Reveal highest sales charge even if there is a breakpoint
  6. No misleading facts

Should also give average annual retrun which includes reinvestment of dividends and cap gains, not deducting expenses

Performance figures must be at least 1 5 and 10 yr or life of fund

Should use POP price not NAV when calculating yield

Current yield should always be annual

40
Q

Testimonials used by a firm

A

The person must have the knowledge and experience to form a valid opinion

Must note that the testimony may not represent all customers

That the testimony is no guarantee of future performance or success

If it is a paid testimonial paying over $100

41
Q

FINRA membe websites

A

Do not have to include FINRA logo

If it does, must be of same character as member firm name

Hyperlink to broker check is required

42
Q

Umbrella names

A

May be displayed if FINRA member name is also displayed

Relationship with member name is clear

No implication that umbrella name is broker dealer

43
Q

Recruitment advertising

A

Salaries of top sales people must be noted as not being representative of all members are

May run the advertisement blind and not list the firm

44
Q

Sarbanes Oxley Act on research analyst conflicts of interest

A

Must reflect honest view and not a conflict of interest

Prohibits ibanks from controlling research analysts

Bars discussion between analyst and banks before release

Precludes pay for rating scales

Analysts may not show draft reports with issuers other than for fact checking

Prohibits analysts from withholding ratings for future business

Quiet period of 40 days (IPO) or 10 (secondary offering) for manager or comanagers

Must clearly explain ratings

Requires disclosure of compensation ties

Disclosure of financial interest of household or financial firm in the company above 1%

Disclose whether in next 12 months or 3 months after publication whether a fee will be received for Ivan king services

45
Q

Restrictions on trading by analysts and related persons

A

Prohibited if:
Investing before IPO if company is in analyst sector

30 days before or 5 days after a report is released

Analyst made recommendation opposite to most recent recommendation

46
Q

Telephone Consumer Protection Act of 1991 TCPA

Administered by Federal Communications Commission

A

Restricts solicitations made by commercial call, recorded message and to fax machines/modem

Must maintain do not call list
Train reps on using such list
Must acknowledge those who request
Ensure cold callers inform prospects of their name, firm name and telephone number
Solicitation only between 8am and 9 pm
Exempts calls:
Made to parties whom caller has business relationship with
Made on behalf of tax exempt orgs
Not made for commercial purpose
Made for legit debt collection

Subject to 5 year retention requirement

47
Q

FINRA mandated disaster recovery plan/business continuity

A

Must designate senior management to update annually

Supply FINRA with two contacts in case of major business disruption (must be principal and member of senior management, update contact within 30 days of change)

48
Q

Suspensions should be

A

Reported to the proper designated examining authority

Series 7- Passed with 83% (19 decks)

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