Chapter 17 SRO and the SEC

Question 1

SRO

Answer 1

Function under SEC oversight.
FINRA
MSRB
CBOE

Question 2

FINRA

Answer 2

Regulates all matters related to investment banking (securities underwriting), trading in the OTC Market, trading in NYSE-listed securities, investment companies and limited partnerships.

Question 3

CBOE

Answer 3

Regulates all matters related to trading standardized options and related contracts listed on their exchange.

Question 4

FINRA Manual

Answer 4

Conduct Rules
Uniform Code Practice
Code of Procedure
Code of Arbitration Procedure

Question 5

Conduct Rules

Answer 5

Set fair and ethical trade practices that member firms and their representatives must follow when dealing with the public.

Question 6

Uniform Practice Code

Answer 6

UPC - establishes the uniform trade practices, including settlement, good delivery, ex-dates, confirmations, DK procedures and otehr guidelines.

Question 7

Code of Procedure

Answer 7

Describes how member violations of the conduct Rules will be heard and handled.

Question 8

National Adjudicatory Council

Answer 8

Establishes rules, regulations and membership eligibility standards.

Question 9

Continuing Education (FINRA)

Answer 9

Regulatory Element

Firm Element

Question 10

Regulatory Element

Answer 10

Requires that all registered persons complete computer based training session within 120 days of the person’s second registration and every three years thereafter. 5, 8, 11.

Question 11

Firm Element

Answer 11

Annual Training provided in house

Question 12

Annual Compliance Review

Answer 12

RR and Principal - individually or in groups, regionally, or centrally located, Webcast, live or on demand.

Question 13

Terminations

Answer 13

Membership doesn’t transfer. Must file u-5 to terminate. Must rejoin in 2 years. If terminate must notify FINRA within 30 days.

Question 14

Statutory Disqualification

Answer 14

Disciplinary actions by the SEC, another SRO, a foreign financial regulator, or foreign equivalent of an SRO may cause it.

Question 15

Central Registration Depository

Answer 15

Mainains information on disciplinary history of all persons currently registered. CRD

Question 16

In connection with any investigation, complaint, or examinatio by FINRA,

Answer 16

NAC after 20 day written notice and no resoonse can revoke registration. Oversees Department of Enforcement.

Question 17

Respondent and Complaint

Answer 17

Has 25 days to respond, Code of Procedure complaint.
Uncontested Offer - Goes to Department of Devense and then to NAC for final approval.
Contested Offer - DOE appoints hearing officer. Hearing officer negotiates and sets hearing between NAC and violater.

Question 18

Code of Arbitration

Answer 18

In the abscence of a signed arbitration agreement, a customer can still force a member to arbitration, but a member cannot force a customer.

Question 19

Correspondence

Answer 19

Principal approval if it includes financial investment recommendations or promotes a product or service and is sent to 25 or more existing or prospective retail customers within 30 days. Doesn’t need to be filed with FINRA.

Question 20

Filing of Sales Literature and Advertising

Answer 20

for the first year, all advertising must be filed with FInRA 10 days before use. Must be kept in file for 3 years and accessible first 2 years, including name of eprson and who approved it. Reviewed by the Department of Enforcement from FINRA.

Question 21

Investment Companies and DPP sales literature

Answer 21

must be filed with Finra no later than 10 days after first use or publication. In DPPs no filing necessary if it has been previousily filed.

Question 22

Option Sales Literature

Answer 22

Must be filed with FINRA 10 days prior to use OCC must accompany or precede.

Question 23

Exclusions from filing sales literature

Answer 23

Preliminary Prospectus, offering circular, tombstones, and other documents already filed with the SEC or any state.

Question 24

Recommending Investment Company Products

Answer 24

Use charts or graphs showing a fund’s performance over a period long enough to reflect variations in value at least 10 years. 1, 5, 10 years.
Reveal source of graphics
Separate capital gains and dividends. Reveal highest applicable sales charge,

Question 25

Form BD

Answer 25

Fictional Name or DBA name authorized if filed with FInRA and the SEC. Name is used to designate member.

Question 26

Limitations on Contacts between Research Analysts and Issuers

Answer 26

Prevent analysts from showing draft reports to issuers
prohibit analysts from threatening to withold favorable information
Research Analysts may not publish a report 40 Days after an IPO and 10 days in a secondary offering.

Question 27

Restrictions on Trading by Analysts

Answer 27

Analysts and members of household cannot invest before IPO or if the analyst covers the company, 30 days before, and 5 days after report.
Members and analysts cannot trade against the analyst’s recommendation.

Question 28

Limitations on Contacts between Research Analysts and Issuers

Answer 28

Prevent analysts from showing draft reports to issuers
prohibit analysts from threatening to withold favorable information
Research Analysts may not publish a report 40 Days after an IPO and 10 days in a secondary offering.

Question 29

Restrictions on Trading by Analysts

Answer 29

Analysts and members of household cannot invest before IPO or if the analyst covers the company, 30 days before, and 5 days after report.
Members and analysts cannot trade against the analyst’s recommendation.