CHAPTER 20: RESOLVING DISPUTES AND SUITABILITY Flashcards
A member firm that receives and execution that it believes is clearly erroneous must submit a written complaint within _ minutes of the execution time
A member firm that receives and execution that it believes is clearly erroneous must submit a written complaint within 30 minutes of the execution time
In the case of an _, a request may be made within 60 minutes after the transaction.
In the case of an outlier transaction, a request may be made within 60 minutes after the transaction.
An Outlier Transaction is a transaction in the Nasdaq market in which the execution price of the security is greater than 3 times the current numerical guidelines.
describes the disciplinary process used in the event that a member firm or any of its associated persons violate FINRA rules, SEC rules, or fail to pay dues or assessments.
FINRA’s Code of Procedure describes the disciplinary process used in the event that a member firm or any of its associated persons violate FINRA rules, SEC rules, or fail to pay dues or assessments.
Once received, customer complaints must be forwarded to a principal who must review and initial the complaint.
How long is a complaint required to be kept on file?
Complaints are kept in each office of supervisory jurisdiction (OSJ) for 4 years.
The respondent must file a response to a complaint issued by the Office of Disciplinary Affairs within _ days of receiving it.
25 days.
However, if the respondent fails to answer within the required tome, the Department will issue a second notice. Failure to respond to the second notice within 14 days may be treated as the respondents admission to the allegations in the complaint.
True or False. A Hearing Panel is made up of a Hearing Officer (FINRA employed lawyer) and 2 panelists who are associated with, or retired from, member firms.
True
The Hearing officer must provide the respondent with _ days advance notice of the Hearing.
28 days advance notice
Within _ days after the Hearing Panel has stopped accepting evidence, a written decision must be rendered that was arrived at by majority vote.
Within 60 days
A Hearing Panel may impose the following penalties:
- Censuring a member firm or an associated person
- Fining a member firm or an associated person
- Suspending the membership of a firm or an associated person for either e definite period or until
specified conditions are met - Expelling a member firm or cancelling its membership; revoking or cancelling the registration
an associated person - Suspending or barring an associated person from association with any member firm
- Imposing any other fitting sanction
Note
What is the order of the Appeals Process?
Hearing Panel - NAC - SEC - Federal Court
Establishes the process that’s used for the settlement of disputes between members and other members, between members and any clearing corporation, or between member firms and persons associated with a member, but not for disputes between a member firm and FINRA.
The Code of Arbitration
An informal process in which two parties to a dispute attempt to reach a mutually acceptable resolution without resorting to arbitration or litigation.
Mediation
FINRA’s _ is an independent, impartial official who can help investors resolve disputes with securities firms.
- can investigate complaints, make recommendations to firms, and help investors find other resources for resolving their disputes.
FINRA’s Ombudsman is an independent, impartial official who can help investors resolve disputes with securities firms. The Ombudsman can investigate complaints, make recommendations to firms, and help investors find other resources for resolving their disputes.
How does FINRA resolve disputes?
Answer: FINRA resolves disputes through its Office of Dispute Resolution which provides arbitration and mediation services. This is a quicker and less formal process than traditional litigation.
Question: How binding are the decisions made by the arbitration panel?
Answer: The decisions (awards) made by the arbitration panel are final and binding, subject to a limited review by courts. Parties must comply with the award within 30 days.
Can disputes be resolved through mediation?
Answer: Yes, FINRA also offers a voluntary mediation process, which can be quicker and less expensive than arbitration. Mediation can be used at any time during the dispute resolution process.
What is the Simplified Arbitration process?
Answer: Simplified Arbitration is an option for disputes involving claims of $50,000 or less. This process is paper-based and does not involve an in-person hearing unless the claimant requests one.
What is the role of FINRA’s Department of Enforcement?
The Department of Enforcement investigates potential FINRA rule violations and, if warranted, brings formal disciplinary actions against firms or their associated persons.
To determine suitability, financial professionals should consider various factors, including:
- Risk tolerance: Assessing the investor’s willingness and ability to take on risk.
- Investment objectives: Understanding the investor’s goals, such as capital appreciation, income generation, or preservation of capital.
- Time horizon: Evaluating the investor’s investment timeframe, whether it is short-term, medium-term, or long-term.
- Financial situation: Examining the investor’s financial circumstances, including income, assets, liabilities, and liquidity needs.
- Investment knowledge and experience: Assessing the investor’s level of understanding and experience with different types of investments.
True or False. If the registration of an associated person is suspended, cancelled, or revoked, that person may not be associated with a member firm in any capacity-which includes clerical or ministerial positions
True
Other than being barred or expelled, a sanction is effective 30 days after the respondent has received notice of a final disciplinary action. A bar or expulsion is effective as soon as the decision is served on the respondent. If a broker-dealer is suspended from membership, member firms must treat the firm in the same manner that they treat non-members.
Hearing > Panel > NAC > SEC > Federal Court
Order of Appeals Process
A significant component to the Code of Procedure is the ability to appeal decisions. Once a
decision has been rendered by the Hearing Panel, the respondent has 25 days to file an appeal with
FINRA’s National Adjudicatory Council (NAC). For cases in which the decision of the Hearing Panel is
in the favor of the respondent, the Department of Enforcement also has the same right of appeal to the
NAC. Ultimately, the NAC has both appellate and review jurisdiction. The filing of an appeal halts the
decision until the appeal process is exhausted. Upon review, the NAC has the power to affirm, modify,
reverse, increase, or reduce any sanction, or to impose any other fitting sanction.
establishes the process that’s used for the settlement of disputes between members and other members, between members and any clearing corporation, or between member firms and persons associated with a member, but not for disputes between a member firm and FINRA.
The Code of Arbitration
- A hearing process at which two parties present their
cases - Often more expensive and time-consuming than
mediation, but usually cheaper and quicker than litigation - Useful where the position of one or both parties is inflexible
- More formal process-testimony under oath
- Parties cannot unilaterally withdraw
- Arbitrator imposes a binding settlement
- Hearings are private, but the decision is public
Arbitration
- A negotiation process between two parties
- May be less costly and quicker than arbitration
- Parties must be willing to see strengths of the position of the other side
- A more informal process; in addition to evidence, parties may consider feelings and look for creative solutions
- Either party may withdraw from the process
- Mediator attempts to facilitate a resolution, but doesn’t impose a settlement
- Process is private and any settlement is confidential
Mediation
