CHAPTER 20: RESOLVING DISPUTES AND SUITABILITY

Question 1

A member firm that receives and execution that it believes is clearly erroneous must submit a written complaint within _ minutes of the execution time

Answer 1

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

Question 2

In the case of an _, a request may be made within 60 minutes after the transaction.

Answer 2

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.

Question 3

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.

Answer 3

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.

Question 4

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?

Answer 4

Complaints are kept in each office of supervisory jurisdiction (OSJ) for 4 years.

Question 5

The respondent must file a response to a complaint issued by the Office of Disciplinary Affairs within _ days of receiving it.

Answer 5

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.

Question 6

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.

Answer 6

True

Question 7

The Hearing officer must provide the respondent with _ days advance notice of the Hearing.

Answer 7

28 days advance notice

Question 8

Within _ days after the Hearing Panel has stopped accepting evidence, a written decision must be rendered that was arrived at by majority vote.

Answer 8

Within 60 days

Question 9

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

Answer 9

Note

Question 10

What is the order of the Appeals Process?

Answer 10

Hearing Panel - NAC - SEC - Federal Court

Question 11

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.

Answer 11

The Code of Arbitration

Question 12

An informal process in which two parties to a dispute attempt to reach a mutually acceptable resolution without resorting to arbitration or litigation.

Answer 12

Mediation

Question 13

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.

Answer 13

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.

Question 14

How does FINRA resolve disputes?

Answer 14

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 15

Question: How binding are the decisions made by the arbitration panel?

Answer 15

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.

Question 16

Can disputes be resolved through mediation?

Answer 16

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.

Question 17

What is the Simplified Arbitration process?

Answer 17

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.

Question 18

What is the role of FINRA’s Department of Enforcement?

Answer 18

The Department of Enforcement investigates potential FINRA rule violations and, if warranted, brings formal disciplinary actions against firms or their associated persons.

Question 19

To determine suitability, financial professionals should consider various factors, including:

Answer 19

• 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.

Question 20

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

Answer 20

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.

Question 21

Hearing > Panel > NAC > SEC > Federal Court

Answer 21

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.

Question 22

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.

Answer 22

The Code of Arbitration

Question 23

• 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

Answer 23

Arbitration

Question 24

• 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

Answer 24

Mediation

Question 25

Disclosure or updating a Form U4 is required if a person

Answer 25

has been convicted or charged, or pled guilty or no contest to any felony or misdemeanor involving investments or an investment-related business or any fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses

A conviction may be from a domestic, foreign, or military court. A person who has been arrested, but has not yet been charged with a crime, is not required to report the event on Form U4 or to FINRA. However, most firms require notification if a registered person was arrested for any offense.

Question 26

Form U5 After a registered person resigns or is terminated from a member firm, the firm is required to notify FINRA within _ days on Form U5 and must provide the applicable details.

Answer 26

Form U5 After a registered person resigns or is terminated from a member firm, the firm is required to notify FINRA within 30 days on Form U5 and must provide the applicable details.

A copy of Form U5, which includes the reason the person has left the firm (voluntary or mandatory), must also be provided to the person. Within 30 days following termination, if answers to certain questions change, the form must be updated.

If a broker-dealer receives a written customer complaint after an RR has left the firm, it’s still required to notify FINRA regardless of how long ago the RR had left the firm. However, there’s no requirement to send a copy of the complaint to the former RR. If an individual wants to return to a brokerage firm as a registered representative without having to requalify by examination, she’s required to do so within a two-year period.

Question 27

Regulators, states, and/or jurisdictions use _ to report disciplinary actions against an RR or firm. FINRA also uses _ to report final arbitration awards against RRs and firms.

Answer 27

Regulators, states, and/or jurisdictions use Form U6 to report disciplinary actions against an RR or firm. FINRA also uses Form U6 to report final arbitration awards against RRs and firms.

Question 28

is an automated database that contains information concerning the employment and disciplinary histories of registered persons. This system is also used to process both registration and withdrawal applications for agents and broker-dealers at the state level. If any information on an individual Form U4 changes, an amendment to the _ system must be filed promptly.

Answer 28

The Central Registration Depository (CRD) The CRD system is an automated database that contains information concerning the employment and disciplinary histories of registered persons. This system is also used to process both registration and withdrawal applications for agents and broker-dealers at the state level. If any information on an individual Form U4 changes, an amendment to the CRD system must be filed promptly.

Question 29

A Yes answer to any of the questions related to violations of laws or SRO rules generally requires an explanation on the appropriate disclosure reporting page (DRP) of the U4 and could lead to a _ disqualification.

Answer 29

A Yes answer to any of the questions related to violations of laws or SRO rules generally requires an explanation on the appropriate disclosure reporting page (DRP) of the U4 and could lead to a statutory disqualification.