chapter 22 Flashcards
May an RR and a client share in an account?
Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.
True or False: The findings of an arbitration panel may be appealed.
False
Churning is described as _____________________ designed to _____________________.
excessive trading to generated commission
May an RR write a research report and not hold the title research analyst?
Yes
True or False: Firms writing research reports must disclose potential conflicts of interest.
True (e.g., firm makes a market in the stock or has had or will have an investment banking relationship with the issuer)
Who must approve a research report?
Supervisory analyst
According to FINRA, the guideline for determining commission or markup on transactions is ___%.
5%
Does the 5% policy apply when a BD is acting in an agency capacity, a principal capacity, or both?
Both
True or False: The 5% Policy is a rule that may not be exceeded.
False, it’s a guideline, not a rule
What factors could justify a larger markup than 5%?
The type of security, the availability of the security, or the total transaction amount
Is the 5% policy based upon the current market value of the security or the dealer’s cost?
current market value
What trades would be covered by the 5% policy?
Secondary market trades of stocks, corporate bonds, and Treasuries
What is exempt from the 5% policy?
Trading of municipal bonds, new issues, registered secondary offerings, and mutual funds
Is correspondence subject to principal approval?
not, but it must be reviewed by the firm
Define research reports.
Written or electronic communication about equities, including information for a client to make an investment decision.
When must a research report be approved?
Prior to first use by a Supervisory Analyst
May firms allow for the free flow of information between their research department and investment banking department?
No
May an RR in the research area be supervised by the investment banking department?
No
The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.
8:00 AM to 9:00 PM
What must be checked before a BD makes telephone solicitations?
the firm’s do not call list
According to the TCPA, what information must telephone solicitors provide to clients?
Their name, firm name, a telephone number, or address where they can be contacted, and the purpose of the call
Under the TCPA, how is an established customer defined?
One that has made an unsolicited inquiry or effected a transaction with the firm
An unlisted, non-Nasdaq stock priced below $5.00 per share is called a ____________________.
penny stock
What are some of the special standards that firms follow in regard to soliciting sales of penny stocks?
Determine suitability, principal approval, send risk disclosure, client’s written authorization for the first 3 trades
Under Penny Stock Rules, when does a customer become established?
When they have purchased 3 different penny stocks on 3 different occasions, or they have been a customer for one year
What actions may the hearing panel take regarding rule violations?
Censure, fine, suspension, request to requalify, or expulsion of the respondent
The hearing panel may not impose a ___________________ due to rule violations.
prison sentence
Hearing Panel findings may be appealed to the ___________________________,then the _____, and then ________________.
National Adjudicatory Council (NAC), then the SEC, and then federal court.
Industry disputes are handled through ______________.
Arbitration
May a customer be forced to use arbitration?
No, but signed pre-dispute arbitration agreements are binding.
When arbitration involves public customers, __________ of arbitrators must be from outside the securities industry.
a majority
When a minor dispute is handled through simplified arbitration, is the ruling final and binding?
yes
Retail communication concerning an investment company must be filed with FINRA within ___________ days of use.
10 business days
Retail communication generally requires _______________________.
principal preapproval
Define correspondence.
Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.
List the three forms of communications with the public.
Retail communication, institutional communication, and correspondence
According to FINRA rules, list some of the persons that are considered institutional investors.
Banks, insurance companies, investment companies, investment advisers, FINRA members and their RRs
Under FINRA’s communication rules, what is meant by the term broadly disseminated?
That material has been created for generally accessible Web sites, print media, and television or radio
What forms of communication are NOT required to be approved by a principal or filed with FINRA?
Retail communications that do not recommend or promote a BD’s services, institutional communications, and correspondence
What forms of communication are required to be approved by a principal, but NOT filed with FINRA?
Email recommendations, telemarketing or sales scripts, independently prepared reprints, and ads promoting products
What retail communications are required to be filed with FINRA at least 10 business days PRIOR to first use?
Those for investment companies with self-created rankings, bond funds including volatility ratings, and security futures
What retail communications are required to be filed with FINRA WITHIN 10 days of first use?
Those related to DPPs, CMOs, and ETNs, as well as templates for reports produced by investment analysis tools
True or False: On request, institutional communication may be provided to a retail client.
False. Institutional communication may never be provided to a retail investor.
True or False: Institutional communication must be preapproved by a principal and filed with FINRA.
False. Institutional communication is not required to be preapproved or filed with FINRA.
Define institutional communication.
Written or electronic communication that is distributed or made available only to institutional investors
For a firm’s first year as a FINRA member, when must its broadly disseminated retail communications be filed with FINRA?
10 business days prior to use
If a BD’s investment company communications include self-created rankings, when must they be filed with FINRA?
10 business days prior to use
For how long must retail communication, institutional communication, and correspondence be maintained?
for three years, easily accessible after 2 years
All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.
3 years, 2 years
A client’s name and number must be kept on the Do Not Call List ____________.
indefinitely
If an RR suspects that a client may be showing signs of dementia, what is the best course of action?
To request a meeting with both the client and a family member
What action should be taken if a senior investor requests a meeting to make a significant change to her objectives?
Request that the client have a family member accompany her to the meeting
True or False: For an RR, a good business practice is to meet with a confused elderly client alone.
False
If a client seems confused and demands an unsuitable change of objective, what step should an RR take?
Confusion and/or dementia are concerns that may warrant an RR to request a meeting with the client and a family member.
True or False: An RR may sell stock from a client’s non-discretionary account if a negative report is released.
False
