Chapter 3 Flashcards
Finra rule 2090 and Rule 2111 (account suitability) with regards to account opening and KYC rule, it would be appropriate for a supervisor to return with out his signature who failed to properly get information:
Generally rule 4512 requires the following info to obtained
Name, address and occupation, name address of employr
Associate person, employed by another bd, officer, 10%
SS#, tax ID
Legal Age
Cash/margin
Citizenship
Income, net worth, inv objectives, Time Horizon
Inv experience, Risk tolerance, Inv obj
RR responsible
It is not unusual to have rules relaxed for certain classes of investors:
Banks, S&L, Insurance, Registered Inv companies
IA registered with either the state or SEC
Any natural person, corp, partnership or trust with total assets of $50mm
Before opening a account for a non-institutional customer, the member must:
Provide risk disclosure outlining risks for day trading
Approve the account for a day trading strategy or recve from the customer a written statement that customer will not engage in day trading
To approve account, the member must have reasonable grounds for believing that the day trading strategy is appropriate for customer and must gather what info?
Investment objective, trading experience and knowledge
Financial status and tax status
Employment status, marital status dependents and age
True/False- At a customers written request, an account may be identified by only a number or symbol.
True
True/false- in a addition to the disclosure at the opening of a margin account, the member must at least annually deliver the disclosure again
true
USA PATRIOT Act BD’s are required to :
Verify the identity of a new customer
Maintain the records of the information used to ID
Determine whether the person appears on any known terrorist watch lists.
Records must be retained for 5 years
True/False- Accounts that are acquired the the acquisition of another member firm are not subject to customer ID procedures
TRUE
There are 2 services a member may not charge customers
1- Research- providing research would force a member to register as a IA
2- forwarding proxy material. Members charge the issuer
True/False- Convenience is not an acceptable reason for holding mail longer than 3 months?
TRUE
A trade is discretionary if-
Action ( buy or sell) or Asset ( the security ) or Amount ( shares or dollars)
Retail orders granting time or price discretion are limited to the day the order is given unless the firm has written authorization from the customer
True
Institutional not held orders are not affected if given a a GTC basis
Confirms:
Principal or Agent Symbol, Price, Shares, Date and time Member acted as dual agent, Commission in agency trade Markup/markdown Payment for order flow MM and/or control relationship Debt security traded on yld or dollar price YTM or YTC or CY CalL legend
Solicited or Unsolicited is not required
Rule 10b-10 requires that confirms for DVP/RVP trades be delivered when?
No later than t+1
Tru/False- There is a requirement to disclose yield on a trade confirmation for CMO’s
False- If the BD chooses to do so, addtl information wud be required.
The nominal face amount and IR, Maturity date and Settlement date including WAC should be on confirm
ACATS transfer
3 bd’s tofollowing validation of the transfer instruction, member must complete. 1 day to validate, 3 days to ship
True/false- a carrying member may not take exception to a transfer and deny validation because of a dispute over securities positions or the money balance in the account
TRUE
True?False Block transfer can always be used whether or not the RR prior firm agrees to participate.
False- if the prior member is unwilling to particpate in this block transfer program, it will be necessary for the RR to transfer using an Individual change of dealer authorization form.
True False- Discretionary authority ends at the death of an account owner
TRUE
JTWROS account if one party dies
Cannot be transferred into the name of new owner until the member receives a certified copy of the death certificate. the remaining tenant can still enter orders
If One Party in a TIC dies, the decedent interest in the account goes to his estate.
Member smust freeze the account and acceptance of orders until required docs are presented
If the sweep provided by a member firm is a money market fund for the investment of free credit balances the fund must be….
No load open ended management company registered under the IC act of 1940.
if customers are provided with a bank sweep program, the method for determining interest rate must be disclosed
Free credit balance notification is required ….
monthly in active accounts and quarterly in inactive accounts… if no distinction between active/inactive, then answer is quarterly
Offer of rescission-
solicited unsuitable trade- member can offer in writing to rescind the trade buy back securities fir the original consideration and pay interest to the customer based on cost from purchase date to repurchase date. Must be accepted by customer within 30days of receipt or give up future legal action
QIB
is any entity acting for its own account or the accounts of other QIBS that in the aggregate owns/invests $100mm If its a bank must have$25mm and a BD must have $10mm
Rule 2121- 5% policy ( qibs exempt)
It applies to markups, markdowns and commissions but not to securities sold by prospectus.
What are the 3 types of market environments?
Active, competitive markets
Inactive, competitive markets
Dominated and controlled markets
Active and competitive markets, what is the prevailing market price?
The inside market
Inactive, competitive market what must market maker use?
Contemporaneous purchases/sales from other dealers
Markups= sales to other dealers Markdowns = purchases from other dealers
Dominated and controlled what must a market maker use?
Cost
How to apply 5% rule to proceeds transaction
Determine compensation on the sell side and determine the compensation on the buy side. Add the two and apply the total to the inside market on the buy side
FINRA RULE 3310 requires that a member of the firms senior management approve the firms anti money laundering program ….
at least annually by an independent examiner who is knowledgeable in the Bank Secrecy Act and regulations. cant be someone who reports to the persons performing tests or the designated AML compliance personnel
SAR
Suspicious Derived from illegal activity activity reports involves $5k in funds or assets- Funds from illegal activity Evade requirements of Bank Secrecy act No business or lawful purpose Facilitates criminal activity
Must file within 30 days of suspicious activity
Retain records of wire transfers of 3k or more
Structuring
refers to handling currency transaction designed to avoid reporting requirements
Stages of Money laundering
Placement
Layering
Integration
Placement
Currency enters the financial system
Layering
describes an activity intended to obscure the trail left by the dirty money- series of transactions to build layers between funds and their illicit source.
Integration
integrated with money from legitimate sources
True/False- Suspended members can not be part of a n underwriting syndicate for non-exempt securities even if the members suspension would end before the the effective date of the offering
True
There are 3 principle categories of communication
Retail Communication
Correspondence
Institutional Communication
Retail communication
any written including electronic communications that is distributed or made available to more than 25 retail investors within any 30 day calendar period.
retail investor is any person other than institutional investor, regardless of whether the person has an account with the member
Correspondence
available to 25 or fewer retail investors in any 30 day period
institutional correspondence
made available only to institutional investors but does not include a members internal communications
True/false- if an entity does not fall under any of the designated categories for an institutional investor, they must be considered and treated as a retail investor whether or not the person has an account with the firm
True
True/false- prior Principal approval is not required for incoming or outgoing correspondence.
True- if a firm does not review correspondence before distribution, it must have procedures in place to perform a post distribution review. all correspondence must be retained for 3 years
True/false- Retail investor refers to any customer, existing or prospective, that does not fit into a definition of an institutional client.
TrueTrue- exception of individuals that have total assets of at least $50mm
CMO’s Finra rule 2216
states that before a member can sell a CMO to a retail customer, the firm must offer the customer educational material: Risks and traits Structure Relationship btween Mortgage loans and Mortgage Secs Q/A Can not compare to other investments Government agency backing YLD avg life
With regards to retail communications relating to options and security futures,,,,
Member must file copies with FINRA at least 10 days before first use. ( prefiling) either electronically or a hard copy
Web based system is AREF ( advert reg electronic files)
Option Advertising is limited to :
General description of security, Issuer and OCC
Description of the options market
Name and address of the person at member placing ad from whom a OCC disclosure booklet may be obtained
New members and advertising
Must file 10 days prior to any retail communication. once that year has lapsed, prefiling is not required except for options and futures
Retail Communication for investment companies that include a ranking or comparison that is generally not published or is the creation of the investment company or member must be filed
10 days before first use!
If the ranking is generally published or is the creation of an independent entity like Lipper or Morningstar- 10 days of first use ( post filing)
True/False any form of communication provided to a member by an investment company is not subject to filing by member.
True
True/False-
All filings with FINRA Ad Reg Department must include the actual or anticipated date of first use, the name and title of the principal who approved the communication and the date the approval was given.
TRUE
Exceptions to Communications Filing:
- Those relating solely to changes in a members name, personnel, location, ownership, business structure, officers or partners or M&A
- Those IDing only members Nasdaq symbol and security in which member makes a market
- Iding member and/or offering a security at a stated price
- Internal
- those prepared by mutual fund underwriters and used with out change
- Retail comms that do not make any financial or investment recommendations or blind reqruitment ads
True/False- An Article may be used as an independent reprint if the publisher is not affiliated with issuer or the member in anyway
True- member may alter to only change factual errors or to make article consistent with regulatory standards.
IM messages must be kept for how long?
3 years
Do blind recruitment advertisements need approval and do they require member name?
No- the only form of communication with the public that does not need member name.
What do filings with the FINRA’s Advertising regulation department have to include?
- Actual or anticipated fate of first use
- The name and title of the principal who approved
- Date approval was given
T/F
All out going Customer correspondence must be approved by a principal
False
Some customer correspondence can be reviewed after distribution
T/F
Retail Communication Must be approved by a principal before use
True
T/F
A Genereal securities principal must review all public communications
False. Options and futures principals must review their products. General Principal must review all public communications
How long must copies of retail communication be kept?
3 years
T/F
If a member learns that one party in a JYWROS account has died, the member may immediately transfer assets to the surviving owner
False-When a party to a JTWRO account dies, the account cannot not be transferred until a certified copy of a death certificate, inheritance tax waivers, and letters of testamentary are delivered to member
T/F
If a member learns that one party in a JTWROS has died, it must immediately freeze the account and acceptance of orders until it recieves proper documentation.
False- Death in a JTWRO accoint does not preclude the remaining tenant from entering orders.
A TIC account does require account to be frozen if one tenant dies
T/F
Members must send statements to customers at least quarterly and if their is activity in the account monthly
True- Activity is defined as purchases, sales, interest or dividends or funds flowing in or out
T/F
Customers must be notified of any free credit balance in their account at least quarterly
True- The notification must state that these balances are not segregated by the member firm, that the member in the conduct of its business may use them, and they are available on customer demand.
T/F
A Recission offer must be in writing and include an agreement to buy back securities at the higher of cost or marketvalue and to pay interest to the customerbased on cost from date of purchase.
True
The customer has 30 days to accept or reject offer
Retail Communication related to investment companies and DPP must file 10 days before or after first use?
10 days after
Retail Communication related to options must file 10 days before or after first use?
10 days before
Retail Communication by firms in their first year of FINRA membership must file 10 days before or after first use
10 days before and must continue during its first year.
Retail Communication relating to investment company products that include a ranking or comparison that is generally not published or is a creation of the investment company or member must file 10 days before or after first use
10 days before
If comparison is generally published or creation of independent entity, then 10 days after
T/F
Breakpoint Sale allows a customer to obtain a reduced charge on a qty purchase of mutual fund shares.
False- this is the term when allowing a client to purchse amount just below discount level with out describing the savings
Safe harbor provision for the do not call list is how many days
As long as an inadvertent call is made no more than 31 days from the date a firm obtained the latest version of DO NOT CALL list there is no violation
