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Series 24 > Cheat Sheet > Flashcards

Cheat Sheet Flashcards

1
Q

Membership is revoked or suspended if fees are not paid within ____ days of notice

A

15

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2
Q

Written notice is required within ____ days of any material change to the firm

A

30

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3
Q

How long do member firms have to report an associated person after learning of a statutory disqualifying event.

A

Promptly but no later than 30 days

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4
Q

Statutory disqualification is mandatory if convicted money /securities misdemeanor or felony within the past ___ years

A

10 year - exceptions are available

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5
Q

Firm element of CE must be completed

A

Annually

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6
Q

Regulatory element of CE must be completed

A

120 days of second registration - every 3 years thereafter

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7
Q

Active military service

A
  • Inactive status status by notification
  • Cannot perform as a RR
  • Can receive commissions on book
  • CE requirement suspended
  • 2 year expiration clock tolled
  • Reactivate within 90 days of return
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8
Q

How often must OSJs and supervisory branches be inspected

A

Annually

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9
Q

How often must non-supervisory branches be inspected

A

Every three years

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10
Q

Rules of Business Continuity Plans

A

Business continuity plans must be disclosed to customers on account opening

Firms must designated 2 associated persons as emergency contacts

Changes to contacts must be updated promptly

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11
Q

Form U4

A

Every broker dealer must obtain, and every associated person must furnish, a completed questionnaire sign end by a municipal or general securities principal containing the following info

Name, address, ss#, 10 year work history, residences for last 5 years, disciplinary actions by federal agency, criminal disclosures, bankruptcies

Changes to central registration depository within 30 days

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12
Q

Form U5

A

Must be filed within 30 days of termination date to FINRA and former employee

A new employer must get go pay of U5 from FINRA or new employee, not former employer.

New employee must provide copy to new employer within two business days of request

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13
Q

OSJ

A

At least one principal per OSJ

Customer records, including complains, kept at OSJ

Annual compliance meeting required for RRs and principals

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14
Q

Recording Requirements

A

If recording calls required by FINRA, procedures and equipment must be in place within 60 days of notification

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15
Q

Definition of a branch excludes the following:

A
  • Primary residence of RR as long as there are no meetings with customers
  • Any location, other than a primary residence, used for less than 30 business days annually for the securities business (vacation home)
  • Any location of convenience used occasionally for appointments (library or coffee shop)
  • Any location used for non-securities business from which no more than 25 securities transactions are handled annually
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16
Q

Private security transactions vs. Passive investments

A

Private security transactions require written notice to the member firm AND written permission.

Passive investments are not subject to this rule

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17
Q

Sharing in customer accounts

A

Permitted with principal approval; sharing is proportionate to contribution unless customer is an immediate family member

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18
Q

Borrowing money from a customer

A

Permitted in three instances

1) customer is an immediate family member
2) customer is a lending institution
3) procedures for loans within the WSPs have been followed.

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19
Q

Rules for members operating on bank premises

A

Members must disclose to customers - ORALLY and IN WRITING - that securities purchased are not FDIC insured, are not deposits of the bank, and are subject to investment risk.

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20
Q

Retail communications

A

Retail communication means any written communicate that is distributed or made available to more than 25 retail investors within any 30 day period

Communications related to options and security futures are alway subject to pre-approval by FINRA

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21
Q

Social Media, Twitter - communication rules

A

If a member firm or AP recommends a security through a social media site or twitter it is subject to principal approval and record keeping rules

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22
Q

Correspondence

A

Communication sent to 25 or fewer retail investors in any 30 day calendar period

Does not require prior principal appeal if written procedures in place to train and follow up on APs

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23
Q

Instant Messaging

A

Permitted if members can archive, monitor, and achieve IM traffic

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24
Q

Investment analysis tools must be filed with FINRA within ____ days of first use

A

10 days

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25
Q

Research reports

A

Research reports can include price performance, but must go back 12 months

Past recommendations can be shown, but the report must also show comparable recommendations within the past 12 months

Research reports must include price at date of report, disclosure of control relationship, if firm managed any underwritings within the past 12 months, and if firm makes market in the securities

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26
Q

Analyst disclosures

A
  • If the analyst, or a member of his/her household have a financial interest in the subject security
  • Investment banking fees received from issuer over last 12 months, and any fees expected in the next 3 months
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27
Q

Code of Procedure - Who issues complaints?

A

Complaints issued by department of enforcement

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28
Q

Code of Procedure - How long do respondents have to respond?

A

Respondents must file a response within 25 days

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29
Q

Code of Procedure - When does prehearing conference take place?

A

21 days of respondents answer

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30
Q

Code of Procedures - Respondent does not dispute allegations

A

Acceptance, waiver, and consent letter

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31
Q

Code of procedure - minor rule violation fine

A

Fine of no more than $2,500 if a mint or rule violation

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32
Q

Code of procedure - sanctions

A

Sanctions effective no sooner than 30 days after written decision

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33
Q

Code of procedure - appeals

A

Appeals must be made within 25 days of written decision.

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34
Q

Code of Arbitration - Response Time

A

A response is required within 45 days

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35
Q

Code of Arbitration - Simplified Aribitration

A

Simplified arbitration is available for amount of $50,000 or less

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36
Q

Code of Arbitration - Award Payment

A

Award payment within 30 days of decision date

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37
Q

Code of arbitration - statute of limitations

A

Six years

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38
Q

Code of Arbitration - Dispute between member firms

A

In disputes between member firms that are over $100,000 three NON-PUBLIC arbitrators are used

A public arbitrator is never involved in the securities industry

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39
Q

Code of Arbitration - Customer Disputes & Arbitration

A

In customer disputes over $100,000, two public arbitrators and one non-public arbitrator are used

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40
Q

Opening New Accounts - Minimum Required Information

A

Name
Address
Date of Birth
Social Security Number

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41
Q

Account verification rules

A

Accounts must be verified within 30 days and every 36 months thereafter

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42
Q

Identify Verification

A

Military ID or Drivers License - birth certificate won’t work because no picture

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43
Q

Order Tickets

A

Order tickets must be prepared PRIOR to execution

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44
Q

Account Transfer

A

Member firms have ONE business day to validate a transfer

Transfers must be complete within three business days of validation

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45
Q

Direct Participation Programs Roll UPS

A

A business organized so as to pass all income, gains, losses and tax benefits to its owners.

Maximum compensation 2% and CANNOT be CONTINGENT

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46
Q

Not Held Order

A

If a member chooses the price and timing of an order it is NOT discretionary; rather, it is termed a not held order.

Not held orders are considered day orders

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47
Q

Customer Mail

A

Customer mail can be held for three months provided the member receives written instructions from the customer that includes the time period during which the member is requested to hold the customers mail

If it is longer than three month the customer’s request must include an acceptable reason for the request

CONVENIENCE is NOT an ACCEPTABLE reason for holding mail longer than 3 months

48
Q

FINRA Rule 5130 - Trading Restrictions - New Issuance

A

Firms, employees, finders, fiduciaries, portfolio managers and immediate family members are restricted

Employees of limited business firms are exempt

49
Q

FINRA Rule 5130 - Representations

A

Prior to selling a new equity issue to an account, a member must obtain a representation from the account owner that the account is eligible to purchase a new equity issue at the POP

All representations must be obtained within the 12 month period and retained for three year.

The initial verification must be in the form of a positive affirmation letter.

The annual verification may be in the form of a negative consent letter (i.e. unless otherwise informed, we will assume you continue to be eligible to purchase new common stock)

50
Q

Regulation M - Rule 101 - Restricted Period

A

Defines the restricted period for underwriters who are also market makers.

In this situation, market makers must get excused withdrawals or act as passive market makers.

51
Q

Regulation M - Rule 102 - Bidding on security during restricted period

A

Issuer and affiliates cannot bid for or purchase their securities during the restricted period

52
Q

Regulation M - Rule 103 - Passive Bids

A

Passive bids can be no higher than the highest independent bid UNLESS it reflects a customer limit order

Net purchases limited to 30% of MM’s average daily trading volume

53
Q

Regulation M - Rule 104 - Price Stabilization

A

Stabilization is permitted for fixed price offerings underwritten on a firm commitment basis.

Can be penalty or penalty free

Support placed as a one sided market

54
Q

Regulation M - Rule 105 - Short Position

A

Short positions established within five business days of effective date cannot be covered by stock purchased at the offering price

55
Q

Regulation A - Raising Capital

A

Companies can raise up to $20 million on Tier 1 and $50 million on Tier 2 from accredited and non-accredited investors

56
Q

Rule 145 - M&A

A

Proxies are required to inform shareholders of M&A and reclassifications

No registration is necessary for shares resulting from stock splits and dividends

57
Q

Rule 147 - Intrastate Sales

A

80% of gross revenue OR assets located within state OR net proceeds used in the state OR majority of issuer’s employees in the state

Only state residents can buy; no resale to no residents for 6 months.

58
Q

Regulation S - Offshore Securities

A

Securities distributed offshore not subject to SEC registration

No selling efforts in the US

Distribution compliance period up to one year; 40 days for debt before resale in the US.

59
Q

Regulation D - Raising Capital

A

Different rules at the $5 million mark

General solicitation and advertising permitted

No more than 35 NON accredited investors

Unlimited accredited investors

60
Q

Accredited Investores

A

Individuals with income of at least $200,000 ($300,000 jointly)

Net worth of $1,000,000 or more EXCLUSIVE of primary residence

Officers of issuer

Those licensed with Series 7 or 65

61
Q

Rule 144 - Control Stock and Non Control Stock

A

Minimum 6-month hold on restricted securities for both control stock and non-control stock

Volume limitations apply to all control stock sales

Form 144, good for 90 days, filed with SEC no later than the first sale date

Filing waived if amount to be sold is 5,000 shares or less or has a value of $50,000 or less in 90-day period

62
Q

SEC Rule 10b-13 - Tender Offers

A

Tender offers must be open for 20 business days

Cannot buy stock, convertibles, or options while offer is open

No short tendering

Shareholder of the target company take permitted to tender share only to the extent of their net long position
Amendments open for 10 business days after change

63
Q

SEC Rule 10-b-18 - Company Buy Backs

A

Transactions on any given day can

  • only be affected through ONE market maker
  • cannot exceed 25% of average daily trading volume
  • cannot affect opening or closing price of the security

Safe harbor available if issue is not involved in the first trade of the day or any trade in the last half hour of trading.

Price can be no higher than the highest current independent bid or last sale

64
Q

Corporate Financing Department - Filing Requirements

A

Concerned with fairness of underwriting compensation
Manager files information within ONE business day of filing registration statement
Applies to equity AND convertible debt issues
Nonconvertible debt and nonconvertible preferred stock are exempt if considered investment grade

65
Q

Corporate Finance Department - Reimbursement

A

Issuer permitted to reimburse the underwriter for those expenses typically paid by the issuer

66
Q

Corporate Financing Department - Unreasonable Compensation

A

Freely transferable stock, options, warrants of more than 5 years

Options or warrants with exercise price below the POP

67
Q

Insider Trading

A

Both tipper and tipped liability if info is used to traded for profit or loss

Civil liability - three times losses avoided or profits made

Criminal

  • Individual - Up to $5 million fine for individual and 20 years in prison
  • Firm - Up to $25 million fine

Contemporaneous traders can sue up to five years after violation

68
Q

Fairness Opinion - Disclosures

A

If firm was financial advisor to any party to the transaction and if it will receive compensation contingent n the completion of the transaction

Any relationships that existed during the past two years with any party involved in the transaction and whether any compensation was or will be received

If any information that formed the basis for the opinion was supplied by the party requesting the opinion and whether the information was independently verified

69
Q

Hart-Scott-Rodino

A

Pre merger notification to FTC for transactions of $94 million or more

Information filed to allow FTC to determine anti-trust laws will be violated

Firms must wait 30 days after filing before consummation

70
Q

Before order are crossed, they must be offered to crowd at

A

One cent above current bid

71
Q

Block of stock

A

At least 10,000 shares or $200,000 or more

72
Q

Market on close orders

A

NYSE market on close orders cannot be entered after 3:45 (NASDAQ 3:50) unless there is an order imbalance

73
Q

Delisting

A

Requires approval of board of directors

Form 25 must be filed with the SEC

A security is considered delisted 10 days after filing

74
Q

OTC Equity Security

A

A security that is not an NMS stock trade on a national securities exchange

75
Q

NASDAQ Listing - Minimum Bid and Round Lot

A

Minimum bid price of $4 per share for Global Select Market listing

400 round lot shares

76
Q

NASDAQ Market Maker Registration

A

Application effective upon approval

Must enter quotes within five business days

Excused withdrawal for cause —> must have NASDAQ approval

Voluntary termination for NASDAQ and ADF market makers requires 20 business day wait before registration

77
Q

Short Interest Reporting

A

Reported twice monthly for short positions in both customer and proprietary account

Reported on the 15th and last business day of the month

Reported on trades that have settled as of the reporting dates

78
Q

Order Audit Trail System

A

Time sequence trail of orders from entry to execution

Applies to NASDAQ and OTC equity securities

Daily reports on an order by order basis

79
Q

NASDAQ Indicator - T1

A

News pending

80
Q

NASDAQ indicator T2

A

News released

81
Q

NASDAQ Indicator - T3

A

Five minute window when quotes can be entered and trading can begin

82
Q

Limit Up Limit Down

A

Mechanism is intended to prevent trades in NMS securities from occurring outside of specific price bands

83
Q

ECN

A

Registered ATS that provides trading platform for extended hours trading

84
Q

5% markup policy

A

Prospectus offering exempt

Calculated from inside market price for active competitive markets

Applies to corporate and US government debt - calculated based on contemporaneous costs

85
Q

Regulation NMS - Rule 611 - Executing Trades on Behalf of Customers

A

Prohibits trade-throughs that occur when a firm executes a customer order at a price when a better price is available in another market

86
Q

Regulation NMS - Rule 612 - Increments for Pricing of Equities

A

For stocks priced at $1 per share or greater, the minimum increment is 1 cent

For stocks priced less than $1, sub-penny pricing is permitted

87
Q

Regulation NMS Rule 605 - Market Center Reporting

A

Market centers that trade listed and NASDAQ securities must prepare MONTHLY reports on execution quality

88
Q

Regulation NMS - Rule 606 - Routing Method & Payment for Order Flow

A

Firms must disclose, in QUARTERLY reports, their order routing methods that identify the market centers to which they route a significant percent of their non-directed orders.

They must also disclose within these reports any payment for order flow arrangements that exist.

89
Q

Manning Rule

A

Firms cannot trade ahead of customer limit orders

If a market maker receives, as principal, a better price than unexpected customer limit order, price improvement must be passed along to the customer.

For example, if a market maker buys 100 shares at $31.00 when holding a customer limite order to buy at 31.01, the customer’s order must be filled at 31.00.

Trading ahead rule are applicable from 9:30am to 6:30pm

Trading along is OKAY with an agreement in place - no blanket agreements

90
Q

SEC Rule 604 - Display Rule

A

Requires a market maker to display a customer order priced better than its current quote within 30 seconds of receipt

91
Q

OTC Market Regulation

A

Member firms cannot

  • trade ahead of customer block orders
  • adjust inventory in advance of non-public knowledge of issuance of research

Interpositioning is prohibited unless it results in better execution for the customers

92
Q

Regulation SHO - Shorting

A

Mandates a locate requirement prior to the short sale of a security

Requires close out of fails to deliver in threshold securities after 13 consecutive settlement days

93
Q

Over the counter bulletin board securities

A

Electronic inter dealer quotation service for domestic equities not listed on any exchange and foreign equities, ADRs, and equities in the process of delisting

No minimum listing standards

94
Q

SEC 15c2-11 - Requirements for Non-Nasdaq market making

A

Form 211 field by market maker at least three business days before entering quotes

Piggybacking exemption available based on continuous quote rule

Quotation entries may be firm, one sided, unpriced indications of interest

95
Q

Trade Reporting & Compliance Engine

A

Reporting system for SECONDARY market OTC trading of depository eligible corporate bonds (convertible and non-convertible), US agency debt, and debt resold in a Rule 144a transaction

Trade reports must be made within 15 minutes of execution

FINRA reports trade to the public immediately

96
Q

CQS - Consolidated Quote System

A

All stock exchanges and market centers send their trades to the consolidate quote system. The data streams are distributed worldwide and act as the information sources for real time trade and quote information for NMS markets

Registered with SEC as SIP (securities information processor)

97
Q

Penny Stock Rules

A

A Penny Stock is a non-NMS traded stock under $5.00 per share

New customers who would like to own penny stocks must SIGN a suitability agreement. Established customers are exempt from this requirement

Customers must receive risk disclosure statement, commission schedule for RR and firm, and monthly statements

Firms whose penny stock revenue is less than 5% of total revenue are exempt from these requirements

98
Q

Reverse Convertible Bonds

A

Debt instruments embedded with PUT options allowing issuers right to convert bonds into equity

Issue would exercise the option if shares fall below a set price.

99
Q

Qualified Institutional Buyer

A

Any entity acting for its own account or the account of other QIBs that in aggregate owns and invests on a discretionary basis is at least $100 million in securities of issuers that are not affiliated with the entity.

100
Q

NASDAQ Book Orders - Maximum Order Size

A

999,999

101
Q

NASDAQ Book - Assumed Priority

A

Price and time

102
Q

Order Time in Force - Market Day

A

9:30am to 4:00pm

103
Q

Order time in force - system day

A

4:00am to 8:00pm

104
Q

Order time in force - GTC orders

A

GTC orders may be entered as either market day or system day orders

105
Q

Order time in force - on the open orders

A

On the open orders can be entered up until 9:28am

106
Q

Order time in force - on the close orders

A

On the close orders can be entered up until 3:50 pm

107
Q

Trade Reporting - OTC trades

A

Trade reporting facility (TRF)

Alternative display facility (ADF)

OTC Reporting facility (ORF)

All are used to report trades and are open from 8:00am to 8:00pm

108
Q

How long do market makes have to report OTC trades

A

10 seconds

109
Q

Inter dealer trades

A

In inter dealer trades, the only time the buy side reports is when the buyer is a market maker in the stock and the selling firm isn’t.

In all other instances, the sell side reports

110
Q

Inter-dealer trades - T trades

A

T trades are effected outside of normal business hours but reported the same day

111
Q

Inter dealer trades - as/of trades

A

Effected outside of normal business hours

112
Q

Fixed Annuity

A

A fixed annuity is NOT a security!

Seminars dealing exclusively with fixed annuities cannot result in securities fraud.

113
Q

Variable Annuities

A

Tax deferred way to participate in equity markets

Not suitable for short term investing due to surrender charges

Typically carry higher expenses than mutual funds with similar objectives

May not be suitable for seniors

114
Q

Index Annuities

A

Have a participation rate that is usually limited by a cap

115
Q

Combination Annuity

A

Investors purchase a combination annuity to receive the advantages of both fixed and variable annuities.

Investors contribute to both the general and separate accounts - provides guaranteed payments and offers possibility of inflation protection

116
Q

Continuous net settlement

A

Automated book entry accounting system to centralize trade settlement and maintain orderly flow of security and money balances

Operated by National Securities Clearing Corporation

Using CNS reduces movement of securities AND costs

Allows markets to act efficiently by minimizing the need to deliver actual securities on a trade-by-trade basis to contra parties

Series 24 (7 decks)

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