Employee Conduct and Reportable Events Flashcards
Churning
Practice of making transaction that are excessive in size or frequency, with the intention to generate higher commissions for their representative.
Reverse-Churning
Placing a low or no activity account into a fee based program or to not let it rise.
Capping
A manipulative act designed to keep the price of a stock down.
Pegging
A manipulative act designed to rise the price of the stock or to keep it from falling.
Front Running
The act of entering your own order before a customer’s very large order.
Trading Ahead
The act of entering your own order based on knowledge from a research paper that is yet to be released.
Painting the Tape
A manipulative act involving two or more parties that generate activity for a certain stock simply to make it appear as if it’s more popular than it is.
Unauthorized Trading
One that is made for the benefit for the customer without the customer’s knowledge and without the representative having discretionary power of the account.
Fraud
False statements Deliberate omissions of material facts Concealment of material facts Manipulative and deceptive practices Forgery Material omission Lying
Blanket Recommendations
The act of recommending a stock to all clients without taking into account their investment objectives.
Selling Dividends
Using an upcoming dividend payment to pressure an investor to buy instead of basing it on the health of the company.
Omitting Material Facts
A representative may not omit any material fact, good or bad, when recommending a security. A material fact is one that the investor would need to know to make a well informed decision.
Guarantees
No representative, broker dealer, or investment adviser may make any guarantees of any kind. A profit may not be guaranteed, and a promise of no loss may not be made.
Recommending Mutual Funds
The representative should be sure that the mutual fund they are suggesting meets the customers investment objectives. When quoting the mutual funds current yield only dividends paid out can be used- not capital gains.
Disclosure of Customer Information
Registered representatives and broker dealers may not disclose any information regarding clients to a third party without the client’s expressed consent or without a court order.
Gift Giving
A broker dealer can’t give gifts to another broker dealer of another firm unless it is:
Under $100 per person
Preapproved by the employing firm
Given directly to the employing firm to be distributed to the employee.
Selling Away
If a representative sells investment products that the employing member does not conduct business in without the member’s knowledge
Customer Complaints
All written complaints received from a customer or from an individual acting on behalf of the customer must be reported promptly to the principal of the firm. The firm is required to:
Maintain a copy of the complaint in a supervising office of supervisory jurisdiction for 4 years.
Electronically report all complaints to FINRA within 15 days of the end of each calendar quarter.
Report complaints within 10 days to FINRA if the complaint alleges misappropriation of funds or securities or forgery.
Outside Employment
If a registered representative wants to obtain employment outside of his or her position with a member firm, the registered representative must first notify the employing member prior to engaging in the activity. Prior approval is not required but the employer has the right to refuse or limit the outside business activity. Exceptions to this rule are if the registered representative is a passive investor in a business or if the representative owns rental property. All other outside business activities must be disclosed to the member firm.
Private Securities Transaction
A registered representative may not engage in any private securities transactions without first obtaining the broker dealer’s prior approval. The registered representative must provide the employing firm with all documentation regarding the investment and the proposed transaction. An example of a private securities transaction would be if a representative helped a startup business raise money through a private placement. If the representative is going to receive compensation, the employing member firm must supervise the transaction as if the firm itself executed the transaction. If a representative sells investment products that the employing member does not conduct business in without the member’s knowledge, then the representative has committed a violation known as selling away.
