Employee Conduct and Reportable Events

Question 1

Churning

Answer 1

Practice of making transaction that are excessive in size or frequency, with the intention to generate higher commissions for their representative.

Question 2

Reverse-Churning

Answer 2

Placing a low or no activity account into a fee based program or to not let it rise.

Question 3

Capping

Answer 3

A manipulative act designed to keep the price of a stock down.

Question 4

Pegging

Answer 4

A manipulative act designed to rise the price of the stock or to keep it from falling.

Question 5

Front Running

Answer 5

The act of entering your own order before a customer’s very large order.

Question 6

Trading Ahead

Answer 6

The act of entering your own order based on knowledge from a research paper that is yet to be released.

Question 7

Painting the Tape

Answer 7

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.

Question 8

Unauthorized Trading

Answer 8

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.

Question 9

Fraud

Answer 9

False statements
Deliberate omissions of material facts
Concealment of material facts
Manipulative and deceptive practices
Forgery
Material omission
Lying

Question 10

Blanket Recommendations

Answer 10

The act of recommending a stock to all clients without taking into account their investment objectives.

Question 11

Selling Dividends

Answer 11

Using an upcoming dividend payment to pressure an investor to buy instead of basing it on the health of the company.

Question 12

Omitting Material Facts

Answer 12

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.

Question 13

Guarantees

Answer 13

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.

Question 14

Recommending Mutual Funds

Answer 14

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.

Question 15

Disclosure of Customer Information

Answer 15

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.

Question 16

Gift Giving

Answer 16

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.

Question 17

Selling Away

Answer 17

If a representative sells investment products that the employing member does not conduct business in without the member’s knowledge

Question 18

Customer Complaints

Answer 18

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.

Question 19

Outside Employment

Answer 19

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.

Question 20

Private Securities Transaction

Answer 20

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.