Hiring And Qualification

Question 0

Broker

Answer 0

Any person that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. The role of a firm when it acts as an agent for a customer and charges a commission for its services.

Question 1

Person

Answer 1

Company, government, agency, individual. Anyone or entity that has the legal ability to open a brokerage account.

Question 2

Dealer

Answer 2

Any person engaged in buying and selling securities for its own account either directly or through a broker.

Question 3

Security

Answer 3

An investment instrument that signifies ownership in a corporation (stocks) or a creditor relationship toward a government or corporate entity (bonds). Investment returns are unpredictable.

index annuities are not considered securities however FINRA is interested in them because securities a usually used to purchase them.

Question 4

Associated Person

Answer 4

Any person under the control of a broker or dealer except for clerical or administrative staff. This includes partners, officers, branch managers of the broker or dealer or any employee.

Question 5

Self Regulatory Organization (SRO)

Answer 5

A nongovernment entity that has the power to create and enforce industry regulations and standards. It promotes ethics and equality to protect investors.

Example: NYSE, Municipal Securities Rulemaking Board, Financial Industry Regulatory Authority.

Question 6

What is required to become a FINRA member?

Answer 6

Must file form BD and New Membership Application (form NMA) with FINRA.
Register with SEC as a broker dealer.
New member assessment report.
New member contact questionnaire.
Form U4.
Fingerprint cards for each associated person and a check for the appropriate fee.
Application is sent to the FINRA district office where the firms home office is located.

Question 7

FINRA Membership Terms

Answer 7

• Firms must comply with federal securities laws and FINRA rules and regulations.
• Pay dues, assessments and other charges.
• Available to any BD registered with the SEC who’s regular business consists of investment banking or securities business in the USA.

*Not available to banks or firms subject to statutory disqualification.

Question 8

Describe Pre-membership Interview

Answer 8

It is scheduled to occur within 90 days after the application is filed. Or with in 60 days after the filing if additional documents are requested.
The firm will receive approval or denial within 30 days after the interview.
Before the interview the firm provides financial information, officers, directors and the kind of business the firm intends to do.

Question 9

Central Registration Depository (CRD)

Answer 9

Maintained by FINRA, it provides information on all registered persons. Including customer complaints and disciplinary history.

Question 10

Describe Public Disclosure Program

Answer 10

Customers must be provided with the FINRA BrokerCheck Hotline Number, the FINRA website address, information on where to locate a brochure describing the Public disclosure program at least ONCE per year.

Question 11

Cause for Statutory Disqualification from FINRA Membership.

Answer 11

Any disciplinary sanctions within the previous 10 years by the SEC, another SRO, foreign regulator or a foreign equivalent of an Self Regulatory Organization

Question 12

Statutory Disqualification (Firm)

Answer 12

Membership will be denied if the applicant or any associated person has been expelled or suspended from a foreign or domestic SRO.

Is subject to an SEC order denying, suspending, or revoking its registration as a broker dealer.

Or has willfully filed a false/misleading application or failed to disclose material facts.

Question 13

Statutory Disqualification (Individual)

Answer 13

Will be disqualified if:

• they make willful false/misstatements in the application for membership.
• they have a felony conviction or misdemeanor conviction involving securities within the past 10 years.
• they are under a court injunction prohibiting them from conducting activities in the securities or financial industry.
• they have been suspended or expelled from a domestic or foreign SRO
• SEC or foreign regulator has denied, suspended or revoked his registration. Or has barred him from associating with a B/D.
• they caused another B/D’s or associated person’s expulsion or suspension from the SEC or an SRO.

Question 14

Eligibility Proceedings for Firms under Statutory Disqualification

Answer 14

• Form MC-400 for individuals and form MC-400A for firms must be filed to start the process.
• Filing fee of $1,500
• Decision is rendered by the Department of Member Regulation
• Review and approval must be given by the National Adjudicatory Council.
• FINRA will conduct periodic SD examinations to ensure compliance.

Question 15

Describe SD Offender Tiers

Answer 15

• Tier I is for the most serious offenders and requires an annual exam. Supervision cost of $1,500.
• Tier II is for less serious misconduct. Examinations are conducted during FINRA’s routine exams of the firm. Cost $1,000
• Tier III no special supervision requirement

Question 16

Clerical Status for SD Persons

Answer 16

A firm may file form MC-400 with FINRA Department of Registration and Disclosure requesting clerical or ministerial status for an SD person. The appl is then sent to the Department of Member Regulation.

Question 17

Associated Person Registration

Answer 17

If one is associated with a FINRA member firm and intending to engage in investment banking or securities business, one must:

• Register with FINRA as an associated person.
• Be sponsored by a member firm.
• A principal must verify the applicant’s employment for the past 3 years and attest to their character and reputation
• U-4 is filed to register the applicant.

Question 18

Describe U-4 Form

Answer 18

It includes
- name, address and aliases

• 5 year residency history
• 10 year employment history (Principal must verify the past 3 years)
• information on felony charges or misdemeanor charges related to investment banking.

Question 19

Changes to U-4

Answer 19

Requires the filing of an amended Form U-4 with the CRD no later than 30 days after the member becomes aware of the changes. If the change is a statutory disqualification, the amended U-4 form must be filed within 10 business days.

If a person is suspended by a member or subject to in-house disciplinary action resulting in a fine in excess of $2,500 or withholding of commission, FINRA must be notified within 10 business days.

Question 20

Describe U-5

Answer 20

This form is used if an associated person resigns or is terminated and reaffiliates. The form must be filed with FINRA CRD with in 30 days of the termination date. The member must also provide the former employee a copy of the form in 30 days. The member must also provide the reason for the termination.

If the employee joins a new firm, the new employer must file a U-4 and obtain the U-5 from the new employee or CRD.

Question 21

License and Jurisdictional Retention

Answer 21

If an associated leaves the industry and returns within 2 years, their license remains effective and retesting is not required. FINRA also retains jurisdiction over an associated person for 2 years.

Question 22

Describe the Taping Rule

Answer 22

If a member hires persons from a disciplined firm, they are required to establish procedures for monitoring the telemarketing activities of all its registered persons within 60 days. Tape recordings and quarterly reports must be maintained for 3 years.

Taping required:

Level A - 5-9 reps, reps from disciplined firms 40% or more.

Level B - 10-19 reps, reps from df 4 or more.

Level C - 20 or more reps, reps from df 20% or more.

Question 23

Persons Exempt From FINRA Registration

Answer 23

• Duties are exclusively clerical.
• They do not actively engage in investment banking or securities activities.
• Corporate officers and silent partners
• Their functions relate solely to executing municipal securities or commodities.

Question 24

Foreign Associates Registration

Answer 24

They must be registered but are exempt from having to pass a qualification exam. They include associated persons who are not US citizens and who conduct all their activities outside of US jurisdiction.

Question 25

Registered Representative

Answer 25

All associated persons engaged in investment banking or securities business.

They include:

• assistant officer who does not function as a principal.
• individual who supervises, solicits or conducts business in securities
• individual who trains people supervise, solicit or conduct business in securities.

Question 26

Limited Representatives

Answer 26

• Series 6 license.
• Allowed to sell company investment products and variable contracts including mutual funds, unit investment trusts and face amount certificates.
• They can also sell closed-end investment company shares only during the initial public offering.
• They may also sell variable annuities. And variable life insurance if they have a life insurance license.

Question 27

General Securities Representative

Answer 27

Series 7 license.
- They can solicit and trade on the secondary market.

• They can sell individual stocks and bonds in the primary market.

Question 28

Limited Principals

Answer 28

Series 26 required.

• Supervises the solicitation of investment company products and variable contracts.
• Review and approval of advertising related to these products.

Question 29

General Securities Principal

Answer 29

Series 24

• Supervision of underwriting, trading, market-making activities.
• Series 7 prerequisite.

Question 30

Investment Advisers Federal Defination

Answer 30

They provide investment advise on securities.

They provide investment advise as a part of their regular business.

They receive compensation specifically for their investment advice.

Exempt: advisors with clients and offices only in 1 state and do not give advise on securities listed on any national exchange. Clients = only insurance companies. Private fund advisors with less than $150 million under management. Foreign advisors with less than 15 US clients and Less than $25mil in assets under management. Advisors to venture capital funds.

Excluded: Banks and holding companies. Publishers of a bona fide newspaper. B/D’s advise is incidental and no $$ is received for the advise. Persons who give advise on US government or agency securities. Lawyers, accountants etc who may give advise but receive no compensation.

Question 31

Registration of Investment Advisors

Answer 31

Any person included under the federal Definition of an investment advisor must register with the SEC under the Investment Advisers Act of 1940. Must file Form ADV. Persons with $110 million or more in assets under management.

Question 32

Investment Council

Answer 32

The adviser’s principal business consists of acting as investment adviser.

A substantial part of the adviser’s business consists of rendering investment supervisory services.