Industry Rules

Question 1

Policy for Commissions and Mark-ups

Answer 1

5%, guideline, not a rule

• applies to transactions effected on an agency or principal basis
• exemption: munis and new issues and mutual fund shares

Question 2

Communication: Correspondence

Answer 2

Must be reviewed and supervised by principal (but need not be approved)
Material that member firm dist/makes available to 25 OR FEWER retail investors w/in 30 day calendar period

Question 3

Communication: Retail Communication

Answer 3

Preapproved and filed w FINRA

Anything made available to over 25 retail investors

Question 4

Institutional Communication

Answer 4

Reviewed and supervised by principal (need not be approved)
-Includes banks, insurance or investment cos, inv advisors, natural persons or entities w/ total assets of at least $50mm, employee benefit plans, FINRA members and their RRs

Question 5

Communication with Public

Answer 5

WITHIN 10 biz days of first use

1) investment co communications w NO self-created rankings
2) DPP communications
3) CMO communications
3) Derivative communications

Question 6

Do Not Call times

Answer 6

8am-0pm
Excluded:
-one who has made unsolicited inquiry or
-engaged in a transaction w firm w/in last 18 months

Question 7

Penny Stock Regulations

Answer 7

Apply to SOLICITED sales of OTC equities priced under $5 per share.
-firms have special suitability, approval and disclosure procedures
Exempt customers:
-have been w firm over 1 yr or
-made 3 separate purchases of dif penny stocks

Question 8

Research Report Disclosures

Answer 8

• whether analyst/firm has a financial interest in subject co
• whether firm has received comp for IB services within last 12 months or expects w/in next 3

Question 9

Communication that doesn’t need principal approval

Answer 9

1. Retail Communications:
   - Material that makes NO financial/inv rec and does NOT promote a product/service of member firm
   - Market letters that make NO financial/inv rec
2. Correspondence
3. Institutional Communications

Question 10

Public Apperances

Answer 10

Delivered to 15 or more ppl
Same as research report disclosure
If RRs present inv seminars, must make record of date, topic and sponsor

Question 11

COP

Answer 11

Code of Procedure, process used to discipline members who violate industry rules

Question 12

Arbitration

Answer 12

Monetary disputes resolved by impartial panel

• decisions are in writing, binding and can’t be appealed
• 6 year statute of limitations

Question 13

Transferring Accounts between B/Ds

Answer 13

If a customer wants to transfer an account to another broker-dealer, she must sign a transfer request. The firm where the client has the existing account is known as the carrying firm and the new firm is known as the receiving firm. According to SRO rules, the transfer of a customer account must be completed by the carrying party within three business days of validation of the transfer instructions. The carrying firm must either validate the instructions or take exception within one business day.

Question 14

Permitted Charges by Brokers

Answer 14

Securities firms may charge customers for all services they provide as long as the charge is fair and reasonable.

Question 15

Research Quiet Periods

Answer 15

If a firm is involved in an underwriting of an initial public offering and is the manager or comanager, it must maintain a quiet period of 40 days following an IPO or 10 days following a secondary offering. During this time, the firm may not issue research reports on its investment banking clients’ stock. If the firm was a syndicate member or selling group member, the firm would need to wait 25 days.