Industry Rules Flashcards
According to FINRA rules, list some of the persons that are considered institutional investors. 6
- Banks,
- insurance companies,
- investment companies,
- investment advisers,
- FINRA members
- RRs of FINRA members
What actions may the hearing panel take regarding rule violations? 5
- Censure,
- fine,
- suspension,
- request to requalify, or
- expulsion of the respondent
When a minor dispute is handled through simplified arbitration, is the ruling final and binding?
Yes, all arbitration decisions are final.
According to the TCPA, what information must telephone solicitors provide to clients? 4
- Their name,
- firm name,
- telephone number or address where they can be contacted, and
- the purpose of the call
Under Penny Stock Rules, when does a customer become established? 2
- When they have purchased 3 different penny stocks on 3 different occasions, or
- they have been a customer for one year
Define institutional communication.
Written or electronic communication that is distributed or made available only to institutional investors
List the three forms of communications with the public.
- Retail communication,
- Institutional communication, and
- Correspondence
True or False: On request, institutional communication may be provided to a retail client.
False. Institutional communication may never be provided to a retail investor.
All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.
All forms of communication with the public must be kept for three years, but easily accessible for the first two years.
Is correspondence subject to principal approval?
No, but it must be reviewed by the firm.
Churning is described as _____________________ designed to _____________________.
Churning is described as excessive trading designed to generate commissions.
Define research reports.
Written or electronic communication about equities, including information for a client to make an investment decision.
Is the 5% policy based upon the current market value of the security or the dealer’s cost?
Generally, the current market value
Industry disputes are handled through ______________.
Industry disputes are handled through Arbitration.
If a BD’s investment company communications include self-created rankings, when must they be filed with FINRA?
At least 10 business days prior to use
When arbitration involves public customers, __________ of arbitrators must be from outside the securities industry.
When arbitration involves public customers, a majority of arbitrators must be from outside the securities industry.
If a client seems confused and demands an unsuitable change of objective, what step should an RR take?
Confusion and/or dementia are concerns that may warrant an RR to request a meeting with the client and a family member.
Define correspondence.
Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.
For a firm’s first year as a FINRA member, when must its broadly disseminated retail communications be filed with FINRA?
10 business days prior to their first use
May firms allow for the free flow of information between their research department and investment banking department?
No, these two departments must be separated to avoid conflicts of interest.
What are some of the special standards that firms follow in regard to soliciting sales of penny stocks? 4
- Determine suitability,
- principal approval,
- send risk disclosure,
- client’s written authorization for the first 3 trades
What is exempt from the 5% policy? 4
- Trading of municipal bonds,
- new issues,
- registered secondary offerings, and
- mutual funds
May a customer be forced to use arbitration?
No, but signed pre-dispute arbitration agreements are binding.
May an RR and a client share in an account?
Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.
True or False: Institutional communication must be preapproved by a principal and filed with FINRA.
False. Institutional communication is not required to be preapproved or filed with FINRA.
True or False: An RR may sell stock from a client’s non-discretionary account if a negative report is released.
False. Without written authorization, an RR may not choose the security to buy for or sell from a client’s account.
A client’s name and number must be kept on the Do Not Call List ____________.
A client’s name and number must be kept on the Do Not Call List indefinitely.
What forms of communication are required to be approved by a principal, but NOT filed with FINRA? 4
- Email recommendations,
- telemarketing or sales scripts,
- independently prepared reprints, and
- ads promoting products
Which forms of communication are NOT required to be approved by a principal or filed with FINRA? 3
- Retail communications that do not recommend or promote a BD’s services,
- institutional communications, and
- correspondence
Retail communication generally requires __________ ____________.
Retail communication requires principal preapproval.
True or False: Firms writing research reports must disclose potential conflicts of interest.
True (e.g., firm makes a market in the stock or has had or will have an investment banking relationship with the issuer)
True or False: The findings of an arbitration panel may be appealed.
False. Arbitration decisions are final and binding.
Under FINRA’s communication rules, what is meant by the term broadly disseminated?
That material has been created for generally accessible Web sites, print media, and television or radio
Hearing Panel findings may be appealed to the ___________________________,then the _____, and then ________________.
Hearing Panel findings may be appealed to the National Adjudicatory Council (NAC), then the SEC, and then federal court.
May an RR write a research report and not hold the title research analyst?
Yes
What action should be taken if a senior investor requests a meeting to make a significant change to her objectives?
Request that the client have a family member accompany her to the meeting
The hearing panel may not impose a ___________________ due to rule violations.
The hearing panel may not impose a prison sentence due to rule violations.
Under the TCPA, how is an established customer defined?
One that has made an unsolicited inquiry or effected a transaction with the firm
When must a research report be approved?
Prior to first use by a Supervisory Analyst
If an RR suspects that a client may be showing signs of dementia, what is the best course of action?
To request a meeting with both the client and a family member
Does the 5% policy apply when a BD is acting in an agency capacity, a principal capacity, or both?
Both
An unlisted, non-Nasdaq stock priced below $5.00 per share is called a ____________________.
An unlisted, non-Nasdaq stock priced below $5.00 per share is called a penny stock.
Who must approve a research report?
Supervisory analyst
What trades would be covered by the 5% policy?
Secondary market trades of stocks, corporate bonds, and Treasuries
True or False: For an RR, a good business practice is to meet with a confused elderly client alone.
False. The best practice is to request that a family member of the client accompany her to meetings.
True or False: The 5% Policy is a rule that may not be exceeded.
False, it’s a guideline, not a rule.
May an RR in the research area be supervised by the investment banking department?
No
For how long must retail communication, institutional communication, and correspondence be maintained?
For three years, but easily accessible for the first two years
Retail communication concerning an investment company must be filed with FINRA within ___________ days of use.
Retail communication concerning an investment company must be filed with FINRA within 10 business days of use.
Which retail communications are required to be filed with FINRA WITHIN 10 days of first use? 4
Those related to
- DPPs,
- CMOs, and
- ETNs,
- as well as templates for reports produced by investment analysis tools
According to FINRA, the guideline for determining commission or markup on transactions is ___%.
According to FINRA, the guideline for determining commission or markup on transactions is 5%.
Which retail communications are required to be filed with FINRA at least 10 business days PRIOR to first use? 3
- Those for investment companies with self-created rankings,
- bond funds including volatility ratings, and
- security futures
The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.
The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.
What must be checked before a BD makes telephone solicitations?
The firm’s Do Not Call List
What factors could justify a larger markup than 5%? 3
- The type of security,
- the availability of the security, or
- the total transaction amount
