Module 14 - FINRA Rules Flashcards
FINRA
Financial Industry Regulatory Authority
B/D Acting as a Broker (Agent)
Whenever the firm effects a transaction between two customers accounts or between a customers account and the firm
REMEMBER: A, B, C - An AGENT or BROKER effects a transaction and receives a COMMISSION
Financial Industry Regulatory Association (FINRA)
Primarily responsible for establishing rules and regulating the activities of Broker/Dealers (B/D’s) and their registered reps
- SRO (self regulatory organization)
- Oversee the Over-The-Counter market (OTC)
- Regulate and oversee B/D’s and Reps
- Promote just and equitable principles of trade
- Foster cooperation and coordination with regulatory bodies and clearing organization
- FINRA members may transact business on a preferential discount basis with other FINRA members, but not with the public
FINRA Board of Governors
- Establishing and maintaining the membership criteria for FINRA
- Adopting and establishing rules when necessary
B/D Acts as a Dealer (principal party to the transaction)
When buying securities from a customer for its own account or selling securities to a customer from its own account. For this service the B/D charges a MARKUP
Registered Representitive
- Sales Persons
- If in a supervisory position they must be registered as Principals
- If a registered rep leaves the employment of a B/D, FINRA retains jurisdiction over that rep for 2 years after the rep registration is terminated
Series 7
General securities registration. It permits a registered rep to sell most types of securities, including stocks, bonds, and mutual funds
Person NOT Registered with FINRA
May not contact or talk with customers, and if the are working with a registered rep, they can only be paid a salary, either hourly or monthly
Series 9&10
Required for registration as a BRANCH OFFICE MANAGER (BOM)
Each B/D dealing with the public must establish a what?
Firm Element
Series 11
This license is a limited form of registration called an Assistant Representative/Order Processing Registration
- Allows individuals to except unsolicited orders from customers with existing accounts They CANNOT: - Solicit Accounts - Open Accounts - Make recommendations or advise
Regulatory Element
Consists of taking a computer based exam that has information supplied by FINRA.
Persons must take the regulatory exam within 120 days of the second anniversary of their registration approval and then every 3 years
Conduct Rules
Ensure that FINRA member B/D’s adhere to just and equitable principles of trade
Establish guidelines for B/D’s and registered representatives when dealing with customers and with other member firms
Communication under NASD’s Old Rule 2210
Broke communications down into 6 categories:
- Advertisements
- Sales Literature - 25 or more
- Correspondence - 25 or more
- Institutional Sales Material
- Independently prepared reprints
- Public appearance
Communications Under FINRA’s New Rule 2210
The new rule consolidates the old rule into 6 categories
- Retail communications
- Correspondence
- Institutional sales material
- Interactive forums/public appearances
Retail Communications
Any written (including electronic) communication that is distributed or made available to MORE than 25 retail investors within any 30 day calendar period
Examples of communication with no control over who will be viewing the material are:
- newspapers, radio, television, and public websites
Examples of communication with limited control over the audience are:
- Brochures, notices, circulars, research reports, form letters, and reprinted unaltered published articles
Correspondence
Anything written (including electronic) communication that is distributed or made available to 25 or FEWER retail investors within a 30 calendar day period
Institutional Sales Material
Any communicatin that is delivered only to institutional investors
- It does not need to be approved by a principal prior to the material being used
Institutional Investors
- Bank, savings and loan association, insurance company, registered investment company
- An Investment adviser
- Governmental entity or subdivision
- FINRA B/D
Interactive Forums/Public Appearances
Participation in:
- Seminar
- Interactive electronic forum (Chat room, online seminar)
- Radio or television interview
- other public speaking activity
Interactive Content
If allowed by the firm, is considered an interactive forum and is typically supervised much like emails and must comply with supervision and record retention rules
Example:
- Social Networking and Blogs
Static Content
Considered “ratail communications” and must be preapproved by a principal before it is posted.
Examples:
- Blog Postings, profile information, content that stays posted until the poster changes it.
Recommendations made during a public appearance or electronic public forum must have?
A reasonable basis for the recommendation, meaning the recommendation must be suitable for the entire audience.
Recomendations in communication with the public must?
- There must be reasonable basis for a recommendation
- Your firm must provide, or offer to furnish upon request, available investment information supporting the recommendation
- Your firm must disclose its relationship with the issuer
Communications used with the public by member firms must?
- Be based on principles of fair dealing, good faith, and must be fair and balanced
- Cannot omit information that would cause the communication to be misleading
- Communication that use testimonials cannot guarantee or imply future performance
The following material must be filed with FINRA 10 days prior to first use, and must wait for a FINRA staff response?
- Retail communications from firms within their first year
- Retail communication from established firms that have never filed advertisments
- Retail communications for mutual funds, ETF’s Variable insurance prducts, UIT’s, and closed ended funds
- Retail communications discussing sercurities futures and bond mutual fund volatility ratings
The follwing communications must be filed with FINRA within 10 days of first use?
Retail communications for:
- Mutual funds, ETF’s, variable insurance products, UIT’s, and closed end funds
- CMO’s
- Derivative securities
The following documents are excluded from the filing requirements?
- Institutional Communications
- Offering documents previously filed with the SEC or any state such as: Prospectuses, preliminary prospectuses
- Reprint or excerpt of an article
Communications Record Keeping
Files containing retail communications, correspondence, institutional communication, and public appearance materials must be maintained for 3 years, the most recent 2 years in a readily accessible location.
FINRA rules regarding telemarketing require a firm’s procedures to include the following?
- No person from the firm can make an outbound solicitation cal to residences except between 8 a.m. and 9 p.m.(in the prospects time zone) without prior consent from the prospect
- Telemarketer must promptly disclose (Identity of the telemarketer and the member firm, the telphone number or address at which the telemarketer may be contacted)
Interpositioning
Placing a third party in a transaction between the buyer and the seller
- FINRA rules prohibit interpositioning unless the cutomer benefits
Regular Way
Ammount of time allowed between the trade and the settlement of a transaction
Trade Date
Day the customer’s trade is executed
Settlement
The completion of a trasaction
Settlement Date
Day of the completed transaction
FreeRiding
Buying securities one day, selling the exact same securities later that day (or before settlement), and not depositing the funds required to settle the orginal purchase
Groups of people restricted from buying new issues
- Registered reps from any member firm
- Officers, directors, partners, or other employees of any member firm
- Financially dependant, immediate family member of any employees of a member firm
Recommendations to Customers
All recommendations made by a B/D to a customer must be suitable to that customer
Unsolicited Order
When a client wishes to purchase a security that has not be recommended by the registered rep
Solicited Order
Where a registered rep recommends a transaction
The following are violation of FINRA suitability rules
- Making blanket recommendations of low-priced securities to every customer
- Churning: Causing excessive amounts of trades in a customer’s account
- Inducing the trading of a mutual fund shares (i.e, trading the mutual funds like stock)
Backing Away
When a B/D offers a firm quote on an issue and then refuses to sell at that quoted price.
-This is a violation of FINRA conduct rule
FINRA member CANNOT charge customers for?
- Forwarding proxies to street name customers (they can charge the company sending out the proxies)
All charges an commissions must be reasonable - Charges and commissions cannot discriminate between customers