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Series 7 > Regulations > Flashcards

Regulations Flashcards

1
Q

Securities Act of 1933 applies to

A

Non Exempt Issues

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2
Q

Registration under SEC 33 must be filed before

A

any sales related activites take place

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3
Q

Registration statement includes

A
  • general character of business
  • use of proceeds
  • historical financial statements
  • biographical date on officers
  • legal issues
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4
Q

Deficiency letter

A
  • disclosure is not sufficient
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5
Q

Final Prospectus must be delivered by

A

at or prior to confirmation of sale

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6
Q

Primary Distribution of Final Prospectus

A

must be given the first 90 days, after that it is no longer required

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7
Q

Secondary Distribution of Final Prospectus

A

after the first 40 days, it is no longer required

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8
Q

Exchange/ NASDAQ listed Distribution of Final Prospectus

A

after first 25 days, it is no longer required

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9
Q

Seasoned Issuer

A
  • registered with SEC for 1 year,

- minimum of $75 mil market cap

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10
Q

Rule 415

A
  • seasoned issuers can have a blanket letter filed with SEC for three years, bc registering with SEC is expensive
  • no 20 day cooling period
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11
Q

Exempt

A
  • US Government Issues
  • Agencies
  • Municpals
  • Commercial Paper, and bank acceptances
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12
Q

Exempt Transactions

A

Common stock under a private placement

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13
Q

Section 4 (a)(2)

A
  • allows private placements to institutional and wealthy investors without registering with the SEC
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14
Q

Section 4(a)(5)

A
  • offers no more than 5 million made only to accredited investors are exempt
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15
Q

Issues that are regulated by another Federal or state law that are exempt are

A
  • Bank Issuers
  • Savings and Loan issuers
  • Insurance Company Issuers
  • Common Carrier Issuers
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16
Q

Small Businesses are ___ from SEC act of 1933

A

exempt

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17
Q

Nonprofit Business are ____from SEC 1933

A

Exempt

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18
Q

Non Exempt Issues from sec act of 1933

A
  • Corporate stock, bonds, warrants, rights
  • Options
  • Investment Companies
  • Non Variable Annuities
  • Limited Partnerships
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19
Q

Rule 147 Intrastate Exemption

A
  • federal laws only apply to interstate activities
  • 100% of issue must be sold to residents of the state
  • issuer MUST be in that state
  • for a 6 month period after, re-sale is only allowed to resident of that state
  • must comply with blue sky laws
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20
Q

Blue Sky Laws

A
  • state registration requirements
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21
Q

Regulation D

A
  • private placement execution
  • sold to a MAX OF 35 NON ACCREDITED INVESTORS/ UNLIMITED NUMBER OF ACCREDITED INVESTORS
  • No dollar limit/ no limit on units
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22
Q

Accredited Investors

A
  • net worth of 1 mil
  • annual income of 200,000 for past 2 years, joint 300,000
  • officer or director of the issue
  • financial inst. such as banks, insurance companies with assets of 5 mil or more
  • non- profits with excess of 5 mil
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23
Q

Private Placements can only be advertised if

A
  • they are advertising to accredited investors only
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24
Q

Full disclosure is given to Regulation D by

A
  • an “Offering Circular” or an “ Offering Memorandum”
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25
Q

Investment Letter

A
  • for “sophisticated investors( know the merit of the investment)”
  • stating that they know that the issue is unregistered, that it cannot be readily resold in public, and tends to hold the issue as an investment
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26
Q

Purchaser Rep

A
  • a lawyer or an accountant who evaluates the issue if the investor cannot
  • registered rep cannot be a purchaser rep
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27
Q

Restricted Stock

A
  • may only be sold in a private trade or under Rule 144
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28
Q

Regulation A

A
  • intended to make it easier for start up companies to raise capital
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29
Q

Regulation A Tier 1

A

up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements

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30
Q

Regulation A Tier 2

A
  • allow a maximum of $50 million to be raised, but require audited financial statements.
  • Tier 2 issues are also called Regulation A+ issues and can be exchange listed.
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31
Q

Form 1-A

A
  • filed with the SEC for the Tier requirements
  • gives disclosure
  • 20 day review period must be completed before the issue can be sold
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32
Q

Offering Circular for Regulation A

A
  • Disclosure document
  • during 20 day review period, preliminary offering circular must be delivered any customer at least 48 hours prior to sale
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33
Q

Test the Waters

A
  • can distribute promotional materials to prospective purchasers prior to filing the offering statement with the SEC and all through the review period
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34
Q

Non Accredited Investors cannot purchase a Tier 2 offering that is

A

greater than 10% of their annual income or net worth

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35
Q

Rule 144

A
  • allows small amount of stock to be sold periodically without a formal registration
  • a way of registering restricted shares without registering with the SEC
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36
Q

Rule 144 and rules for selling restricted stock

A
  • registered its shares outstanding and is in current filing with the SEC
  • Files a form 144
  • held securities for 6 months
  • files a form 144 no more than 4 times a year
  • max sale under form 144 is no more than greater than 1% of outsanding shares of the customer or, weekly average of the 4 week trading period preceding filing
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37
Q

Control stock

A
  • affiliated or officer/ director of issue is not subject to hold for 6 months
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38
Q

Small offers and 144

A
  • may sell up to 5,000 shares $50,000 worth every 90 days without filing
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39
Q

Act as a ___ in rule 144

A
  • agent
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40
Q

Estate Owners and 144

A
  • if the holder dies, his or her estate can sell the position without being subject to rule 144 limitations
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41
Q

Document that must be contained for Rule 144

A
  • copy of the form 144

- Issuer and Broker’s representation letter

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42
Q

RULE 144A

A
  • allows large institutional investors to trade privately placed securities
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43
Q

QIBs

A
  • owns and invests on a discretionary basis at least $100,000,00
  • can only sell to QIBS
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44
Q

PORTAL

A

The electronic trading of 144A for QIBS to QIBS

- owned by NASDAQ

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45
Q

Regulation Crowdfunding

A
  • the raising of capital by small start-up businesses through relatively small investment amounts.
  • private placement securities that are exempt from registration with SEC
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46
Q

Crowdfunding offering limit

A
  • only raise a max of 1 mil

- can only be sold through FINRA registered broker dealers

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47
Q

Crowdfunding investment limits

A
  • anyone can invest
  • investors with income under 100,000 can only invest greater of 2,000 or 5% of the investors income
  • for over 100,000 can only invest 10% of annual income
  • adjusted for inflation index
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48
Q

Crowdfunding disclosure

A
  • description of business
  • discussion of risk factors
  • name and positions of officers and 20% shareholders
  • price of securities
  • 100,000 must have financial statements by principal
  • 100-500, unaduited financial statements
  • 5000+ auditied financial statements

-

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49
Q

Offering requirements

A
  • allows investors to direct questions
  • obtain representation from investor that entire investment may be lost
  • ## provide education material
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50
Q

Rule 145 Reorg

A
  • substituting one security for another security
  • merger or consolidation, in which securities will be exchanged
  • transfer of assets from one person to another
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51
Q

Rule 153A

A

-shareholders must get a copy of the prospectus detailing the terms of the re org prior to the voting date

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52
Q

Rule 145 Exemptions

A
  • stock split or reverse split
  • change in par value
  • stock dividend
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53
Q

Securities Act of 1934

A
  • created SEC

- preventing manipulation and fraud in the securities market

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54
Q

Fraud Provisions

A

Apply to exempt an on exempt securities

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55
Q

FINRA rules are approved by the SEC and cover

A

Dealer-Dealer Practices;
Dealer-Customer Practices;
Dealer-Dealer Dispute Resolution Procedures;
Dealer-Customer Dispute Resolution Procedures.

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56
Q

Under SEC 1934, Every member firm must register with

A

FINRA

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57
Q

Under SEC 1934, Every officer of the firm must register with

A

FINRA

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58
Q

Under SEC 1934, Every sales employee must register with

A

FINRA

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59
Q

Tender offer for common stock must be

A

held for 20 business days

- sweetener extends for 10 days

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60
Q

Tender offer for bonds made by issuer must be

A

held for 5 business days

- sweetener extends for 5 days

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61
Q

Short Tender RUule

A
  • must have a long position in the stock
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62
Q

Rule10-b-5

A
  • if you do something the act didnt specify, and it is wrong it can be considered fraud
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63
Q

Insider Rules

A
  • required to report trades within 2 days
  • any short swing profits paid back to corporation
  • prohibitted from selling own company’s stock short
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64
Q

The SEC regulates

A

Securities only

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65
Q

Regulation SHO

A
  • every order ticket be marked long or short
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66
Q

Proxy Solicitation

A
  • proxy materials filed 10 days before shareholders receive
  • owns more than 5% reports 13D Filing within 10 business days that 5% is reached
  • passive investor, 13g filed 45 days
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67
Q

Exchange and Member firms msut

A

register with the SEC

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68
Q

Free Credit Balance

A
  • uninvested cash balances must receive quarterly notice with
  • amount of free credit balance
  • funds are available upon customer request
  • funds are not segregated from other brokerage firms cash balances
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69
Q

Broker-dealer financial condition

A
  • must send semi-annual financial statements containing
    1. Balance sheet
    2. Net Capital COmputation
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70
Q

Payment for Order flow

A
  • must disclose to customers

- must disclose the identity of the market for the preceding 6 months

71
Q

Payment Order Flow Quarterly Report

A
  • % of customers orders that were non directed
  • identity of 10 largest markets for who orders were non directed
  • member firm’s relationship with the market maker
  • any arrangement for payment for order flow
72
Q

Regulation M

A

-prevent manipulation by individuals with an interest in the outcome of an offering, and prohibits activities and conduct that could artificially influence the market for an offered security.

73
Q

Rule 103

A

any syndicate member who is a market maker in an issuer can either 1. resign as market maker for the 20 day period
or
act as passive market maker in the security

74
Q

passive market maker

A

will not bid the stock higher in the market

agrees to limit daily volume trading

75
Q

Rule 101

A
  • limits on syndicate members who are not market makers
76
Q

Tier 1 Regulation 1

A
  • no trading restriction, applies to stock with average daily trading of 1 mil and min market cap of 150 mil
77
Q

Tier 2 Regulation

A
  • limited trading
  • trading by syndicate makers who are not money makers is recticted for 1 day prior to effective date
  • daily trading volume of 100m,000 and min market cap of 25 mil
78
Q

Tier 3 Regulation M

A

-Inactive trading 5 days prior to effective date
- average daily trading volume of 100 mil
and market cap of 25 mil

79
Q

Regulation M Trading restrictions only apply to

A

common stock offerings

80
Q

Rule 105

A
  • prohibits investors from manipulating the price of the follow on offering by selling short prior to the pricing of new shares, pushing the stock down
  • fall would force underwriters to lower POP price, profiting in the end
81
Q

Rule 104

A
  • exempts stabilization as being a form of market manipulation as long as
  • notice of stabilization is on the prospectus
  • only 1 stabilizing bid
  • at or below the POP
82
Q

Tippee

83
Q

Tipper

A

gives inside information

84
Q

Violation of Tipper and Tippee,

A

only if the Tippee acts upon the information from the Tipper

85
Q

Insider trading violation

A

up to 3x the profit or loss from the trade
5 mil for each inside trade
and up to 20 years in prison

86
Q

Insider trading for control person

A
  • 25 mil fine

- must be proven that person knew about the reckless behavior

87
Q

Inside trade fines are paid to

A

Department of treasury

88
Q

Regulation FD

A
  • selective disclosure by issuers
  • when a trader is deemed to be an insider
  • at quarterly meetings any information discussed must be public information
89
Q

Regulation FD and intentional disclosure of private information at a meeting

A
  • simultaneously disclosing the information to the broad public
90
Q

Regulation FD and non intentional disclosure or private information at a meeting

A

within 24 hours file an 8k with the SEC or by a broad distribution to the public

91
Q

Rule 105b-1

A
  • safe harbor rule that permits statutory insiders to set up a plan for trading that companys security
  • specifies a future date with amount of securities to be bought/sold
92
Q

Rule 105b-2

A
  • misappropriation theory, if a person stumbles upon inside information they cannot be liable
93
Q

Trust indenture act of 1939

A

all interstate offerings of non exempt bonds of 50 mil

94
Q

investment advisor

A

give advice for a fee

must register with SEC

95
Q

Federal Covered Advisors

A

larger advisors that must register with SEC
advisors to inv companies
any adv managing over 100 mil in assets

96
Q

State registered advisors

A

advisor that does not fall under federal covered advisors

97
Q

SIPC Covers

A

500 k in ewuity 250 k cash values

98
Q

Cold calling rules

A

no calls before 8 am or afte r9 in recipients time zone

must identify himself by firm name, their name and address from he is calling

99
Q

Sarbanes-Oxley

A
  • accounting firm acting as auditor cannot perform any other function
  • CEO and cfo must certify annually financial reports
  • insiders prohibited from trading their own stock during black out periods
  • insiders must report trades within 2 days
100
Q

Research analysts must be separated from

A

investment banking

101
Q

Blue Sky Laws

A

eachc state has its own regulation

new issues that will be offered in each State be registered in that State.

102
Q

Registration by coordination

A

coordinates state registration application with federal application filed with SEC

103
Q

Registration by qualification

A

used by company that has never filed in state before , most difficult

104
Q

registration by filing

A

used by a company that has previously filed in the state

105
Q

Securities exempt from state registration

A

Blue Chip Stocks

manual exemptions

106
Q

Salesperson and Blue Sky Laws

A

making calls in a state or to that state must be registered in that state
series 63

107
Q

Investment advisor Registration

A

must register and pass the series 66

108
Q

Arbitration Panel

A

2 public and 1 non public arbitrator

109
Q

Second Job and FINRA

A
  • written notice must be given to employer firm
  • receive approval from employer firm to be an officer or director of another company
  • must be disclosed on u4
110
Q

CE Regulatory Element

A

computer training on 2 anniversary and every 3 years after that

111
Q

Regulatory Element is not completed

A
  • must be completed within 120 days

- persons registration is suspended, cannot be paid

112
Q

CE Firm Element

A
  • annual training to cover relevant products, regulations and compliance issues
113
Q

Annual compliance review

A

firm holds an annual compliance review attended by all registered represenatives

114
Q

Military Leave

A
  • can leave and pick up right where they left
  • can still receive commisions
  • can have another broker services customers and they can share their commisions
115
Q

U5 Form

A
  • if terminated, filed within 30 days

- 2 years after not being associated w a firm must re register

116
Q

Reportable events

A

promptly within 30 days after even

117
Q

Brokercheck

A
  • broker’s employment history
  • broker’s license
  • broker’s complaint and license directory
  • Broker’s OBA
118
Q

Correspondence

A

all correspondence must be approved in advance unless has complaince program in place

119
Q

Correspondence criteria

A
  • any written or electronic communicate that is distributed to less than 25 retail customers within any 30 day period
  • must be retained for 3 year
120
Q

Registered Rep and customer sharing accounts

A

prohibitied

- unless, written approval of employer, profit and loss be shared in direct proportion to capital contributed

121
Q

Changing order ticket after execution

A

not allowed unless signed off by branch manager

122
Q

Time Stamp on Tickets

A

every ticket must be stamped with the time it was exectued or cancelled

123
Q

Copies of order ticket must be kept for

124
Q

Options transaction costs

A
  • significantly higher than other investments
125
Q

Cash on Delivery Transactions

A
  • firm has record of name and addres of agent
  • order ticket notes it is COD
  • confirmation is mailed no later than business day
  • firm has obtained an agreement from customer with instructions to apay
126
Q

Customer disputes

A

only handled by arbitration if customer signs the agreement

= handled by 3 public arbitrators

127
Q

retail communication

A

any written or electronic communication provided to more than 25 retail investors within 30 day period, must be approved by principal prior

128
Q

institutional communication

A

written/electronic communication to institutional investors, do not require prior approval as long as it has a “post use and approval” program in place

129
Q

Retail communication types

A
  • advertising
  • sales literature( directed to a specific audience, circulars, market letters, password protected)
  • independently prepared reprint
130
Q

Recommendations and retail communications

A
  • cannot be made in advertising

- can be made and sales literature and reprints

131
Q

Copies of communication must be kept for

132
Q

FINRAs filing rules for retail communication

A

first year or operation all retail communications must be filed 10 business days ahead of use

retail communications must always be filed
mutual fund
operation retail communications with member performance rankings

133
Q

CMO advertising Disclosure

A 
coupon
anticipated yield and average maturity
specific tranche id
final maturity date
underlying collateral
134
Q

Research Report approved by

A

approved by Superior Analyst

135
Q

Research Report Standards

A

recommendation must have a basis in fact which can be sustained as reasonable

  • market price of stock at the time
  • supporting documentation to the recommendation must be furnished upon request
  • must be dated
  • must state risk
136
Q

A member may not issue research reports regarding an issuer for which the member acted as manager or co-manager of an initial public offering for

A

10 days following the effective date of the offering

3 days following secondary offering

137
Q

If a research report recommends a security, the following disclosures are required:

A
  • member firm/ affiliate owns more than 1% of stock
  • associated person/household member has a financial interest in the security
  • has managed/co managed security withina year
  • has received compensation for this security
  • is an investment banking service of this client
138
Q

Research Report

A

any client communication that analyzes individual security or companies that includes enough information to make a research decision,
- distributed to more than 15 people

139
Q

Third Party Research Report

A
  • identity of firm must be disclosed
  • conflict of interest must be disclosed
  • representative must have prior approval to give out a third party research report
140
Q

Research Report Retention

141
Q

Regulation AC

A

requires research analysts at member firms to certify each published research report; and to make a quarterly certification covering all public appearances made during that quarter

142
Q

If an analyst fails to make the Regulation AC ,

A

FINRA must be notified; and for the next 120 days, any research reports authored by that analyst must include the disclosure that the analyst did not provide the required certification.

143
Q

FINRA code of procedure

A
  1. complaint is filed with OHO
  2. If OHO not satifised, hearing in front of FINRA hearing panel
  3. If either party disagrees, appeal with the FINRA Adjudicatory Council
  4. If either party disagrees again, appeal with SEC
  5. Disagrees again appeal with Federal Court
144
Q

FINRA code of procedure penalty

A
  • censure, suspension, expulsion, and fines
145
Q

MRVP Fine

146
Q

What documents fall under 3 year retention

A

advertising
correspondence
customer orders

147
Q

what documents fall under 4 year retention

A

customer complaints

148
Q

what documents fall under 6 year retention

A

customer account statements

149
Q

MSRB does not regulate

A

municipal issuers

150
Q

MSRB can set regulations but cannot

A

force rules

151
Q

Broker Dealer Enforcement AGencies under MSRB

A

SEC and FINRA

152
Q

Municipal Securities Series 53

A

Engaged in management, direction supervision

  • maintenance
  • training
  • processing
  • research
  • communications
  • trading
  • finacial advisory
  • underwriting
153
Q

Municipal Securities 52

A

not a principal

actions are not solely clerical or ministerial

154
Q

Clerical Duties

A
  • recording/entering orders
  • reading approved quotes
  • giving trade reports
155
Q

If Series 52 is not passed within

A

180 days, he or she cannot perform any duties of a municipal representative

156
Q

Municipal Principal

A

MSRB requires one from every municipal broker/dealer

157
Q

Reviews required by Muncipal Principal

A
  • opening of each customer account
  • each municipal securities transaction
  • handling of all customer complaints
  • all correspondence relation to the solicitation of municipal securities
158
Q

May pay for work under MSRB rules if

A
  • prior to employment, written agreement with details of work and compensation
  • written consent of that person’s employer
159
Q

Signature requirements under MSRB

A

RR and manager

160
Q

MSRB requirements for opening a new account at another firm

A
  • dupe confirms

- any written instruction of the employer be followed by your firm

161
Q

MSRB Annual Notice to Customers

A
  • statement that broker dealer is registered with SEC and MSRB
  • Website address for MSRB
  • Statement to the availability of an MSRB Brochure
162
Q

MSRB Financial advisor wishes to underwrite a security

A

cannot be underwriter under any circumstances

163
Q

MSRB New Issue disclosure

A
  • required to send final official statement, if prepared

- required to disclose spread for negotiated offerings

164
Q

MSRB written complaint record must be kept for

165
Q

Reasonable relationship to determine fair market value

A
  • overall inventory position
  • inventory position in that security
  • anticipation of direction of movement
  • knowledge about facts of the customer
166
Q

Nominal quote

A
  • workable

- informational

167
Q

subject quote

A
  • usually subject to some condition and has to be re-verified
168
Q

Floor Broker

A

used to execute a transaction on the CBOE, may be either an employee member of firm or independent, cannot hold inventory
- under obligation to obtain best avaiable price

169
Q

Market makers and CBOE

A

make the market, trade for their own account, does not deal w public
cannot act as floor broker in same security

170
Q

OBO

A

works on salaried basis mainting public orders
public orders have priority over accounts with member firms
cannot take inventory positions
cannot take spreads

171
Q

Designated Primary Market Maker

A

maintains a bid and ask quote in each assigned option, will handle the book of public limit orders

172
Q

trading rotation

A

calls for bids and offers for each each series to establish opening price, only in single specified option contracts

173
Q

closing rotation

A

always performed on last trading day prior to expiration,

Series 7 (16 decks)

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