review exam 1 Flashcards
Define Clearly Erroneous
FINRA provides a mechanism for correcting or voiding transactions when certain terms (e.g., price, number of shares) are an obvious error. FINRA defines this situation as clearly erroneous.
What is the time frame to file clearly erroneous
The member firm should file a clearly erroneous transaction request with FINRA within 30 minutes.
What discretion does a member firm have for stop orders.
A member firm may, but is not required to, accept stop orders and stop limit orders for NMS stocks
ADF Trading center required hours.
An ADF Trading Center is required to be open from 9:30 a.m. to 4:00 p.m., which is defined as normal business hours.
ADF System hours
The ADF system is open from 8:00 a.m. to 6:30 p.m. An ADF Trading Center may voluntarily open before 9:30 a.m. or stay open past 4:00 p.m. (82863)
Finra Disqualification Appeal time frame
In compliance with FINRA Rule 9522, if the member fails to file the application requesting relief within 10 business days, the registration of the disqualified person will be revoked.
reserve bank account formula
The Reserve Formula requires the listing of the credit items. The total value of the credit items must be on deposit at the bank unless the member firm has offsetting debit items. In this case, the amount of the debit items may be deducted from the credit items and the net amount deposited in the Reserve Bank Account.
Reserve bank account computation time frames
Computations must be made either monthly or weekly. If the broker-dealer makes monthly calculations, it must maintain 105% of the required amount on deposit
Reserve Bank Account Deposit timeframe
2 days after the day of calculation
A broker-dealer has a fail-to-deliver position as a result of bona fide market-making activities and not being able to deliver stock by the settlement date. Under SEC Regulation SHO, the firm must:
If the fail was the result of bona fide market-making activities by the broker-dealer, the close-out requirement would be three settlement days following the settlement date (T + 5).
The maximum civil penalty for insider trading violations is:
$5,000,000 or treble damages, whichever is greater
explain the Riskless-principal exception to the manning rule.
Prohibition Against Trading Ahead of Customer Orders (Manning Rule) - If the proprietary trade is to facilitate a riskless-principal basis transaction (the market order from a customer to buy stock), it is not required to fill the limit order.
Regulation S
Regulation S is used by issuers to raise additional capital from foreign investors
Rule 144 is for
Selling shareholders would file under Rule 144 to sell restricted securities or control securities.
Regulation D
Regulation D is an exemption under the 1933 Act often used by issuers to conduct private placements, not public offerings.
Market maker net capital rule
market makers are required to maintain net capital of $1,000 for each security valued at $5 or less and $2,500 for each security priced above $5, with a maximum net capital requirement of $1,000,000.
Untrue statements exception
Any information conveyed to a purchaser after the time of sale is not taken into account when determining whether a prospectus included an untrue statement, or omitted to state a material fact.
Portfolio Margin eligibility
Portfolio margin is not available for small retail clients. The following entities are permitted to engage in portfolio margining.
Any broker or dealer registered with the SEC under the Exchange Act Any member of a national futures exchange to the extent that listed index options, unlisted derivatives, ETF options, index warrants, or underlying instruments hedge the member's index futures Any person approved to engage in uncovered option contracts. If a customer wants to trade unlisted derivatives, the customer must maintain equity of at least $5,000,000 at all times.
If a broker-dealer has sold a security to a customer that meets the definition of penny stock as of the last trading day of any month, the broker-dealer must provide
a monthly statement to the customer as long as the security is held for the customer’s account with the broker-dealer. The statement must include: (i) The identity and number of shares of each penny stock held for the customer’s account, and (ii) the estimated market value of the security, to the extent it can be determined.
There are three standards that can be used when applying for Nasdaq Global Select listing.
A $4 minimum bid price
3 or 4 market makers
Subject to corporate governance
The following four requirements may not be applicable, depending on which of the three standards is used in the issuer’s application.
Pretax earnings Cash flow Market capitalization Revenue
Principal Review of an Annuity Contract
When an application for the purchase of a variable annuity is received from a registered representative, the principal must approve or reject the application within seven business days of receipt. In addition, the principal must document and sign the recommendation, whether the application is approved or rejected.
Under Section 4(5) of the Securities Act of 1933
Defined
According to Section 4(5) of the Securities Act of 1933, an offering by an issuer may be considered an exempt transaction if certain conditions are met. The amount of the offering may not exceed $5 million, no advertising or public solicitation may be used to offer the securities, and the offering may be sold only to accredited investors. There are no document delivery requirements;
FINRA has limited authority to halt trading OTC equity securities underlying an ADR
cannot halt trading pending release of material information. (98823)
After the opening of quotations in a security’s principal market, stabilization may be initiated at a price
no higher than the last independent transaction in the principal market if
(1) the security has traded in its principal market (on the day stabilizing is initiated or on the preceding day, and (2) the current asked price in the principal market is equal to or greater than the last independent transaction price.
If either condition (1) or (2) is not satisfied, stabilizing may start after the opening of quotations at a price no higher than the last independent bid for the security on Nasdaq. The maximum stabilizing bid is the public offering price, however, a lower ceiling may apply.
What is an aged Fail
An aged fail is a fail to deliver that has been outstanding for 5 business days or longer. When calculating a firm’s net capital, a broker-dealer is required to deduct from the contract value a percentage of aged fails to deliver.
According to Sarbanes-Oxley, the annual reports filed with the SEC by publicly traded companies are required to contain
- Management’s assessment of the effectiveness of the company’s internal controls over financial reporting as of the end of the company’s most recent fiscal year
- A statement identifying the foundation used by management to evaluate the effectiveness of the company’s internal control over financial reporting
- A statement that the firm has filed the required SEC forms when it has raised capital in the public markets
- tatement by management acknowledging its responsibility for the establishment and the maintenance of adequate internal controls over the company’s financial reporting.
The amount of restricted securities that may be sold within a three-month period under Rule 144 is
If a stock is listed on an exchange, the maximum that may be sold is the greater of 1% of the total shares outstanding or the average weekly volume of the past four weeks
Under the safe harbor provisions of Rule 10b-18, an issuer should limit its purchases for that security to
no more than 25% of the average daily trading volume (ADTV) on any single day. Use only one broker-dealer during any trading session, although different broker-dealers may be used for normal trading hours and after-hours trading
A firms’ compliance certification shall state
The certification requires the CEO to state that a meeting has been conducted with the Chief Compliance Officer (CCO) in the last 12 months.
FINOP
Financial and Operations Principal (the holder of Series 27 registration).
In response to an issuer’s corporate action (dividends and stock splits), the Nasdaq Market Center Execution System will take the following actions concerning adjustments for open orders and quotes.
All bid and offer quotes will be purged from the system.
All orders shall be cancelled in the event of a reverse stock split.
Sell orders will not be adjusted automatically by the system and should be modified by the market participant that entered the order.
The following securities are not considered new issues and may be sold to restricted persons.
Secondary offerings
All debt offerings, including convertible
Private offerings, including Regulations D and 144A
Preferred stock offerings
Investment company offerings
Exempt securities as defined under the Securities Act of 1933
Direct Participation Programs and REITs
Rights offerings, exchange offers, and offerings made pursuant to an M&A transaction
ADR offerings that have a preexisting market outside the U.S.
Form U6
Form U6 is used to report final arbitration awards against RRs and firms.
Rule 104 of Regulation M requires any party that intends to engage in stabilization to
provide prior electronic notice of its intent to the market where stabilization will occur. If the security is listed on Nasdaq, the FINRA Market Regulations Department would be notified by way of the Restricted Period Notification Form (a.k.a. a regulatory wire). The SEC receives prior notice in written form through the disclosures contained in the registration documents.
Under FINRA rules, if a person is granted discretion the firm is required to
Obtain the signature of each person authorized to exercise discretion in the account
Record the date such discretion is granted
Record the age or approximate age of the customer in connection with exempted securities other than municipals
When preparing a fairness opinion that will be distributed to public shareholders, regulators require that
All existing conflicts of interest be revealed. These conflicts may include:
- Current or prior relationship between the author of the opinion and any party to the transaction
- Compensation due to the broker-dealer that prepares the report, if the compensation is contingent on the deal closing
The amount of compensation need not be disclosed, only that the broker-dealer will receive compensation
