Sales Supervision Flashcards
What is a Chinese Wall?
barrier to information flow between a member firm’s investment banking group and the member firm’s trading desk was made explicit in the Insider Trading Act Amendments of 1988.
arbitration panels to hear disputes with customers where the amount in dispute is $100,000 or more, consist of?
3 arbitrators - 2 public and 1 non-public
arbitration panels to hear disputes between member firms where the amount in dispute is $100,000 or more, consist of?
3 non-public arbitrators
when selling in a bank setting what must be done?
INRA requires that the customer be given the “Not-Not-May” disclosure, both orally and in writing. This disclosure states that the products being sold are Not FDIC insured; are Not bank products; and that they May lose value.
Hearing Panel decisions can be appealed to?
the National Adjudicatory Council. Only after this appeal is exhausted, can the decision be appealed to the SEC
what ways can you send FINRA documents?
n response to an information request from FINRA, the required documents can be shipped on paper or electronically. Regarding electronic delivery, the files must be sent in encrypted form, with the code or key sent separately.
FINRA’s “deadly sins”
selling dividends (inducing a customer to buy a stock just before an ex-date to get a cash dividend - there is no benefit to this - if the customer buys on the ex-date or after, the stock price is reduced for the dividend that will now not be received); selling away (which is when a registered representative sells a customer a security that is not being offered by his or her broker-dealer - he or she is “selling away” from the firm); and breakpoint sales (which is not giving a customer the benefit of a mutual fund breakpoint sales charge reduction for a large dollar purchase). Rehypothecating securities is the pledging of margin securities to a bank - as long as the customer signs a margin agreement, this is permitted.
what would cause the “taping rule” to be triggered?
The “taping rule” that requires member firms to tape the conversations of its registered representatives, is triggered if the member firm hires too many representatives from a firm that has been previously disciplined by FINRA.
Upon request, a broker-dealer must furnish a customer with
pon request, a firm must furnish a customer with its latest balance sheet and net capital computation. There is no requirement to furnish an income statement.
Fully paid securities V. Margin securities when i comes to securing a debit at a bank?
Under the “margin agreement,” margin securities are held in street name and can be commingled with the securities of other customers. Collateral at a bank can be changed at any time, since it consists solely of commingled street name securities. Fully paid securities must be segregated and placed in safekeeping.
if is customer is wanting to buy right under a breakpoint for sells charge what must you do?
Selling to a customer just below a breakpoint is a violation. One must tell the customer that if he buys just a little more, he will get a lower sales charge.
bona fide quote?
genuine; real.
nominal quote?
far below the real value or cost
office of convenience
A location where a registered representative meets a customer by appointment on a non-regular basis is an “office of convenience” and is not defined as a branch
OSJ?
An Office of Supervisory Jurisdiction
An Office of Supervisory Jurisdiction is a location where any of the following activities take place:
Order execution and/or market making;
Structuring of new issue offerings;
Final approval of new accounts;
Review and approval of customer orders;
Review and approval of advertising/sales literature;
Responsibility for supervising activities at one or more branch offices.
when can you share an account with a client?
Sharing is permitted with prior written approval of the firm for accounts of close family members; accounts where the representative contributes capital; and for extremely large accounts opened by wealthy customers.
Principal Transaction
a transaction where the registered securities or commodities broker or dealer acts as a principal or underwriter for the broker or dealer’s own account, rather than as an agent for the customer.
There is no provision for sharing in a customer account if it is limited to principal transactions. Meaning you can not share an account with a client with the rule that you only do principal transactions.
what disputes will be handled by binding arbitration?
member firm versus member firm, member firm versus member firm, clearing corporation versus member firm
Under FINRA rules, if an individual fails the appropriate licensing exam 3 successive times:
180 days must elapse between each subsequent reattempt
Customer complaint records must be kept:
in each Office of Supervisory Jurisdiction, for 4 years
The statute of limitations for filing an arbitration claim is:
6 years from the event
broker-dealer requirements regarding “insiders” under the Securities Exchange Act of 1934?
I Broker-dealers are obligated to establish and enforce procedures to detect and prevent insider violations
II Insider rules have forced broker-dealers to adopt “Chinese Wall” policies
III Broker-dealers can be held liable for insider trading of their “controlled” employees
What must be disclosed on the U4?
Any misdemeanor conviction involving securities or monies and any felony must be disclosed on the U4 Form and is cause for statutory disqualification. Since this is a felony conviction, it must be disclosed on the U4 and it will automatically disqualify the individual from registration. (However, the individual can request an Eligibility Proceeding to overcome the statutory disqualification, but this is not asked in the question.)
sales supervisor can approve?
A general principal (Series 24) can perform all supervisory functions, whereas a general sales supervisor (Series 9/10) is limited to the supervision of customer accounts. Therefore, the sales supervisor can approve new accounts; approve customer correspondence relating to sales; and can approve orders. The sales supervisor can not approve advertising or sales literature; cannot supervise a trading desk; cannot approve financial reports of the firm; and cannot sign underwriting agreements.
A mediator fails to resolve a dispute between a customer and a member firm. what happens next?
If both parties have agreed to attempt to settle a dispute by mediation and no resolution has been reached, then the dispute will be submitted to arbitration for resolution. The mediator in the unresolved dispute is prohibited from acting as one of the arbitrators on the panel that will hear the matter.
Research personnel
Research personnel cannot make a “pitch” to an issuer in an attempt to get that issuer’s underwriting business, by offering to give a favorable rating on the company if the issuer sends its business to the broker-dealer; nor can they threaten an issuer with an “unfavorable” rating if the issuer does not do business with the broker-dealer. If a broker-dealer has been following an issuer and now intends to stop coverage, FINRA requires that the member firm give the issuer notice of this. The member firm must make available a final research report that is comparable in scope, detail, and distribution, to the previous reports; and must include a final recommendation or rating.
