Securities Industry Rules and Regulations

Question 1

Securities Exchange Act of 1934

Answer 1

Created SEC, requires registration of broker dealers and agents, regulates the exchanges and the NASD, requires net capital for broker dealers, regulates short sales, regulates insider transactions, requires public companies to solicit proxies, requires segregation of customer and firm assets, authorized the federal reserve board to regulate the extension of credit for securities purchases under Regulation T, regulates the handling of client accounts.

Question 2

Four Major Bylaws of NASD

Answer 2

The rules of fair practice, the uniform practice code, the code of procedure, the code of arbitration.

Question 3

Requirements to become a FINRA member

Answer 3

Meet net capital requirements, have at least two principals to supervise the firm, have an acceptable business plan, attend a pre-membership interview.

Question 4

Violations for which a RR can be fired for cause

Answer 4

Violated firm policy, violated the rules of the NYSE, FINRA, SEC or any industry regulator, violated state or federal securities laws.

Question 5

Examples of Misleading Statements

Answer 5

Excessive hedge clauses, implying an endorsement by FINRA, the NYSE, or the SEC, printing the FINRA logo in type that is larger than the type of the member’s name, implying that the member has larger research facilities than it actually has, implying that an individual has higher qualifications than he or she actually has.

Question 6

Telemarking Rules

Answer 6

Call only between the hours of 8am and 9pm in customer’s time zone, maintain a do not call list, solicitors must give the prospect the firm’s name, address, and phone number, adequate policies and procedures regarding do not call list, train reps on calling policies, ensure any fax solicitations have the firm’s name, address, and phone number.

Question 7

FINRA Rule 2210

Answer 7

Communications with the Public. FINRA Rule 2210 replaces the advertising and sales literature rules previously used to regulate member communications with the public. FINRA Rule 2210 streamlines member communication rules and reduces the number of communication categories from six to three. The three categories of member communication are: retail communication, institutional communication, correspondence.

Question 8

The Securities and Exchange Commission (SEC)

Answer 8

One of the biggest components of the Securities Exchange Act of 1934 was the creation of the SEC. The SEC is the ultimate securities industry authority and is a direct government body. Five commissioners are appointed to five-year terms by the President of the United States and each must be approved by the Senate. The SEC is not a self-regulatory organization or a designated examining authority (DEA). An SRO is an entity that regulates its own members, such as the NYSE or FINRA. A DEA is an entity that inspects a broker dealer’s books and records, and it can also be the NYSE or FINRA. All broker dealers, exchanges, agents, and securities must register with the SEC. All exchanges are required to file a registration statement with the SEC that includes the articles of incorporation, bylaws, and constitution. All new rules and regulations adopted by the exchanges must be disclosed to the SEC as soon as they are enacted. Issuers of securities with more than 500 shareholders and with assets exceeding $5,000,000 must register with the SEC, file quarterly and annual reports, and solicit proxies from stockholders. A broker dealer that conducts business with the public must register with the SEC and maintain a certain level of financial solvency known as net capital. All broker dealers are required to forward a financial statement to all customers of the firm. Additionally, all employees of the broker dealer who are involved in securities sales, have access to cash and securities, or who supervise employees must be fingerprinted.