Securities Regulatory Organizations Flashcards
SEC
The U.S. Securities and Exchange Commission (SEC) is the major watchdog of the securities industry. Congress created the SEC to regulate securities markets and to protect investors from fraudulent and manipulative practices.
The Securities Act of 1933
The Act of 1933 requires the full and fair disclosure of all material information about a new issue.
The Securities Exchange Act of 1934
The Act of 1934, which established the SEC, was enacted to protect investors by regulating the over-the-counter (OTC) market and exchanges, such as the New York Stock Exchange (NYSE).
Extension of credit in margin account
Registration and regulation of broker-dealers
Registration of securities associations
Transactions by insiders
Customer accounts
Trading activities
The Trust Indenture Act (TIA)
This act, formerly called the Trust Indenture Act of 1939, prohibits bond issues valued at more than $50 million (originally $5 million) from being offered to investors without an indenture. The trust indenture is a written agreement that protects investors by disclosing the particulars of the issue (the coupon rate, the maturity date, any collateral backing the bond, and so on).
The Investment Company Act of 1940
This act regulates the registration requirements and the activities of investment companies.
The Investment Advisers Act of 1940
This act requires the registration of certain investment advisers with the SEC. An investment adviser is a person who receives a fee for giving investment advice. Any investment adviser with at least $25 million of assets under management or anyone who advises an investment company must register with the SEC
Record-keeping responsibilities Advisory contracts Advertising rules Custody of customers’ assets and funds
Self Regulatory Organizations
Although membership isn’t mandatory, most broker–dealers are members of one or more SROs. SRO rules are usually stricter than those of the SEC. The four types of SROs you need to know for the SIE are the FINRA, MSRB, NYSE, and CBOE:
FINRA Responsibilities
FINRA is responsible for making sure that its members follow not only FINRA rules, but also the rules set forth by the SEC. Additionally, the FINRA is responsible for handling complaints against member firms and may take disciplinary action if necessary. FINRA is also responsible for administering securities exams such as SIE
Financial Industry Regulatory Authority
FINRA is an SRO that’s responsible for the operation and regulation of the OTC market, investment banking (the underwriting of securities), NYSE trades, investment companies, limited partnerships, and so on.
Municipal Securities Rulemaking Board (MSRB)
The MSRB was established to develop rules that banks and securities firms have to follow when underwriting, selling, buying, and recommending municipal securities
Approve or Guarantee
Look at SIE questions with the words guarantee or approve in them very carefully. The FINRA, SEC, NYSE, and so on do not approve or guarantee securities.
The North American Securities Administrators Association (NASAA)
The North American Securities Administrators Association (NASAA) is devoted to investor protection. It is a voluntary association which consists of 67 regulators. NASAA even predates the creation of the SEC.
U.S. Department of Treasury
policy.
U4 Form
Background checks must be performed, and the applicant’s employers for the previous three years must be called to verify the applicant’s employment history. The calls must be made within 30 days of the firm receiving the U4 form.
The U4 form also contains an arbitration disclosure, which states that disputes between the applicant and the member firm will be settled by arbitration (essentially, you won’t take the firm to court).
non-Registered
the ten-year disqualification rule if an individual has been convicted of a felony or certain misdemeanors. In addition, if a registrant includes misleading information or omits information, her registration will be denied.
Nonregistered persons may not solicit customers or take orders. In addition, member firms are prohibited from paying commissions, fees, concessions, discounts, and so on to any person who is not registered. The failure of a member firm to register someone who should be registered will likely end in disciplinary action by FINRA.
Statutorily Disqualified from FINRA
a felony criminal conviction or certain misdemeanor convictions within the last ten years.
temporary or permanent injunction (no matter what his age) issued by a court involving a long list of unlawful investment activities.
expelled, barred, or is currently suspended from membership or participation in another self-regulatory organization.
been denied or had his registration revoked by the CFTC, SEC, or any other appropriate authority or regulatory agency.
found that a member or person has made certain false statements in his application, in reports, or in proceedings before the SEC, SROs, or any other appropriate regulatory authority or agency.
If the SEC, CFTC, or any SRO finds that a person “Willfully” violated federal securities laws, “willfully” violated commodities laws, or “willfully” violated MSRB rules “Willfully” aided, commanded, induced, abetted, counseled, or procured violations as set forth in the preceding rule Failed to supervise another person who committed violations as set forth in rule number one
Fingerprints for workers at firm
Making sales
Handling assets (cash and/or certificates)
Accessing original books and records
Supervising any of the preceding activities
Central Registration Depository (CRD)
The Central Registration Depository’s (CRD’s) BrokerCheck allows investors access to vital information that they may need to help them pick the right firm and the right professional, like you.
Member Firm Annual Meetings
Member firms must have annual meetings covering the services and strategies offered by the firm. In addition, the meeting must cover any recent regulatory developments, if any.
Regulatory Element
All registered persons are required to take a computer-based training session covering FINRA regulations within 120 days of the registered person’s second anniversary and every three years after that. In the event that the training isn’t taken within the required period, the person’s securities license(s) will be deactivated until it’s completed.
U5 Form
If you leave your firm for whatever reason, the member firm you were working for has to file a U5 form with the CRD within 30 days of the date you resigned or were terminated.
After a U5 form has been filed on your behalf, you have up to two years to get registered with another firm, or you’ll have to take your securities exams all over again.
Exempt from FINRA Registration
Functions are solely clerical or ministerial
Municipal Securities
Commodity Securities
Principal Signatures
- Opening new account
- Trades with an account
- Advertisements
- Sales literature
- Complaints
Trade Date
The day the trade has been executed.
Owns the security after executed even if has not paid for it yet.
Settlement Date
The day the issuer updates it’s records and delivers the certificates to the brokerage firm.
Payment Date
The day the buyer of securities has to pay for the trade.
Cash Trades
Same day settlements.
Payment and delivery of securities on the trade date
Regulation S-P
Adopt written policies and procedures for administrative and technical information to be safeguarded
Trade Confirmation
Sent to customer after trade has been completed. At or before the settlement date.
Financial Exploitation
Account Statements
Quarterly. Account activity, positions and balances
Dividends - Declaration Date
The day the corporation officially announces the dividend to be paid
Ex-Dividend Date
The day that the stock is reduced by the dividend amount.
On, or before this date the seller is due the dividend.
One day before the Record Date
Buyer is required to sign a “Due Bill” since the dividend won’t be paid for a month, or so.
Cash Dividend = Due Bill Check
Due Bill
When the buyer is entitled to the dividend, but has not received the certificates of record.
Record Date
The day the corporation inspects it’s records and determines who will be paid the dividend. To receive the dividend the investor must be in the records as stockholder
Payment (payable) Date
The date the actual dividend is paid out.
Stock sold short
Lender of the stock is entitled to the dividend.
Code of Procedure
