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FINRA > Series 24 > Flashcards

Series 24 Flashcards

1
Q

Securities Act of 1933

A

Enacted to regulate how securities are registered, issued, and distributed to the public for the first time

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2
Q

Investment Adviser

A

defined by the Investment Advisers Act of 1940 as any person or firm that is in the business of providing advice or reports about securities for compensation

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3
Q

Forms of compensation for Investment Advisers (2)

A

Advisory fees or compensation

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4
Q

Advisers excluded from the Investment Advisers Act (8)

A

1) banks, 2) lawyers, 3) accountants, 4) teachers, 5) engineers, 6) broker-dealers (if they do not receive special compensation for advisory service), 7) publishers of newspapers as long as it is not directed toward any specific person, 8) firms that provide advice to U.S. government securities or government sponsored organizations

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5
Q

Investment Advisers with >$110mm in AUM

A

Investment Advisers that must register with the SEC

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6
Q

Form ADV

A

Form that must be filed by Investment Advisers registered with the SEC - has two parts including i) general information and ii) information relevant to the customer

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7
Q

Investment Adviser Registration Depository (IARD)

A

Operated by FINRA - is a internet-based filing system for all SEC applications for Investment Adviser registration

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8
Q

Statutory Disqualification

A

Occurs when a company or registered person makes false or misleading statements in its application for registration, has been convicted of a felony within the past 10 years, or has been convicted by a court or found by the SEC to have violated a securities-related statute or rule.

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9
Q

Investment Adviser Registration with AUM is

A

Investment Advisers that must register with the states in which they operate.

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10
Q

Investment Adviser Registration with AUM >$100mm but

A

Investment Advisers that can choose to register with either the SEC or the states in which they operate

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11
Q

How to be exempt from SEC and FINRA registration as a Broker-Dealer

A

Intrastate Broker-Dealers cannot participate in any transaction executed on a national securities exchange or NASDAQ. Nor can they post information on the internet that is accessible in another state.

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12
Q

Foreign broker-dealer activities that qualify them as exempt from SEC registration

A

Effecting transactions initiated by the customer, providing research reports to American institutional investors, soliciting and effecting transactions through a registered broker-dealer

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13
Q

Securities Investor Protection Corporation (SIPC)

A

A nonprofit corporation that provides insurance for the assets contained in investors’ securities accounts. All registered broker-dealers must be members unless their principal business is conducted outside of the U.S. or consists exclusively of the sale or distribution of mutual fund shares, variable annuities, government securities, or insurance. Also exempt are broker-dealers that offer investment advice to investment companies and insurance companies

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14
Q

Mandatory Inspection of a New Broker-Dealer

A

Conducted within six (6) months of the date that a new firm registers

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15
Q

Definition of Broker-Dealer

A

any “person” (an individual or a firm) that is engaged in the business of effecting transactions in securities for the account of others or for the person’s own account.

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16
Q

Definition of Broker

A

Acts as the intermediary between two parties in a transaction.

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17
Q

Definition of Dealer

A

Buys securities from customers and puts those securities in its own inventory or sells securities to customers from its own inventory.

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18
Q

Principal Definition

A

A person actively engaged in the management of the member’s investment banking or securities business, including sole proprietors, officers, partners, and managers

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19
Q

Representative Definition

A

any other person who solicits or conducts business in the investment banking or securities business, including research analysts and broker-dealer trainers

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20
Q

Number of Principals Required for FINRA Member Firms

A

two registered principals with respect to each aspect of the firm’s investment banking and securities business

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21
Q

General Securities Principal (Series 24) Definition

A

a person engaged in managing or supervising registered employees with respect to all activities of her office, except those involving options accounts or financial reporting to regulators

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22
Q

Membership Agreement Requirements

A

A firm must agree to provide FINRA with an application for approval at least 30 days before any change in ownership or control, such as a merger with another entity (whether with another member firm or not), an acquisition by another entity, or any change in the member’s equity ownership that results in one person or entity controlling 25% or more of its equity

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23
Q

Permissive Registration

A

Makes it possible for certain securities personnel to maintain their registration when they no longer perform the duties associated with that registration.

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24
Q

License and Jurisdictional Retention Rule

A

A registered person’s license remains valid for two years after leaving the industry. Individuals who return after two years must requalify by passing the appropriate exam - similarly, when a registered person leaves the business, FINRA retains jurisdiction over that person for two years

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25
Q

Regulatory Element of Continuing Education

A

Registered persons complete a computer-based training session within 120 days of a person’s second registration anniversary, and every three years thereafter

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26
Q

Form U5

A

Form that must be filed with FINRA within 30 days of the termination date or within two business days of associating with another member firm

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27
Q

Form BDW

A

Form a broker-dealer must file when it decides to go out of business

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28
Q

Notice of withdrawl effective date

A

0th day after the filing of Form BDW

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29
Q

FINRA Rule 3110

A

Rule that outlines in detail a procedural framework by which a supervisor’s responsibilities will be known and procedures set in place for their execution

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30
Q

Office of Supervisory Jurisdiction (OSJ)

A

An office that demands special supervisory attention from the firm because FINRA deems that the activities conducted there have particular regulatory significance or because the member firm itself may believe it is prudent or necessary based on certain FINRA guidelines. Member firms must designate at least one of its offices as this office type.

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31
Q

Branch Office

A

Any location where one or more associated employees are in the business of soliciting or effecting (but not executing) the purchase or sale of any security.

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32
Q

Supervisory System

A

A defined structure that specifies how a member firms oversight responsibilities for the activities of its employees are carried out.

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33
Q

Written Supervisory Procedures (WSPs)

A

Instruct the supervisor as to how those responsibilities must be performed

34
Q

Taping Rule

A

The tape-recording of all telephone conversations between the member firm’s registered persons and existing and potential customers. Tape recordings must be held for at least three years.

35
Q

Disciplined Firm

A

A member firm that has been expelled from membership in any self-regulatory organization or is subject to a SEC order revoking its registration as a broker-dealer or FCM

36
Q

Supervisory Controls

A

Police and enforce compliance of its own supervisory system

37
Q

Rule 10b5-1 Trading Plan

A

Allows for scheduled trading by the corporate insider

38
Q

Maximum Civil Penalty related to Insider Trading

A

The greater of $1 million or three times the amount of the profit gained or loss avoided as a result of the violation.

39
Q

Maximum Criminal Charges related to Insider Trading

A

5 million for each willful violation and/or 20 years in prison. Firms may be fined up to $25 million.

40
Q

Regulation FD

A

Adopted by the SEC in 2000, this regulations attempts to curb the selective disclosure of material, nonpublic information by issuers

41
Q

Money Laundering

A

The concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.

42
Q

Bank Secrecy Act (BSA)

A

Also known as the Currency and Foreign Transactions Reporting Act, requires financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. The legislation is enforced by FinCEN

43
Q

Office of Foreign Assets Control (OFAC)

A

Part of the Treasury, this office administers sanctions against trading with enemies of the U.S. Enemies — such as terrorists, narcotics traffickers, or money launderers—or they could be foreign governments. Financial institutions must report all blockings and rejections of sanctioned activities within 10 days of identifying them.

44
Q

Suspicious Activity Reports (SAR)

A

Report must be filled out whenever a client makes a transaction in excess of $5,000 and the broker-dealer knows or suspects foul play. Report must be filed with FinCEN no later than 30 days after the date the suspicious activity was detected.

45
Q

Customer Complaint

A

Any written statement from a customer alleging a grievance that involves the activities of a member firm or its associated persons in connection with the solicitation or execution of a securities transaction. Records shall be kept at the OSJ and maintained by the firm for at least four years.

46
Q

Restrictions on Customer Gifts and Gratuities

A

$100 limit, records must be kept for 6 years

47
Q

Networking Arrangement

A

An agreement between a member firm and a banking institution under which the firm offers its brokerage services on the premises of the bank

48
Q

Three Components of Suitability Obligations

A

Reasonable-basis, customer specific and quantitative suitability obligations

49
Q

Institutional Client

A

An account of a bank, savings and loan association, insurance company, registered investment company, registered investment adviser, or individual with total assets of >$50mm

50
Q

Retail Customer

A

Any natural person who receives a recommendation from the broker-dealer for the person’s own account

51
Q

The Disclosure Obligation

A

Reg BI requirement to provide retail customers with a full and fair disclosure of all material facts about the terms and relationship between the broker-dealer and the retail customer before or at the time of recommendation

52
Q

Form CRS

A

a 1-2 page summary of broker-dealers and investment advisers relationship with a customer or client provided when they are on-boarded

53
Q

Direct Participation Programs (DPP)

A

A common type of limited partnership set up to fund high-risk and capital-heavy businesses, such as real estate, oil and natural gas, and equipment leasing

54
Q

Real Estate Limited Partnership (RELP)

A

A real estate direct participation program that passes losses as well as gains on to investors

55
Q

DPP Roll-up

A

A transaction involving the combination or one or more non-exchange traded DPPs into another public DPP, public corporation, or public trust

56
Q

Records to be held for a lifetime

A

partnership articles if it is a partnership, articles of incorporation if a corporation, minutes of partners’ or directors’ meetings, and stock certificate books

57
Q

Records to be held for a 6 years

A

Records associated with blotters, ledgers, and securities

58
Q

Records to be held for a 5 years

A

All reports and documentation related to MILs, CTRs, and SARs

59
Q

Records to be held for a 4 years

A

Customer complaint records and related info.

60
Q

Net Capital

A

Net worth + subordinated debt - non-allowable assets - haircuts

61
Q

Non-allowable assets

A

Illiquid assets, assets that cannot be quickly sold at fair market value

62
Q

Tentative Net Capital

A

Net worth + subordinated debt – non-allowable assets

63
Q

Carrying Firm Net Capital Requirement

A

$250,000

64
Q

Introducing firms that do not receive customer securities

A

must carry $5,000 in net capital

65
Q

Introducing firms that do receive customer securities

A

must carry $50,000 in net capital

66
Q

Dealer Net Capital Requirement

A

$100,000

67
Q

Dealer limited to mutual funds net capital requirment

A

$5,000

68
Q

Market Maker Net Capital Requirement

A

$100,000

69
Q

Haircuts

A

Discounts the SEC applies to the market value of securities held by a broker-dealer. This provides a cushion to account for a possible decrease in valuate at the time of liquidation

70
Q

Securities that receive haircuts equal to 15% current market value when calculating net capital

A

commonly traded equity securities and undue concentation

71
Q

Securities that receive haircuts equal to 40% current market value when calculating net capital

A

equity securities in a limited trading market

72
Q

Securities that receive haircuts equal to 100% current market value when calculating net capital

A

non-marketable securities

73
Q

Aggregate Indebtedness requirement for first year firms

A

indebtedness is not more than eight times the amount of their net capital

74
Q

Aggregate Indebtedness requirement for established firms (over one year old)

A

indebtedness up to 15 times the amount of their net capital

75
Q

Aggregate indebtedness

A

defined as liabilities that are not secured by any of the firm’s assets

76
Q

Broker-dealers debt-to-equity ratio requirement

A

No more than 70%, although there is a 90-day grace period that gives members time to lower their ratios if needed.

77
Q

Customer Protection Rule ( Rule 15c3-3)

A

Requires broker-dealers to promptly obtain and maintain the physical possession or control of all fully paid and excess margin customer securities - and to segregate all customer monies obtained from the use of customer property that has not been used to finance transactions on behalf of other customers.

78
Q

FOCUS reports

A

financial and operational combined uniform single report - required to be filed by member firms annually

79
Q

Securities Information Center (SIC)

A

An arm of the SEC, handles the reporting of stolen, missing, lost, or counterfeit securities

80
Q

Securities Investor Protection Corporation

A

A member-owned, nonprofit corporation whose membership consists of virtually every brokerage firm registered with the SEC. Exempt broker-dealers include firms that exclusively sell mutual funds, variable annuities, U.S. securities, or investment advice, and firms whose principal business is conducted outside the U.S.

81
Q

Five categories of separate customers defined by SIPC

A

individual account, joint accounts, accounts ed by executors, administrators, or guardians/custodians, and trust accounts

82
Q

Fidelity Bond

A

type of business insurance that protects the business form employees’ dishonest acts. FINRA Rule 4360 requires that all member firms that are members of SIPC carry this as coverage.

FINRA (1 decks)

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