Series 24 - Session One - Sales Supervision Flashcards
To understand Session One: Sales Supervision
1
Q
Which form is required for B/D registration with FINRA?
A
For NMA and Form B/D
2
Q
When do amendments to form B/D have to be made?
A
Within 30 days for standard amendments and within 10 days for material amendments like discipline
3
Q
Which form is filed with FINRA for registration of individuals?
A
Form U-4
4
Q
What constitutes a statutory disqualification
A
1) False application; 2)Ten years from conviction of a securities related misdemeanor or ANY felony; and 3) Suspension or expulsion from any SRO (self regulated organization).
5
Q
U-4 requires how many years of employment history and how many years of residence history?
A
5 years for employment and 10 years for residency.
6
Q
For how many years of employment must a principal verify for u-4 application?
A
3 years employment
7
Q
What are the time requirements for filing amendments to the U-4?
A
30 days for standard amendments and 10 days for material amendments which includes discipline.
8
Q
What does 17f2 stand for?
A
Fingerprint requirements
9
Q
When is U-5 required to filed?
A
Following termination of the RR and within 30 days.
10
Q
When are amendments to the U-5 required to be filed?
A
Within 30 days
11
Q
The previous broker dealer provides a copy of the U-5 to whom?
A
The RR; B/D does not forward to the new B/D
12
Q
Who is required to provide a copy of the U-5 to the new B/D?
A
The RR and it must be submitted within 2 days if requested.
13
Q
How are annual fees for the B/D calculated?
A
Based on 1) the number of RRs; 2) the number of branch offices;
14
Q
How may days to pay annual D/B fees?
A
15 days
15
Q
How is a B/D’s annual assessment fee determined?
A
Based on a percentage of gross from securities transactions.
16
Q
What 6 things are considered in the definition of an OSJ location?
A
If the firm engages in 1) market making; 2) structuring of public offerings; 3) custody of consumer securities; 4) final approval of new accounts; 5) final approval of advertising or sales literature; and 6) supervision of activities at branches.
17
Q
Name 3 responsibilities of the OSJ.
A
1) enforcement of supervisory procedures; 2) Periodic (QUARTERLY) review of customer accounts; and 3) Maintenance of customer records which includes written customer complaints; order tickets; forms, etc.
18
Q
What people are required to be at an OSJ?
A
1) Principal; CCO; AML Officer; which should be identified to FINRA
19
Q
What documents are required to be at an OSJ?
A
A procedures manual reviewable by customers
20
Q
What are the inspection requirements of an OSJ?
A
inspect all branches that report to the OSJ
21
Q
Define a branch office?
A
Where a member conducts securities business.
22
Q
List branch requirements.
A
1) Must be registered with FINRA; 2) Must have a branch manager.
23
Q
Who can serve as a branch manager at an OSJ?
A
a qualified RR with a Series 7 license
24
Q
What license is required if the person is only a branch manager (not an RR acting as a branch manager)?
A
Series 9/10 which is a limited supervisors license.
25
What is the exception to an RR acting as a branch manager?
Not allowed for NYSE member firms.
26
What is the exception for a branch office to not require a branch manager?
A small office with less than three people.
27
List the 4 situations that are excluded from registration as a branch?
1) primary residence of the RR --unless promoted as a branch; 2) location of convenience - by appointment like meeting at Starbucks; 3) location used primarily for non-securities business like an insurance office. This requires fewer than 25 securities transactions in a year; and 4) location used for securities business less than 30 business days annually per year like a vacation home.
28
Who is required to participate in the annual compliance meeting?
1) principals; 2) RRs; 3) anyone licensed and anyone who deals with the public.
29
Who is exempt from the annual compliance meeting?
Clericals and non-licensed
30
What is the frequency requirement of office inspections for an OSJ?
at least annuallyOSJ
31
What is the frequency requirement of office inspection for a supervising branch?
At least annually if it has a resident principal.
32
What is the frequency requirement of office inspection for a non-supervising branch?
Every three years
33
What is the frequency for requirement of office inspection for nonbranches?
Intervals as determined by the firm
34
How many principals are required?
At least 2 unless a sole proprietorship
35
An OSJ must have how many Series 24 resident principals?
One
36
What license is required for officers of a b/d?
Series 24
37
Who (besides officers and resident principals) must have a Series 24 license?
Those that train registered representatives like the Director of Training.
38
What does the Series 24 license provide?
General Principal; which is all supervisor functions which includes approving advertising material and sales literature and the approval of communication related to municipal securities
39
What does the Series 9/10 provide?
Limited Principal; provides supervision for sales-related business only; they cannot approve advertising or sales literature; trading or investment banking.
40
What registration is required for branch office managers of NYSE firms?
Series 9/10
41
What does the Series 4 provide?
Options Principal which means they can assign ROPs (ROSFPs) to supervise various components of options business.
42
What is the CROP in charge of?
Everything. Can supervise all option trades; tickets; new accounts; can delegate to a 9/10 but must reapprove in a reasonable time.
43
Can a Series 24 approve options?
No
44
What does the Series 53 provide?
This is a municipal principal and there are rules related to campaign contributions.
45
What amount can be contributed by a Series 53 per election per Municipal Finance Professional?
$250
46
What is the prohibition to participate in underwriting following a contribution to a campaign?
2 years
47
Can you donate to the candidate if you do not live in the candidate's district?
No
48
Can you donate to pay off campaign debts to any candidate?
Yes
49
What filing requirements for MSRB Rule G-37 - Pay to Play Rule?
Quarterly
50
What does the Series 6 provide?
Series 6; Investment Company Rep; can sell investment company securities that are sold with a prospectus in the primary market and closed end funds in the primary market only.
51
What does the Series 11 provide?
Sales Assistant: can enter unsolicited orders and quote stocks; cannot assess suitability; make recommendations, or provide advice;
52
How can a Series 11 be compensated?
Salary or hourly; no commission; job performance bonus is ok.
53
What does the Series 62 provide?
Can sell corporate securities only - no mutual funds, no annuities; no munis; It includes closed end funds - primary and secondary
54
What does the Series 51 provide?
can supervise mutual fund securities; 529 plans; and LGIPs - local government investment pools
55
Explain the CE regulatory requirement.
Test within 120 days of the second anniversary and then every 3 years.
56
Explain the CE firm element requirement.
Annual
57
Which of the following results in statutory disqualification? Felony DUI; Failure to Remit U-4; fine of more than $2,500
Felony DUI
58
What's the requirement for approval for a brochure sent to 25 banking customers?
No principal review since it is directed to institutions.
59
Sales concessions shared with FINRA member only. What is the exception?
Foreign nonmember B/Ds and banks for municipal securities underwritings.
60
True or False. FINRA members cannot join with nonmembers in underwriting nonexempt securities.
True
61
True or False: Can pay commission to nonmember for executing a nonexempt security transactions in OTC market.
False
62
True or False: Nonmembers of FINRA can only deal with munis and governments?
True
63
A registered rep may conduct business from his vacation home and maintain its non-branch status as long as it is under for less than how many days per year?
30
64
True or False: An individual with a Series 11 (sales assistant) can quote stock prices.
True
65
True or False: The 2-year prohibition is not applied to negotiated underwriting under MSRB Rule G-37?
False
66
What is the annual dollar limit for gifts and gratuities per year?
$100
67
True or False: Occasional meals paid are allowed under FINRA rules?
True
68
Occasional event tickets including season tickets are allowed under FINRA rules?
False. Season tickets are not allowed.
69
Besides occasional meals and tickets, what else is allowed under FINRA gift rules?
Lucite tombstone even if valued at more than $100 and trinkets (reminder advertising).
70
What two things can a b/d not charge a retail customer for?
Research and forwarding proxy material.
71
True or False: A b/d can charge for confirms, quotes, statements, holding stock certificates.
True
72
What is required in order to continue to receive commission after termination?
1) written agreement 2) voluntary termination or retirement; 3) business generated while employed;
73
What is required to temporarily hire employees of another member firm?
1) Written agreement with the other member firm; 2) written agreement with each employee; FINRA permission is not required.
74
What approval/notification is required for private securities transactions (selling away)?
1) Written notification to employer and written permission.
75
What is the exception to private securities transactions (selling away) that do not require written notification and written permission?
A transaction with an immediate family member and no compensation is paid to the associated person (unless they charge a fee).
76
What is an example of selling away?
church bonds
77
What is required of a RR when earning compensation outside the firm or outside affiliation?
Prior written notification is required not approval. The member may restrict or prohibit activity if conflict exists but permission is not required up front.
78
Can information obtained in a fiduciary capacity be used in any circumstances for sales solicitation?
No
79
When can a RR share a customer account?
1) principal approval required; 2) in proportion to the amount of money invested;
80
When can a b/d share a customer account?
Never, ever, ever
81
Are put options acceptable in a shared account with a customer?
yes
82
Are repurchase agreements for exempt securities ok for customer shared accounts?
yes
83
When is prior review of correspondence required?
When it is to more than 25 people in a 30 days period
84
When is post review of correspondence required?
When it is to less than 25 people in a 30 days period.
85
When is communication considered advertising?
When there is no control over the audience. Examples; websites; chat rooms; bulletin boards
86
When is communication considered sales literature?
When there is control of the audience. Examples of sales literature are stuffers, research reports.
87
Does advertising required prior approval?
Yes
88
Does sales literature require prior approval?
Yes,
89
Do prepared reprints need prior approval?
Yes
90
Is prior approval required for institutional sales materials?
No
91
Is prior approval required for pubic appearances?
No
92
When is instant messaging acceptable communication?
When there is software to monitor, archive, and store message traffic for 3 years.
93
When is communication required to be filed with FINRA for a first-year b/d?
10 days PRIOR to use
94
When is communication required to be filed with FINRA for established firms?
10 days AFTER use
95
What advertisements and sales literature are always filed 10 days prior to use?
1) Options; 2) CMOs; 3) security futures; and 4) investment company material with rankings no independently prepared or with bond volatility ratings.
96
Whats are the conditions of using testimonials?
The b/d must disclose if the maker is being paid and their level of expertise acknowledged
97
How long are advertising files required to be kept?
3 years from the date of approval from a Series 24
98
A client communication is considered a research report if it is distributed to a least how many persons?
15
99
What 7 things are required on a research report?
1) market price at date of report; 2) If the b/d is a market maker or has a control relationship; 3) if the manager (this applies to the syndicate manager not the selling group) or co-manager of any offering of the issuer within the previous year; 4)if firm has position of 1% or more; 5) may show price performance (minimum 1 year); 6)may show past recommendations; 7)provide support documentation on request.
100
If a research report shows past recommendations, what 3 things are required?
1) comparable companies; 2) all within the past 12 months; and 3) negative as well as positive
101
What is static content on social media?
Generally accessible to all website visitors and remains posted until it is removed from the site. Examples: a profile; background; or wall information.
102
Is static content considered an advertisement or sales literature?
advertisement
103
Does static content require prior approval by a principal?
Yes
104
What is real-time extemporaneous content on social media?
online discussions and chat rooms
105
Does real-time extemporaneous content require prior principal approval?
No. It is considered a public appearance and does not require prior approval but must be supervised.
106
Does static content of blog and bulletin board postings require prior approval?
Yes
107
Do interactive content blogs or bulletin board content require prior approval?
No because it is considered a public appearance
108
Within what time during the day can cold calls be made?
Between 8:00 a.m. and 9:00 p.m. in the recipients time zone
109
What does a RR have to reveal when making a cold call?
1) Name; 2) Company Name 3) Phone #; 4) Reason for the call
110
What are the existing business relationship exceptions to the cold calling rules?
1) b/d of record within in the last 18 months and 2) person has inquired at b/d within the last 3 months
111
For cold calling, what is the maximum age of the list?
31 days
112
FINRA requires taping of phone calls if a member firms hires too many reps from a disciplined firm. What is the # that can be hired based on the # of RRs employed?
0 to 4 = cannot hire; 5 to 9 = 1 hired; 10 to 19 = 4 hired; 20+ = 20%
113
When taping of calls is required at a firm because of disciplined reps, what are time restrictions?
1) Institute taping with 60 days and 2) continue for 3 years and file quarterly to FINRA
114
Explain hiring restrictions when taping is required because of disciplined reps.
1) cannot hire to dilute; 2) to avoid taping, firm may fire but cannot rehire for 6 months
115
How many days does a respondent have to answer an initial contact from the Department of Enforcement related to a complaint.
25 days
116
If a respondent doesn't reply within the first 25 days, how much time is allowed to respond to a second request?
14 days
117
A hearing must be held within how many days of a response to a inquiry/initial contact?
21 days
118
If no response is received after a second request, the license can be barred for how long?
life
119
Following a hearing, how many days before a decision is rendered?
60 days
120
How many days are allowed for an appeal?
25 days
121
Who decides on the penalty as a result of a hearing?
FINRA
122
What types of punishment can FINRA inflict?
1) Fines of any amount; 2) Censure; 3) Suspensions up to 2 years; 4) Expulsion for any time; 5) banned/barred for life
123
Can FINRA or SEC enforce jail time?
No
124
What is considered a MRV - minor rule violation?
1) Fines up to $2,500; 2) Admits guilt to a minor offense 3) No appeal
125
When can FINRA post information about disciplinary information on their website.
1) if the registration is suspended; revoked; or barred. 2) if there is a monetary sanction of $10,000 or more.
126
For monetary disputes between b/d vs b/d how many of the arbitrators are from inside the industry?
All of them
127
For monetary disputes between RR vs b/d how many arbitrators are from inside the industry?
The majority of them
128
For monetary disputes between the customer and the b/d how many arbitrators are from inside the industry? (assuming an arbitration agreement is in effect.)
The majority of them
129
For monetary disputes under the Uniform Code of Arbitration what is the number of days allowed for a response?
45 days
130
What is a nonpublic arbitrator?
Someone associated with the securities industry within the last 5 years and/or professionals who have devoted 20% or more of their work within the last two years.
131
What are limits to be considered simplified arbitration?
claims of less than $25,000
132
When are awards required to be paid for claims under the Uniform Code of Arbitration?
Within 30 days of the decision date
133
What is the statue of limitation for claims under the Uniform Code of Arbitration?
6 years from the event
134
What is the quiet period (research cannot be published) following an IPO?
40 days
135
What is the quiet period (research cannot be published) for additional offerings?
10 days
136
Rule 139 says there are exceptions to the quiet period (research cannot be published) for what type of securities?
actively traded securities
137
What research is allowed on actively traded securities during the quiet period?
1) research that was previously scheduled to be released 2) if the information is no more favorable than the most recent research report and 3) if part of a group
138
What does separate compensation mean as it relates to research conflicts with investment banking?
The analyst's compensation cannot be tied to a specific investment banking transactions
139
Ownership of a security by an analyst or an analyst family member must be disclosed. For how many days before and how many days after an issuance is the analyst/family member prevented from trading that security?
30 days before the issuance and 5 days after
140
An analyst cannot trade against his research recommendation. True or False
True
141
An analyst can solicit investment banking business. True or False
False
142
Reports must disclose investment banking business of an analyst how many months before and how many months after the issuance?
12 months before and 3 months after
143
There are three things an analyst can never discuss with the issuing company prior to the issuance. What are they?
1) rating; 2) price target 3) research summary
144
What is the only reason an analyst can talk to someone at the issuing company?
to verify facts
145
What is an Analyst Certification?
A statement in the report that the views in the report accurately reflect the views of the analyst and whether compensation was or will be related to the views expressed.
146
Firms must prepare and maintain records relating to public appearances (dog and pony show) how often?
Quarterly
147
NASD Rule 3013 relates to the chief compliance officer. How much the CCO be identified and to what groups is it reported?
By name; reported to board of directors and audit committee and shareholders not FINRA
148
How often is the requirement that the CEO certify the COO is doing his job?
Annually
149
NASD Rule 3510 is related to business continuity as a result of Sept 11. There are two requirements of Rule 3510. What are they?
1) there must be a business continuity plan 2) the business continuity plan must be disclosed to the customers in writing at account opening.
150
Disclosure of the business continuity plan is required a account opening and this can be satisfied two ways. What are they?
posting on the firm's website and mailing to the customer upon request
151
Business continuity plans must include three things. What are they?
1) data backup 2) data recovery 3) communication plans for customers, employees and regulators.
152
FINRA Rule 4370 relates to emergency contact persons. How many and what license requirements?
2 principals; identified by name and title
153
Emergency contact information must be updated promptly and annually. What does that mean?
30 days is prompt; and reviewed within 17 days of year end.
154
NASD Rule 3012 outlines office inspections and heightened supervision. What triggers heightened supervision?
A manager producing more than 20% of the revenue.
155
NASD Rule 3012 outlines office inspections. What are the separation of duties requirements?
The office inspection must be independent of both the manager and the activities being performed at that location.
156
Member firms are not allowed to make predictions regarding investments but they may use analysis tools. What 4 things are required?
1) Filing with FINRA 10 days prior to use. 2) disclosure to customers 3) disclose criteria and methodology used 4) include a statement that "results may vary and are not guaranteed"
157
What special rules (5 things) apply to active military service for a RR?
1) license in special inactive status 2) can receive commission 3) CE requirement waived 4) two year license clock is halted 5) must re-affiliate with a member firm within 90 days of return or the license expiration clock begins
158
What are the 4 requirements when opening an account for an employee of another member firm?
1) permission is not required 2) tell employing member in writing 3) duplicate statements, if requested 4) exception for investment company products like mutual funds and VAs
159
What are the two exceptions that allow a RR to borrow money from a customer?
1) the customer is immediate family 2) customer is a lending institution (bank)
160
As a general rule, can a b/d borrow or lend money to a customer?
yes
161
As a general rule, can an RR borrow or lend money to a customer
No. Exception - family member or lending institution
162
If you are denied registration, you can appeal. There are three tiers. what are the yearly fees for each level?
Tier 1 - most serious = $1,500; Tier 2 - less serious $1,000; Tier 3 - least serious - no annual fee.
163
What are residency and employment requirements?
5 years residency; 10 years employment; verify 3 years.
164
How are annual fees and annual assessments determined?
Annual fees are based on the number of RRs and the number of branch offices; Annual assessments are based on precentage of gross from securities transactions OTC
165
An RR can be a branch manager if it is not a NYSE b/d but if NYSE, the branch manager must have at least a license as a what?
9/10 - limited principal
166
What are office inspection requirements for OSJs, supervising branches, nonsupervising branches and non branches?
OSJ - annual; supervising branches - annually; nonsupervisory branches - at least every 3 years; nonbranches - intervals determined by the firm
167
The director of training needs what license?
Series 24
168
One of the 2 required Series 24 must be a 24; the other can be a what:?
27 - back office
169
We can charge for everything except what?
1) research 2) forwarding procy material
170
Are we required to forward proxy material?
only if we are assured that the issuer will reimburse us
171
We can temporarily hire employees of another firm. Can we hire admin and sales?
No; just admin
172
What agreements are required to temporarily hire employees of other firms?
1) written agreement with other member 2) written agreement with each employee 3) permission from FINRA is NOT required.
173
What is the exception to permission requirements for selling away?
If a family member and no compensation
174
Rule 139 says there is an exception to the quiet period in which you cannot publish reserach. What is the exception?
actively traded securities
175
RRs can borrow money from customers if the customer is immediate family and it the customer is a lending institution. Banks, Trusts, S&Ls and Mortgage Banks are considered lending institutions. What are not considered lenders?
1) mortgage brokers 2) officers of banks
