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Series 24 Exam > Series 24 - Session One - Sales Supervision > Flashcards

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

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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

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3
Q

Which form is filed with FINRA for registration of individuals?

A

Form U-4

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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).

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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.

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6
Q

For how many years of employment must a principal verify for u-4 application?

A

3 years employment

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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.

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8
Q

What does 17f2 stand for?

A

Fingerprint requirements

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9
Q

When is U-5 required to filed?

A

Following termination of the RR and within 30 days.

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10
Q

When are amendments to the U-5 required to be filed?

A

Within 30 days

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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

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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.

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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;

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14
Q

How may days to pay annual D/B fees?

A

15 days

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15
Q

How is a B/D’s annual assessment fee determined?

A

Based on a percentage of gross from securities transactions.

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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.

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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.

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18
Q

What people are required to be at an OSJ?

A

1) Principal; CCO; AML Officer; which should be identified to FINRA

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19
Q

What documents are required to be at an OSJ?

A

A procedures manual reviewable by customers

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20
Q

What are the inspection requirements of an OSJ?

A

inspect all branches that report to the OSJ

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21
Q

Define a branch office?

A

Where a member conducts securities business.

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22
Q

List branch requirements.

A

1) Must be registered with FINRA; 2) Must have a branch manager.

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23
Q

Who can serve as a branch manager at an OSJ?

A

a qualified RR with a Series 7 license

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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.

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25
Q

What is the exception to an RR acting as a branch manager?

A

Not allowed for NYSE member firms.

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26
Q

What is the exception for a branch office to not require a branch manager?

A

A small office with less than three people.

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27
Q

List the 4 situations that are excluded from registration as a branch?

A

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.

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28
Q

Who is required to participate in the annual compliance meeting?

A

1) principals; 2) RRs; 3) anyone licensed and anyone who deals with the public.

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29
Q

Who is exempt from the annual compliance meeting?

A

Clericals and non-licensed

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30
Q

What is the frequency requirement of office inspections for an OSJ?

A

at least annuallyOSJ

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31
Q

What is the frequency requirement of office inspection for a supervising branch?

A

At least annually if it has a resident principal.

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32
Q

What is the frequency requirement of office inspection for a non-supervising branch?

A

Every three years

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33
Q

What is the frequency for requirement of office inspection for nonbranches?

A

Intervals as determined by the firm

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34
Q

How many principals are required?

A

At least 2 unless a sole proprietorship

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35
Q

An OSJ must have how many Series 24 resident principals?

A

One

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36
Q

What license is required for officers of a b/d?

A

Series 24

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37
Q

Who (besides officers and resident principals) must have a Series 24 license?

A

Those that train registered representatives like the Director of Training.

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38
Q

What does the Series 24 license provide?

A

General Principal; which is all supervisor functions which includes approving advertising material and sales literature and the approval of communication related to municipal securities

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39
Q

What does the Series 9/10 provide?

A

Limited Principal; provides supervision for sales-related business only; they cannot approve advertising or sales literature; trading or investment banking.

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40
Q

What registration is required for branch office managers of NYSE firms?

A

Series 9/10

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41
Q

What does the Series 4 provide?

A

Options Principal which means they can assign ROPs (ROSFPs) to supervise various components of options business.

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42
Q

What is the CROP in charge of?

A

Everything. Can supervise all option trades; tickets; new accounts; can delegate to a 9/10 but must reapprove in a reasonable time.

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43
Q

Can a Series 24 approve options?

A

No

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44
Q

What does the Series 53 provide?

A

This is a municipal principal and there are rules related to campaign contributions.

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45
Q

What amount can be contributed by a Series 53 per election per Municipal Finance Professional?

A

$250

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46
Q

What is the prohibition to participate in underwriting following a contribution to a campaign?

A

2 years

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47
Q

Can you donate to the candidate if you do not live in the candidate’s district?

A

No

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48
Q

Can you donate to pay off campaign debts to any candidate?

A

Yes

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49
Q

What filing requirements for MSRB Rule G-37 - Pay to Play Rule?

A

Quarterly

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50
Q

What does the Series 6 provide?

A

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.

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51
Q

What does the Series 11 provide?

A

Sales Assistant: can enter unsolicited orders and quote stocks; cannot assess suitability; make recommendations, or provide advice;

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52
Q

How can a Series 11 be compensated?

A

Salary or hourly; no commission; job performance bonus is ok.

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53
Q

What does the Series 62 provide?

A

Can sell corporate securities only - no mutual funds, no annuities; no munis; It includes closed end funds - primary and secondary

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54
Q

What does the Series 51 provide?

A

can supervise mutual fund securities; 529 plans; and LGIPs - local government investment pools

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55
Q

Explain the CE regulatory requirement.

A

Test within 120 days of the second anniversary and then every 3 years.

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56
Q

Explain the CE firm element requirement.

A

Annual

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57
Q

Which of the following results in statutory disqualification? Felony DUI; Failure to Remit U-4; fine of more than $2,500

A

Felony DUI

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58
Q

What’s the requirement for approval for a brochure sent to 25 banking customers?

A

No principal review since it is directed to institutions.

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59
Q

Sales concessions shared with FINRA member only. What is the exception?

A

Foreign nonmember B/Ds and banks for municipal securities underwritings.

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60
Q

True or False. FINRA members cannot join with nonmembers in underwriting nonexempt securities.

A

True

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61
Q

True or False: Can pay commission to nonmember for executing a nonexempt security transactions in OTC market.

A

False

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62
Q

True or False: Nonmembers of FINRA can only deal with munis and governments?

A

True

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63
Q

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?

A

30

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64
Q

True or False: An individual with a Series 11 (sales assistant) can quote stock prices.

A

True

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65
Q

True or False: The 2-year prohibition is not applied to negotiated underwriting under MSRB Rule G-37?

A

False

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66
Q

What is the annual dollar limit for gifts and gratuities per year?

A

$100

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67
Q

True or False: Occasional meals paid are allowed under FINRA rules?

A

True

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68
Q

Occasional event tickets including season tickets are allowed under FINRA rules?

A

False. Season tickets are not allowed.

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69
Q

Besides occasional meals and tickets, what else is allowed under FINRA gift rules?

A

Lucite tombstone even if valued at more than $100 and trinkets (reminder advertising).

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70
Q

What two things can a b/d not charge a retail customer for?

A

Research and forwarding proxy material.

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71
Q

True or False: A b/d can charge for confirms, quotes, statements, holding stock certificates.

A

True

72
Q

What is required in order to continue to receive commission after termination?

A

1) written agreement 2) voluntary termination or retirement; 3) business generated while employed;

73
Q

What is required to temporarily hire employees of another member firm?

A

1) Written agreement with the other member firm; 2) written agreement with each employee; FINRA permission is not required.

74
Q

What approval/notification is required for private securities transactions (selling away)?

A

1) Written notification to employer and written permission.

75
Q

What is the exception to private securities transactions (selling away) that do not require written notification and written permission?

A

A transaction with an immediate family member and no compensation is paid to the associated person (unless they charge a fee).

76
Q

What is an example of selling away?

A

church bonds

77
Q

What is required of a RR when earning compensation outside the firm or outside affiliation?

A

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
Q

Can information obtained in a fiduciary capacity be used in any circumstances for sales solicitation?

A

No

79
Q

When can a RR share a customer account?

A

1) principal approval required; 2) in proportion to the amount of money invested;

80
Q

When can a b/d share a customer account?

A

Never, ever, ever

81
Q

Are put options acceptable in a shared account with a customer?

A

yes

82
Q

Are repurchase agreements for exempt securities ok for customer shared accounts?

A

yes

83
Q

When is prior review of correspondence required?

A

When it is to more than 25 people in a 30 days period

84
Q

When is post review of correspondence required?

A

When it is to less than 25 people in a 30 days period.

85
Q

When is communication considered advertising?

A

When there is no control over the audience. Examples; websites; chat rooms; bulletin boards

86
Q

When is communication considered sales literature?

A

When there is control of the audience. Examples of sales literature are stuffers, research reports.

87
Q

Does advertising required prior approval?

A

Yes

88
Q

Does sales literature require prior approval?

A

Yes,

89
Q

Do prepared reprints need prior approval?

A

Yes

90
Q

Is prior approval required for institutional sales materials?

A

No

91
Q

Is prior approval required for pubic appearances?

A

No

92
Q

When is instant messaging acceptable communication?

A

When there is software to monitor, archive, and store message traffic for 3 years.

93
Q

When is communication required to be filed with FINRA for a first-year b/d?

A

10 days PRIOR to use

94
Q

When is communication required to be filed with FINRA for established firms?

A

10 days AFTER use

95
Q

What advertisements and sales literature are always filed 10 days prior to use?

A

1) Options; 2) CMOs; 3) security futures; and 4) investment company material with rankings no independently prepared or with bond volatility ratings.

96
Q

Whats are the conditions of using testimonials?

A

The b/d must disclose if the maker is being paid and their level of expertise acknowledged

97
Q

How long are advertising files required to be kept?

A

3 years from the date of approval from a Series 24

98
Q

A client communication is considered a research report if it is distributed to a least how many persons?

A

15

99
Q

What 7 things are required on a research report?

A

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
Q

If a research report shows past recommendations, what 3 things are required?

A

1) comparable companies; 2) all within the past 12 months; and 3) negative as well as positive

101
Q

What is static content on social media?

A

Generally accessible to all website visitors and remains posted until it is removed from the site. Examples: a profile; background; or wall information.

102
Q

Is static content considered an advertisement or sales literature?

A

advertisement

103
Q

Does static content require prior approval by a principal?

A

Yes

104
Q

What is real-time extemporaneous content on social media?

A

online discussions and chat rooms

105
Q

Does real-time extemporaneous content require prior principal approval?

A

No. It is considered a public appearance and does not require prior approval but must be supervised.

106
Q

Does static content of blog and bulletin board postings require prior approval?

A

Yes

107
Q

Do interactive content blogs or bulletin board content require prior approval?

A

No because it is considered a public appearance

108
Q

Within what time during the day can cold calls be made?

A

Between 8:00 a.m. and 9:00 p.m. in the recipients time zone

109
Q

What does a RR have to reveal when making a cold call?

A

1) Name; 2) Company Name 3) Phone #; 4) Reason for the call

110
Q

What are the existing business relationship exceptions to the cold calling rules?

A

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
Q

For cold calling, what is the maximum age of the list?

A

31 days

112
Q

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?

A

0 to 4 = cannot hire; 5 to 9 = 1 hired; 10 to 19 = 4 hired; 20+ = 20%

113
Q

When taping of calls is required at a firm because of disciplined reps, what are time restrictions?

A

1) Institute taping with 60 days and 2) continue for 3 years and file quarterly to FINRA

114
Q

Explain hiring restrictions when taping is required because of disciplined reps.

A

1) cannot hire to dilute; 2) to avoid taping, firm may fire but cannot rehire for 6 months

115
Q

How many days does a respondent have to answer an initial contact from the Department of Enforcement related to a complaint.

A

25 days

116
Q

If a respondent doesn’t reply within the first 25 days, how much time is allowed to respond to a second request?

A

14 days

117
Q

A hearing must be held within how many days of a response to a inquiry/initial contact?

A

21 days

118
Q

If no response is received after a second request, the license can be barred for how long?

A

life

119
Q

Following a hearing, how many days before a decision is rendered?

A

60 days

120
Q

How many days are allowed for an appeal?

A

25 days

121
Q

Who decides on the penalty as a result of a hearing?

A

FINRA

122
Q

What types of punishment can FINRA inflict?

A

1) Fines of any amount; 2) Censure; 3) Suspensions up to 2 years; 4) Expulsion for any time; 5) banned/barred for life

123
Q

Can FINRA or SEC enforce jail time?

A

No

124
Q

What is considered a MRV - minor rule violation?

A

1) Fines up to $2,500; 2) Admits guilt to a minor offense 3) No appeal

125
Q

When can FINRA post information about disciplinary information on their website.

A

1) if the registration is suspended; revoked; or barred. 2) if there is a monetary sanction of $10,000 or more.

126
Q

For monetary disputes between b/d vs b/d how many of the arbitrators are from inside the industry?

A

All of them

127
Q

For monetary disputes between RR vs b/d how many arbitrators are from inside the industry?

A

The majority of them

128
Q

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.)

A

The majority of them

129
Q

For monetary disputes under the Uniform Code of Arbitration what is the number of days allowed for a response?

A

45 days

130
Q

What is a nonpublic arbitrator?

A

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
Q

What are limits to be considered simplified arbitration?

A

claims of less than $25,000

132
Q

When are awards required to be paid for claims under the Uniform Code of Arbitration?

A

Within 30 days of the decision date

133
Q

What is the statue of limitation for claims under the Uniform Code of Arbitration?

A

6 years from the event

134
Q

What is the quiet period (research cannot be published) following an IPO?

A

40 days

135
Q

What is the quiet period (research cannot be published) for additional offerings?

A

10 days

136
Q

Rule 139 says there are exceptions to the quiet period (research cannot be published) for what type of securities?

A

actively traded securities

137
Q

What research is allowed on actively traded securities during the quiet period?

A

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
Q

What does separate compensation mean as it relates to research conflicts with investment banking?

A

The analyst’s compensation cannot be tied to a specific investment banking transactions

139
Q

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?

A

30 days before the issuance and 5 days after

140
Q

An analyst cannot trade against his research recommendation. True or False

A

True

141
Q

An analyst can solicit investment banking business. True or False

A

False

142
Q

Reports must disclose investment banking business of an analyst how many months before and how many months after the issuance?

A

12 months before and 3 months after

143
Q

There are three things an analyst can never discuss with the issuing company prior to the issuance. What are they?

A

1) rating; 2) price target 3) research summary

144
Q

What is the only reason an analyst can talk to someone at the issuing company?

A

to verify facts

145
Q

What is an Analyst Certification?

A

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
Q

Firms must prepare and maintain records relating to public appearances (dog and pony show) how often?

A

Quarterly

147
Q

NASD Rule 3013 relates to the chief compliance officer. How much the CCO be identified and to what groups is it reported?

A

By name; reported to board of directors and audit committee and shareholders not FINRA

148
Q

How often is the requirement that the CEO certify the COO is doing his job?

A

Annually

149
Q

NASD Rule 3510 is related to business continuity as a result of Sept 11. There are two requirements of Rule 3510. What are they?

A

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
Q

Disclosure of the business continuity plan is required a account opening and this can be satisfied two ways. What are they?

A

posting on the firm’s website and mailing to the customer upon request

151
Q

Business continuity plans must include three things. What are they?

A

1) data backup 2) data recovery 3) communication plans for customers, employees and regulators.

152
Q

FINRA Rule 4370 relates to emergency contact persons. How many and what license requirements?

A

2 principals; identified by name and title

153
Q

Emergency contact information must be updated promptly and annually. What does that mean?

A

30 days is prompt; and reviewed within 17 days of year end.

154
Q

NASD Rule 3012 outlines office inspections and heightened supervision. What triggers heightened supervision?

A

A manager producing more than 20% of the revenue.

155
Q

NASD Rule 3012 outlines office inspections. What are the separation of duties requirements?

A

The office inspection must be independent of both the manager and the activities being performed at that location.

156
Q

Member firms are not allowed to make predictions regarding investments but they may use analysis tools. What 4 things are required?

A

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
Q

What special rules (5 things) apply to active military service for a RR?

A

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
Q

What are the 4 requirements when opening an account for an employee of another member firm?

A

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
Q

What are the two exceptions that allow a RR to borrow money from a customer?

A

1) the customer is immediate family 2) customer is a lending institution (bank)

160
Q

As a general rule, can a b/d borrow or lend money to a customer?

A

yes

161
Q

As a general rule, can an RR borrow or lend money to a customer

A

No. Exception - family member or lending institution

162
Q

If you are denied registration, you can appeal. There are three tiers. what are the yearly fees for each level?

A

Tier 1 - most serious = $1,500; Tier 2 - less serious $1,000; Tier 3 - least serious - no annual fee.

163
Q

What are residency and employment requirements?

A

5 years residency; 10 years employment; verify 3 years.

164
Q

How are annual fees and annual assessments determined?

A

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
Q

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?

A

9/10 - limited principal

166
Q

What are office inspection requirements for OSJs, supervising branches, nonsupervising branches and non branches?

A

OSJ - annual; supervising branches - annually; nonsupervisory branches - at least every 3 years; nonbranches - intervals determined by the firm

167
Q

The director of training needs what license?

A

Series 24

168
Q

One of the 2 required Series 24 must be a 24; the other can be a what:?

A

27 - back office

169
Q

We can charge for everything except what?

A

1) research 2) forwarding procy material

170
Q

Are we required to forward proxy material?

A

only if we are assured that the issuer will reimburse us

171
Q

We can temporarily hire employees of another firm. Can we hire admin and sales?

A

No; just admin

172
Q

What agreements are required to temporarily hire employees of other firms?

A

1) written agreement with other member 2) written agreement with each employee 3) permission from FINRA is NOT required.

173
Q

What is the exception to permission requirements for selling away?

A

If a family member and no compensation

174
Q

Rule 139 says there is an exception to the quiet period in which you cannot publish reserach. What is the exception?

A

actively traded securities

175
Q

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?

A

1) mortgage brokers 2) officers of banks

Series 24 Exam (1 decks)

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