STC Exams Flashcards
Chat rooms, clogs and social networking
Considered retail communication
Not subject to principal preapproval
Not required to me monitored by FINRA
Member firms required to monitor in manner similar to correspondence
Insider Trading - Civil Penalty
Disgorgement and up to 3x the amount of gain or loss avoided
Subordinated loans - Qualification for Net Capital
Minimum duration of one year
Must be in the form of cash or securities
Must be filed with SEC 10 days prior to effective date
Fail to Deliver
Aged Fail to Deliver
Fail to Deliver - customer sells stock and fails to deliver by settlement date
Aged fail to deliver - on the fifth business day after settlement, the fail to deliver must be aged for capital purposes
What securities are not marginable?
Securities offered as an IPO
Mutual Funds
TRACE hours and reporting
TRACE hours - 8:00am to 6:29:59
A corporate bond that trades within 15 minutes of closing may be reported the following day within 15 minutes of opening
13-D Filing
When an investor acquires more than a 5% interest of a security a 13-D must be filed
13-D often referred to as the beneficial ownership report
The report must include information of the persons intentions for seeking control
The form is filed with the issuer and the market where the issue principally trades - must be filed within 10 days after the acquistion
Does not apply to insiders
13-G Filing
Investment companies and related entities use schedule 13-G if they acquire more than 5% of an issuer
13-G files must be made within 45 days of the calendar quarter during which the position is held
13-F Filing
Institutional investment managers with greater than $100 million or more of section 13-f securities must file
Name, class, CUSIP, # of shares, total market value
Mutual funds are not on the list of reportable securities
Required to file within 45 days of the calendar quarter
Application for variable annuity
Principal must approve or reject within 7 days
Principal must sign the recommendation, regardless if it is approved or denied
How long must records be maintained in an easily accessible location
2 years
How long is a member subject to regulatory jurisdiction after an RR leaves the firm?
Two year
Block positioner
Refers to a firm that buys and sells large quantities of equity securities using its own capital
Block positioner must be a registered BD
Must be in compliance with net capital rules
Required net capital of 1,000,000
Quiet period
IPO - 10 days
Secondary - 3 days
Two exceptions
- Significant news
- Actively traded security on regulation M
When must deposits be made into the Special Reserve Account
Within 2 business day following calculation
Reporting complaints to FINRA
FINRA requires member firms to report customer complaints ONLY involving theft, misappropriation of fund or forgery
Opening an account - fully disclosed basis
When a customer opens an account on a fully disclosed base is, the customer must be notified of this agreement. The CLEARING FIRM is responsible for notifying the customer.
Prime relationship
Client clears all trades through a centralized firm, but execution occurs through multiple firms
Why?
- Simplified reporting
- Prevents any single executing firm from understanding trading strategy
When is cash settlement complete
Cash settlement is complete when the customer (buyer) is recorded as the owner
Proceeds Transaction
A transaction white the customer sells securities and uses the proceeds to purchase another security.
Industry regulation requires the B/D to calculate its % markup / markdown as if the purchase was done for cash
Anti-Dilution Exception - Restricted Person on IPO
Allows restricted person - employee of BD, to purchase shares
Interest must have been held for more than a year prior to the effective date of the offering
New issue purchased is not sold or pledged for 3 months
Fail to deliver - threshold securities
Fail to deliver on threshold securities that have existed for 13 settlement days must be close out the B/D the morning of the 14th settlement day
U4 and U5 and U6- Use and Retention
Each associated persons employment application (U4) and termination notice (U5) must be retained for three years after termination.
U4 used to report disciplinary actions
U5 must be filed with FINRA by B/D to inform that RR is no longer employed
U5 must contain reason for termination
U5 copy must be provide to RR within 30 days
U6 regulators states and jurisdictions use U6 to report disciplinary action
FINRA uses U6 to report final arbitration awards
Alternative net capital requirement
Net capital of 250,000 or 2% of aggregate debit items, whichever is greater.
NASDAQ market execution center
Three separate execution platforms into a single platform.
May also be referred to as the single book
Step Out
Allows an executing broker dealer to step out (or allocate) all or a portion of a trade to other brokers
Give up
Under a give up agreement, the introducing firm, which does not have access to TRACE, may fulfill the requirement to report both the buy and the sell trade by authorizing the clearing firm to submit both reports
Portfolio margin - maintenance calls - How many days to post?
Signed acknowledgement of portfolio margin disclosure?
3 days
FINRA rules require that a broker dealer receive the signed acknowledgement of the portfolio margin disclosure from a client prior to the client’s initial transaction
A broker dealer that carries customer accounts AND receives and holds funds and securities has a minimum capital of _______
$250,000
A broker dealer that carries customer account but does not hold customer fund or securities must have net capital of ______
$100,000
Pre dispute Arbitration Clause
Contained in customer account forms
Must be highlighted
All parties give up their right to sue in court
Arbitrators need not explain their decision
Payment within 30 days of signing agreeement
Telemenarking rules - Time of calls
Calls are prohibited before 8:00am and after 9:00pm
Code of procedure - hearing panel
A hearing panel must render a decision within 60 days after all evidence is received
Retail Communication - Independently Prepared Reprints
Require principal approval
Margin Account - Restricted
A restricted account is a margin account in which equity is less than the minimum requirement under regulation T
There are no penalties associated with a restricted account
Customers wishing to purchase stock in a restricted margin account may do so on normal credit terms by paying for the purchase within 2 days of settlement
Can executive officers receive loans from their company
Nope - Sarbox doesn’t allow it
Consolidate Quotation System
Provides quotation in all common stock, preferred stock, rights, warrants, which are registered on the following
- AMEX, NYSE, Regional Exchanges
A non-NASDAQ OTC equity is unlikely to appear on the4 CQS
Free writing prospectus
A free writing prospectus is any communication that does not meet the standards of a statutory prospectus
A free writing prospectus may be distributed prior to registration if the issuer is a WSKI
Not considered an offer to buy - examples include term sheets, marketing materials, and press releases
What takes priority - market or limit orders
Market orders
MPIDs
NASDAQ rules prohibit using supplemental MPIDs to engage in passive market making or entering stabilizing bids
Outside business activities
Members are NOT required to report outside business activities to FINRA
Members must receive written notice that such activities are planned
Written approval from the BD not required
Section 4(5) of the Securities Act of 1933
An offering of an issuer may be exempt if certain conditions are met
(1) Amount of offering does not exceed $5 million
(2) No advertising or public solicitation
(3) Only sold to accredited investors
Currency Transaction Report
Filed by financial institutions for deposits and withdrawals that exceed 10,000 in a single day
The form must be filed no later than the 15th day following the transaction
Accounts at Other Member Firms
Industry rules regarding accounts at other member firms apply to (1) spouse (2) minor children and (3) individual accounts in which the employee has control
ATS
An SEC approved trading system that provides an alternative to trading on the NYSE and NASDAQ
Goal of ATS is to enhance liquidity of securities in the marketplace
Examples - BD internal execution system, ECNs, trade crossing networks
An ATS is generally required to register with the SEC as either a B/D or an exchange
Alternative Display Facility
Individual quotes from market participants who use the Alternative Display Facility are not displayed in the participants name in the NASDAQ Market Execution System
The ADF is a quoting alternative that is open from 8:00 - 9:30
Buy In - Customer Position Sold Long
A B/D is required to buy in a customer position sold long that has not been delivered no later than 10 days following the settlement date.
This should not be confused with the 35 day buy in rule from trade date where a B/D sells a security a client owns but cannot physically deliver by settlement date
An example is tendering a convertible security but the underlying security is not expected to be deliveries by settlement
How long do member firms have to update changes to the U4?
If any information on an individual’s U4 changes, an amendment must be filed promptly
How many copies of the preliminary prospectus must be included in the filing of the registration statement
Five copies
How long are firms required to maintain customer complaints
Member firms are required to maintain customer complaints at an OSJ for 4 years.
An exception is made if the firm maintains the records @ another location in electronic form and they are available promptly at the OSJ upon request from FINRA
Research Report Disclosures
The member firm must indicate if it was a manager of co-manager of any underwriting over the last 12 month (debt or equity)
If the member is a market maker in the stock
If the member has a control relationship
If member has financial interest of greater than 1%
Research Analyst - Public Appearance Disclosures
Any financial interest (household)
Investment banking fees - last 12 months and next 3 months
Can the SEC deny an offering because it is too risky
No - the SEC will not pass judgment on the investment merit of an offering
Risk is NOT a determination of the effectiveness of a registration statement
Letter of Intent
First step in the process between an investment banking firm and an issuer of securities
LOI stipulates how much money a company intends to raise and an estimate of underwriting compensation
An OI is non-binding
The underwriting agreement is binding and is signed just before the effective date.
How long do members have to fulfill request to the Do Not Call List
Members must fulfill the request within 30 days
5% markup does not apply to the sale of which securities
5% markup does not apply to the sale of securities where a prospectus of offering circular is required to be delivered AND securities are sold at specified market prices
Fixed price offerings, mutual funds, and private placements are not subject to the 5% rule.
BCP Plans
BCP plans must be immediately available to FINRA
The BCP disclosure must be given to the client @ account opening - this disclosure is not required annually
ORF
Over the counter reporting facility
Arbitration between a customer and member firm
- Usually complies of a majority of public arbitrators
- Customer has the right to reject the selection of one arbitrator on a preemptory basis
- Arbitration is binding for all parties
- Arbitration payments must be paid within 30 days
Passive Market Maker - Daily Net Purchase Limitation
Passive market makers are subject to daily net purchase limitations of 30% of that market makers daily trading volume in the stock
Once the market maker hits this threshold it must withdraw for the rest of the day
Trading Ahead of Customers - Exceptions
A B/D may accept a customer order subject to terms and conditions negotiated with the client, including the condition that the firm can trade ahead if
1 - the order is from an institutional client
2 - Large orders (10,000 shares, $100,000) from retail customers
3- Intermarket sweep orders - limit order that the customer requires be executed in a specific market even if there is a better price to be found
Guardian
A guardian is a court appointed fiduciary who is instructed by the court to handle the affairs of a person who is legally disabled
Before opening a guardian account, the member must obtain a copy of the legal documentation
The account owner may not legally give discretion to the guardian through a POA
NASDAQ total market view
Shows the aggregate size of the top 5 bid and ask price levels for each security
Day trading buying power
Limited to 4x the traders maintenance margin excess
BD delivery of audited annual report
A B/D must furnish an audited annual report to its customers no more than 105 days after the date of the audit
The report must contain the statement of financial condition - not the income statement
SIPC treatment of MMF
Considered a security - not cash
Restricted People (think IPO)
FINRA member firms and any associated person
Immediate family member of an employee of a member - spouse children in-laws parents, siblings,
Finders and fiduciaries (lawyers and accountants) involved in the issuer
Portfolio managers
Stabilizing bid for OTC security
Prohibited by FINRA rules
NASDAQ Level 1
Provides subscribers with highest bid / lowest offer for securities where there are at least 2 market makers
How often must a firm that carries margin accounts file reports with FINRA
Monthly
Who may expel a FINRA member?
Hearing panel or National Adjudicatory Council
Qualified independent underwriter must
1 - prepare underwriting documents
2 - acted as manager of coma anger of 3 public offering over the past 3 years
Interpositioning
Insertion of a third party between the customer and the best market
Generally a prohibited practice
When is the initial notice sent to complete the regulatory element of CE
30 days before the 120 day period begins.
Regulatory CE
120 days after 2nd anniversary
Every 3 years thereafter
Explain the differences in capital requirements between broker dealers
An introducing broker dealer that does not receive customer securities or customer funds is subject to capital requirement of $5,000
An introducing broker dealer that receives customer securities for immediate transfer to a clearing firm is subject to a minimum capital requirement of $50,000
A broker dealer that receives customer securities and customer funds is a general securities firm and subject to a minimum capital requirement of $250,000
The minimum net capital requirement to participate in a firm commitment underwriting or to have a a proprietary trading account is ______
$100,000
Soft dollars - broker dealer to investment company
Soft dollars are products and services that an investment advisor receives from a brokered dealer in exchange for customer order flow.
Under a soft dollar arrangement, a broker dealer may provide an investment advisor with services and information that assist the advisor in making investment decisions on behalf of clients
If the service or product primarily benefits the advisor rather than the client, it may not be purchased with soft dollars
U4 - Broker Dealer Verification Requirement
A B/D is required to verify the most recent three years of business activity of any person filling out a U4
Time Limit - Submitting disputes in Arbitration
The time limit for submitting disputes to arbitration is six years from the event that created the dispute, not from the time the act was discovered
Pooled account
A pooled account does not have to register as an investment company if it does not make a public offering and has no more than 100 investors
SAR
The bank secrecy act requires financial institutions to file report and keep records concerning cash transactions.
A Suspicious Activity report is filed by a financial institution if a transaction has involved at least $5,0000 and the member firm knows or has a reason to believe the funds are derived from illegal activity.
The SAR report must be filed no later than the 30th day after the member discovers the activity
Regulation D - Non Accredited Purchasers
Regulation D restricts the sale of unregistered stock to no more than 35 non-accredited purchasers
