Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 26 > Supervision > Flashcards

Supervision Flashcards

0
Q

Principal Desingnation

A

Any person engaged in the management of a member’s securities business including supervising, soliciting, reviewing, or approving communications with the public.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Supervisory System

A

Established to manage the types of business a member is engaged in and the activities of its representatives. Must be in writing. Must designate registered principals with the authority to enforce the firms written procedures. Identity to FINRA which of its offices are offices of supervisory jurisdiction and which are branch offices. It also must identify which principals are responsible for taking action to achieve compliance with securities laws and FINRA rules.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Series 26 Limited Principal

A

Can only supervise those activities dealing with investment company or variable contracts. FINRA rules require that a member have at least 2 principals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Series 24 General Securities Principal

A

Can supervise activities dealing with investment company and variable contracts along with general securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Record keeping for principal designation

A

The designation record for principals that perform supervisory compliance must be retained for 3 years following any change.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Office of Supervisory Jurisdiction (OSJ)

A

Office where one or more of the following takes place. Order execution, formation of public offerings, custody of customer funds or securities, approval of new accounts, review and endorsement of customer offers, final approval of retail communications and supervision of activities of persons at the members branch offices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Responsibility of OSJ

A

They enforce the written supervisory procedures of the firm, review customer accounts, maintain copies of customer records including complaints and inspect branch offices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Branch Office

A

Any location identified to the public as a location where a registered broker dealer conducts investment banking or securities business. It does not need to be managed by a principal, however it must be under the supervision of an OSJ.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Non-Branch/unregistered Office

A

Locations used for fewer than 25 securities transactions per year or fewer than 30 days per year. Locations NOT used for sales. Locations only used occasionally and by appointment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Satellite Office

A

A non branch member location that is NOT identified as an OSJ or branch office or held out to the public as a place of business for the member.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Home Office Inspection

A

Must be inspected at least once every 2 years by its Self Regulatory Organization. (FINRA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Supervising Branches Inspection

A

Any OSJ or branch office that supervises 1 or more non branch offices must be inspected at least once annually.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Non Supervising Branches inspection

A

Each branch office that does NOT supervise non branch offices, must be inspected at least once every 3 years.

*Each non branch or satellite office must be inspected based on the nature and volume of the business done my that office.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Inspection Report Results

A

Written report which must be kept on file for a minimum of 3 years. The report must include the testing and verification of the member’s policies and procedures for safeguarding customer funds, maintenance of books and records, supervision of accounts serviced by branch office managers, transmittal of money between customers and reps and validation of customer address changes and changes to account information.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

FINRA requirement for supervisory controls

A

Members must designate 1 or more principals who will report to senior management on an annual basis. Must also review customer account activity conducted by producers on a day to day basis. The reviewer must have the authority to correct the producers activities and must alternate with another reviewer ever 2 years or less.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Designating COO and CEO (Rule 3130)

A

FINRA requires that a firm designate a principal to serve as COO.

COO must certify that the firm has procedures in effect to establish, maintain, review, test and modify written supervisory procedures to comply with FINRA. This is done annually.

The COO must also certify that those processes are evidenced in a report reviewed by CEO and submitted to the members BOD. (One or more meetings annually)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Customer Complaint

A

A written statement by a customer or person acting on behalf of a customer alleging a grievance.

If it cannot be resolved, it must be referred to the director of arbitration of FINRA. If it involves allegations of theft, misappropriation of funds or securities or forgery the member must report to FINRA within 10 business days.

Complaints must be on file for 4 years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Customer Complaint Reporting

A

All member firms must report statistical information regarding written complaints on a quarterly basis. Firms must report the information by the 15th calendar day of the month following the end of each quarter.
Criminal complaints, forgery etc must be reported to FINRA in 10 business days from receipt of the complaint.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

FINRA Complaint Procedural Rules

A

FINRA has the authority to require any associated person/member to provide written or oral testimony regarding a complaint.

If a member doesn’t comply the National Adjudicatory Council can suspend the member and revoke its license after giving 20 days written notice.

The National Adjudicatory Council is responsible for oversight of the Department of Enforcement, development of regulatory and enforcement policy and rule changes related to business practices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Code of Procedure

A

If a FINRA investigation determines that a member violated a law, the Department of Enforcement will issue a formal complaint. It will also name a hearing officer (attorney who is a FINRA employee) to preside over the hearing. The hearing officer then appoints 2 panelist to serve with him as a 3 person jury.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Complaint Resolution Process.

A

The accused member has 25 days to file a response after receiving the complaint from the hearing officer.

If no response a second notice is sent.

Accused must respond to the second notice in 14 days.

If no response guilt is presumed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Minor Rule Violation

A

If a violation is minor and the member does not dispute the charge a MRV letter may be offered. Once the letter signed by the member the settlement is final and they waive the right to a hearing or appeal.

The Department of Enforcement my impose a fine of $2,500 or less and or issue a letter of censure.

MVR include:

  • failure to have retail communications approved by a principal before use
  • failure to maintain a file for communications with the public
  • failure to file retail communication with FINRA
  • failure to file timely reports on short positions
  • failure to keep books and records
  • failure to submit trading data.
22
Q

Offer of Settlement

A

It must be in writing.

  • describe the specific rule or law that was violated
  • describe the acts or practices that the member engaged in or omitted
  • include a statement consenting to the findings
  • propose sanctions consistent with FINRA sanction guidelines.
23
Q

Pre-hearing Conference

A

It must be held within 21 days of receipt of the member’s answer to the complaint.

It deals with matters such as:

  • clarification of issues
  • witness lists and exhibit lists
  • criteria for including and excluding evidence
  • determination of hearing date.
24
Q

Describe Sanctions

A

Guilty member could receive the following:

  • censure
  • no limit fine
  • suspension of membership for a definite period (not greater than 2 years)
  • expulsion
  • barring a member from associating with all members
  • any other penalty appropriate
25
Q

Effective Date of Sanctions

A

Expulsion and barring are effective as of the date of the hearing decision.

All other sanctions are effective on a date specified by the hearing officer but no later than 30 days after the written decision is handed down.

26
Q

Appeals

A

Any appeal to the National Adjudicatory Council must be made within 25 days of the decision date.

If unsatisfied by NAC they may appeal to the SEC.

If unsatisfied by the SEC they may appeal to the federal appellate court.

Appealing stays the effective date of any sanctions except a permanent cease and desist order.

27
Q

Code of Arbitration

A

Offers participants a relatively simple to settle disputes at a lower cost than formal procedures.

It is mandatory in disputes involving:

  • a member against another member
  • a member against an associated person
  • an associated person against another associated person.

Customers may also agree to arbitration

  • delivery of customer acknowledgement must take place at the signing of the agreement
  • firms must provide a copy of the signed agreement within 10’days of a customer’s request.
  • upon request arbitrators must provide a explanation of the decision at least 20 days before the hearing.
28
Q

Initiation of Arbitration Proceedings

A
  • Any party to an unresolved dispute can initiate proceedings by filing a claim.
  • The statement of claim provide details of the dispute, include documentation in support of the claim and states the remedy being sought.
  • A filing fee must be paid and included with the paperwork.
  • The director sends a copy of the claim to the other party (respondent)
  • The respondent then has 45 days to respond.
  • After receiving the response from the respondent the claimant has 10 calendar days to reply.
29
Q

Describe Mediation

A

Mediation is voluntary and parties may withdraw at any point prior to the written settlement.

  • a submission agreement is sent to the Director of Mediation who is designated by FINRA Dispute Resolution Board.
  • mediator has no authority to impose a resolution
30
Q

Non public arbitrator

A
  • someone who was associated with a bd or registered under the Commodity Exchange Act
  • an attorney, accountant or professional who devotes at least 20% of their time to work in securities
  • an attorney, accountant or professional who has derived $50,000 in revenue or 10% of their revenue in the last 2 years from clients involved in securities.
  • any person associated with a mutual fund or hedge fund with in the last 2 years.
31
Q

Public Arbitrator

A

Someone that has no significant affiliation with the securities industry.

32
Q

Number of Arbitrators per claim?

A

It depends on the amount of the claim.

  • $50,000 or less = 1 arbitrator
  • A claim of more than $50,000 but less than $100,000 = 1 arbitrator unless the parties agree in writing to use 3.
  • A claim of more than $100,000 = 3 arbitrators.
33
Q

Standards for Arbitration panel

A
  • customer v. Member - panel of 1 - public arbitrator. Panel of 3 = 2 public and 1 non public
  • disputes between members - always non public arbitrator.
  • statutory discrimination claims - panel of 1 = public arbitrator with law degree. 3 = all public, chair with law degree
34
Q

Awards from arbitration.

A

Must be paid within 30 days of the decision date.

Claims are made public by FINRA.

Failure to comply can result in suspension or expulsion if the defendant does not comply with in 21 days of receiving notice from FINRA.

35
Q

Failure to Act

A

It is a violation of FINRA rules for a member to fail to

  • submit certain disputes for arbitration
  • comply with any injunction
  • appear or produce any document as directed
  • comply with an executed collective agreement obtained as a result of arbitration or mediation
36
Q

Statute of limitations

A

No claim is eligible for submission to arbitration after 6 years.

37
Q

Insider

A

Any person who has access to nonpublic information about a company.

38
Q

Insider trading act of 1988

A
  • Prohibits insider trading on nonpublic information.
  • Both tippers and tippees are liable.
  • No trades can be made based on information that is known or should have been known to be non public.
39
Q

Insider Trading Liability

A
  • Did the tipper owe a fiduciary duty to the company and has it been breached?
  • Did the tipper meet the personal benefits test?
  • Did the tippee know or should have known that the information was inside or confidential?
40
Q

Penalties for insider trading

A
  • Anyone found guilty of insider trading may receive a sentence of up to 20 years.
  • For civil cases up to the greater of $1 million or 300% of the profits made or losses avoided.
41
Q

Rights of Contemporaneous Traders

A

These are basically traders who bought or sold securities at approximately the same time as the inside trader.

  • Statute of Limitations 5 years.
  • Damages limited to actual losses.
42
Q

Regulation Fair Disclosure

A

If a issuer intentionally discloses non public material to anyone outside the issuer, it must simultaneously make a public disclosure of the same information.

  • file form 8-k with the SEC.
  • if it is unintentional the firm has up to 24 hours or the commencement of the next trading day to disclose to the SEC
43
Q

Fidelity Bonding Insurance

A

Insurance to protect firms from employee theft, embezzlement, fraudulent trading, forgery of securities or checks.
-Minimum coverage is 120% of net capital requirement or $100,000 which ever is greater

45
Q

Outside Business Activity (Rule 3270)

A

No person associated with a member may be employed by or receive compensation from any other person as a result of business activity, unless written permission is given prior to the activity.

46
Q

Private Securities Transaction

A

Any securities transaction outside the regular course of an associated person’s employment. Also known as selling away.
Exclusions: transactions among immediate family members for which no associated person receives compensation and personal transactions in mutual funds and variable annuities.

47
Q

Approval of Selling Away

A

If a member disapproves of a private securities transaction, the person may not participate in any manner.

  • If it is approved the transactions must be recorded on the books and record of the member and supervise the person’s participation.
  • If no compensation the member must provide the person with prompt written acknowledgement and may require the person to adhere to specific conditions.
48
Q

Transactions for Personel of another Member (Rule 3050)

A

The executing member must do the following:

1) notify the associated person in writing that the employer will be informed.
2) notify the employer member in writing of the executing member’s intention to open the account, before the execution of a transaction.
3) Transmit duplicate copies of confirmations and statements at the request of the employer.

**These rules do not apply to Unit Investment Trusts or Variable Contracts

49
Q

Associated Person Requirements for opening an account with another member.

A

Must notify the executing member and employer member in writing of his association with employer before opening the account.

50
Q

Opening an account with a non-member or Foreign investment adviser.

A

The associated person must notify his employer before the execution of any transactions.
-Upon the request of the employer, request in writing that the non member provide the employer member with duplicate copies of confirmations and statements.

51
Q

FINRA Rule 3220 (Gift)

A

No member shall give any gift greater that $100 per person per year.

52
Q

Compensation from Underwriters (Rule 2830)

A
  • Gifts cannot exceed $100 per person per year.
  • An occasional meal or a ticket to a sporting event is acceptable as long as it is not frequent.
  • Payment or reimbursement in connection with meetings held by the underwriter for training or education provided that the member:
    1. the member must maintain records of all compensation received by the member.
    2. Associated person must obtain a member’s approval to attend the meeting.
    3. the location is appropriate to the purpose of the meeting
    4. Reinbursement does not apply to guests of the associated person
    5. the reinbursement is not a pre-condition of as sales target.
53
Q

Reporting Requirements of Potential Problems

A

Each member must report to FINRA with in 10 days if a member commits any of these violations.

  • Violates any provision of securities laws
  • Is the subject of any written customer complaint involving allegations of theft, forgery, or misappropriation of funds.
  • Is name as a defendant in any case brought by any securities, insurance, commodities, regulatory or SRO.
  • Associated person is denied registration or expelled by any regulatory agency or SRO
  • Indicted for or convicted of any criminal offense other than traffic violations.
  • Is a defendant in any securities or commodities related civil litigation for an amount of $15,000 (individual) $25,000 if it is a member firm.

Series 26 (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions