Unit 10

Question 1

List three the rules designed to protect the integrity of securities markets for FINRA?

Answer 1

Conduct Rules
Code of Procedure (COP)
Uniform Practice Code (UPC) rules
Code of Arbitration (COA)

Question 2

What are conduct rules?

Answer 2

establish the relationship between firms and their customers. These rules Violations of the Conduct Rules are serious violations.

Question 3

What does conduct rules cover?

Answer 3

cover areas such as fair dealing with customers, compensation-related issues, standards for communications, and various sales practice violations.

Question 4

Who is FINRA?

Answer 4

The Financial Industry Regulatory Authority (FINRA) regulates all matters related to investment banking (securities underwriting), trading in the over-the-counter (OTC) market, trading in exchange-listed securities, and the conduct of FINRA member firms and associated persons.

Question 5

What is Code of Procedure (COP)?

Answer 5

covers the enforcement of FINRA rules and details the punishment of members who violate the Conduct Rules. Such investigations normally arise out of a FINRA audit or, more frequently, a customer complaint.

Question 6

List 4 of FINRA’s purpose and objectives

Answer 6

■ promote the investment banking and securities business, standardize principles and practices, promote high standards of commercial honor, and encourage the observance of federal and state securities laws;

■ provide a medium for communication among its members and between its members, the government, and other agencies;

■ adopt, administer, and enforce rules designed to prevent fraudulent and manipulative practices, as well as to promote just and equitable principles of trade; and

■ promote self-discipline among members and investigate and resolve grievances between the public and members and between members.

Question 7

Who in FINRA suspects violation of Code of Procedure (COP)?

Answer 7

FINRA’s Department of Enforcement (DOE) investigates suspected violations

Question 8

The city of Los Angeles is issuing 20-year GO bonds at 8%. MSRB rules regarding this underwriting may be enforced by all of the following regulators except 
A. FINRA. 
B. SEC. 
C. MSRB. 
D. the comptroller of the currency.

Answer 8

C

Question 9

Registered representative Thomas Jones has been found by a DOE hearing to have violated the Code of Procedure. He believes that the hearing panel did not have all the facts and wants to appeal the ruling. His appeal goes to 
A. the SEC. 
B. the DOE. 
C. the NAC. 
D. the arbitration panel.

Answer 9

C

Question 10

An arbitration panel has found that Seacoast Securities owes 57,500 to its customer Mr. Garcia. Seacoast does not believe that the panel ruled correctly and desires to appeal the ruling. Such an appeal
A. is not possible; there is no appeal to an arbitration award.
B. is filed with the NAC.
C. is filed with the SEC.
D. is filed with the courts.

Answer 10

A

Question 11

What will occur if someone violates the code of Procedure (COP)?

Answer 11

The DOE will hold a hearing to determine the outcome of any violation. FINRA may do any of the following to a member firm or an associated person upon a finding of a violation:
— Suspend, expel, or bar from membership
— Impose fines
— Censure
— Any other action deemed appropriate

Question 12

True FINRA has arrest power?

Answer 12

False
FINRA does not have arrest powers, but it is certainly able to refer issues to law enforcement. COP decisions may be appealable to the National Adjudicatory Council (a FINRA division), then to the SEC, and from there to the appellate courts

Question 13

Describe Uniform Practice Code (UPC) rules?

Answer 13

cover technical aspects of trading and payment for securities transactions.

Question 14

What are examples of Uniform Practice Code (UPC) include?

Answer 14

Examples of UPC issues include good delivery of securities, the payment procedures for dividends on common stocks, and interest on bonds.

Question 15

What is Code of Arbitration (COA)?

Answer 15

is a FINRA-run dispute resolution process to settle monetary disputes. COA decisions are final and binding.

Question 16

What is a member firm?

Answer 16

Broker-dealer firms apply for membership to FINRA, and, if granted, they agree to abide by FINRA’s rules and regulations.

Question 17

Who are FINRA associates?

Answer 17

those who work for FINRA firms also agree to FINRA rules

Question 18

What is the goal of Code of Arbitration (COA)?

Answer 18

The goal of the COA is to provide a faster and cheaper resolution versus going through the traditional court system.

Question 19

Who are the Municipal Securities Rulemaking Board (MSRB)?

Answer 19

is the primary industry (SRO) regulator for underwriting and trading of state and municipal securities.

Question 20

What is the role of the Municipal Securities Rulemaking Board (MSRB)?

Answer 20

The MSRB writes the rules but does not have enforcement powers—it depends on other regulators for the enforcement of its rules.

Question 21

Who are Municipal Securities Rulemaking Board (MSRB) rules enforced on primarily?

Answer 21

are enforced on the banking industry primarily through the comptroller of the currency, The Federal Reserve, and the FDIC. MSRB rules on securities firms are enforced primarily by the SEC and FINRA.

Question 22

FINRA member firm unless it meets one of the exceptions, What are some of these exceptions?

Answer 22

■ A bank in the underwriting of a municipal issue

■ A foreign firm that is a member of its nation’s FINRA equivalent FINRA has been delegated authority by the SEC to administer qualification tests for associates of member firms and investment advisers.

Question 23

What power do the Exchange’s regulatory authority have?

Answer 23

have the power to remove a listed security (delisting), as well as suspending trading on a listed security

Question 24

________creates the rules for municipal securities, not just municipal debt

Answer 24

MSRB