Unit 10 Regulators Flashcards
Created under the _____, the Securities and Exchange Commission
(SEC) is the securities industry’s primary regulatory body.
Securities Exchange Act of 1934
Broker-dealers (BDs) that transact securities business with customers or with other BDs must apply for and receive registration
from the ____.
SEC
the _____ regulates all exchanges and trading markets
SEC
BDs must comply with SEC rules and regulations when conducting business. A BD that does not comply is subject to:
censure;
limits on activities, functions, or operations;
suspension of its registration (or one of its associated person’s license to do business); revocation of registration (including permanent bar from the industry); and/or
fines.
‘The Securities Exchange Act of 1934 is concerned with the _____ markets. It is designed to provide a fair marketplace for all investors.
secondary
Although a BD must register with the SEC, the BD may not claim that this registration in any way implies that the SEC has ____ or ____ the BD’s financial standing, business, or conduct.
passed upon or approved
An intangible financial asset that may be bought, sold, or gifted between persons. It may be represented by a paper certificate or held in an electronic record.
A security
In addition to the SEC, several other branches of the U.S. Treasury have some regulatory authority over the securities industry:
Financial Crimes Enforcement Network (FinCEN)
Internal Revenue Service (IRS)
Office of the Comptroller of the Currency
The Securities Investor Protection Corporation (SIPC)
The Federal Deposit Insurance Corporation (FDIC)
The mission of the Financial Crimes Enforcement Network (FinCEN) is to safeguard the financial system from illicit use, to combat ______, and to promote national security through the collection, analysis, and dissemination of financial intelligence.
money laundering
The IRS is the primary ______ agency of the federal government.
Tax Enforcement
The mission of the Office of the Comptroller of the Currency is to ensure that _____ and federal savings associations operate in a safe and sound manner, provide fair access to
financial services, treat customers fairly, and comply with applicable laws and regulations.
national banks
On the exam, the Office of the Comptroller of the Currency will either use the full name
or possibly Comptroller of the Currency.
If you see the abbreviation OCC, that is the
Options Clearing Corporation, a self-regulator for the options market. Don’t get them mixed up.
governs the new issuance (primary) market, which involves the money-raising activities of issuers
Requires issuers to register their securities when selling to the public
Securities Act of 1933
Governs trading markets for existing securities and registration requirements of BDs, BD employees, and exchanges
Securities Exchange Act of 1934
Governs the regulation of packaged products such as mutual funds, closed-end funds, and unit investment trusts
Investment Company Actof 1940
Governs the regulation of firms that earn fees for providing investment advice
Investment Advisers Act of 1940
Covers the protection thresholds for customers in the event of a BD’s bankruptcy
Securities Investor Protection Act of 1970 (SIPA)
defines penalties for the misuse of material, nonpublic information by both firms and individuals
Insider Trading and Securities Fraud Enforcement Act of 1988
Covers anti-money laundering (AML) policies and procedures that must be followed by financial firms
The USA PATRIOT Act of 2001(Partially based on the Bank Secrecy Act 1970)
The _____ was created under the Securities Investor Protection Act of 1970 (SIPA).
Securities Investor Protection Corporation (SIPC)
All BDs registered with the SEC must be _____ members except:
banks that exclusively in municipal securities,
firms that deal exclusively in U.S. government securities, and
firms that deal exclusively in redeemable investment company securities.
SIPC
If the SEC or any self-regulatory organization (SRO) finds indications that a BD is in financial difficulty, ____ will be notified immediately.
SIPC -The Securities Investor Protection Corporation
The basic coverage under SIPC is no more than $500,000 per separate account, not per separate customer. Of that $500,000 total, SIPC covers no more than _____ in cash.
$250,000
The _____ is an independent agency of the U.S. federal government that preserves public confidence in the banking system by insuring deposits.
FDIC - The Federal Deposit Insurance Corporation
The FDIC provides deposit insuranceguaranteeing the safety of a depositor’s accounts in member banks up to ____ for each deposit ownership category in each insured bank.
$250,000
You may have noticed how the FDIC and the SIPC account coverage is different.
The FDIC ownership categories are per owner per account (a joint account with two owners would be covered up to $250,000 per owner). SIPC covers each separate account (an account, no matter how many people are on the account, is covered up to the ____.
$500,000
The Uniform Securities Act (USA) (1956) is a template for ____ securities laws
state
______ represents state and provincial securities regulators in the United States, Canada, and Mexico.
The North American Securities Administrators Association (NASA)
NASAA has no specific regulatory ____, but it is still a major force in state securities regulations. The association often produces guidelines in the form of model Rules that the state administrators use in the enforcement of state regulations.
authority
In order to register a broker-dealer firm to do business in a state, you would register with
the administrator
The FDIC insures customer assets held at ____
A. banks
Financial activities and large cash transactions are reported to which of the following federal agencies?
FinCEN
The idea behind _____, is that the industry is in the best position to understand what rules are needed to protect the
public while still allowing for robust and effective capital markets
SRO SELF-REGULATORY ORGANIZATIONS
The securities industry is also regulated by a number of the foremost of which is the
_____. The purpose of the self-regulators is just
that, for the industry to take a hand at policing itself.
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 member firms and associated persons.
FINRA
FINRA has numerous rules designed to protect the integrity of securities markets. These can be broken down into four sections.
Conduct Rules
Code of Procedure (COP)
Uniform Practice Code (UPC)
Code of arbitration (COA)
_____ rules cover technical aspects of trading and payment for securities transaction
Uniform Practice Code (UPC)
The ______ is aFINRA-run dispute resolution process to settle monetary disputes. The goal is to provide a faster and cheaper resolution than is found by going through the traditional court system.
Code of Arbitration (COA)
_____ establish the relationship between firms and their customers. These rules cover areas such as fair dealing with customers, compensation-related issues, standards for communications, and various sales practice violations.
Conduct Rules
BD firms apply for membership to FINRA, and if membership is granted, they agree to abide by FINRA’s rules and regulations. These are often called _____.
member firms
The ______ is the primary industry (SRO) regulator for underwriting and trading of state and municipal securities. The ____ writes the rules but does not have enforcement powers; it depends on other regulators for the enforcement of its rules.
Municipal Securities Rulemaking Board (MSRB)
SELF-REGULATORY ORGANIZATIONS:
FINRA
Municipal Securities Rulemaking Board (MSRB)
The Exchanges
The _____ are also regulators, in addition to their role as a market center. Each _____regulates trading activity that occurs on the exchange and has some authority over the securities that are listed on the exchange, as well as the issuers of those securities.
exchanges
The _____ have the power to remove a listed security (delisting) and to suspend trading on a listed security.
exchanges
______ rules mandate which records must be prepared by members, when those records must be prepared, and for how long the records must be retained. In lieu of maintaining paper records,
firms may use digital storage media. Such storage media must have the capability to maintain records in a non rewriteable and nonerasable format.
SEC
Records Kept for the Life of the Firm
Partnership agreement.
Corporate charter or articles of incorporation.
Stock certificate books.
Minutes
Amendments.
Organizational records
Six-year records are generally those having to do with the BD’s holdings and assets it holds for customers. A BD’s financial records are also six-year retention records.
-Blotters- is a record of original entry.
-The general ledger contains accounting records of the firm’s assets, liabilities, and net worth accounts.
Stock record.
Customer ledgers
Customer account records
Designation of principals.
_____ must be retained for four years after resolution
Written complaints
The definition of written extends to almost any communication that has letters organized into words: paper, email, text, instant message, tweet, social media post, etcetera. Most firms have procedures for verbal complaints, but only _____ have regulatory standing.
written complaints
Records Maintained for Three Years:
Advertising
* Trial balances (monthly financial report)
* Forms U4 and U5, and fingerprint cards for terminated personnel
* Customer confirmations
* Order tickets
* Other ledgers, such as securities borrowed and securities loaned, moniesborrowed and monies loaned, and dividends and interest received
A list of every office where each associated person regularly conducts business
* Associated persons’ compensation records
The firm’s compliance and procedures manual
All of the following records must be retained indefinitely except
A. stock certificate books
B. articles of incorporation
C customer ledgers
D. board meeting minutes
C customer ledgers
An arbitration panel has found that Seacoast Securities owes $7,500 to its customer Greg Garcia. Seacoast does not believe that the panel ruled correctly and desires ot
appeal the ruling. Such an appeal is
A. not possible; there is no appeal to an arbitration award
B. filed with the NAC
C. filed with the SEC
D. filed with the courts
A. not possible; there is no appeal to an arbitration award
Registered representative Thomas Jones has been found bya Department of
Enforcement hearing to have violated the Code of Procedure. He believes that the
hearing panel did not have al the facts and wants to appeal the ruling. His appeal goes to
A. the Securities and Exchange Commission
B. the Department of Enforcement
C. the National Adjudicatory Council
D. the arbitration panel
C. the National Adjudicatory Council
The city of Los Angeles is issuing 20-year GO bonds at 8%. MSRB rules regarding this underwriting may been forced by all of the following regulators except
A FINRA
B. theSEC
C. theMSRB
D. the Comptroller of the Currency
C. the MSRB - no enforcement
Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in ____ are exempt.
U.S. government securities
Records of original entry must be recorded no later than the next business day and must be kept readily available for
2 years
How long must customer complaints be kept on file by the broker-dealer?
4 years
Exchanges may establish rules for all of the following except
A) listing and delisting of a security.
B) capital requirements for members.
C) capital requirements for OTC securities.
D) order priority
C) capital requirements for OTC securities.
Which of the following regulatory bodies regulates but has no enforcement powers?
A) Financial Industry Regulatory Authority (FINRA)
B) Securities and Exchange Commission (SEC)
C) Municipal Securities Rule Board (MSRB)
D) Chicago Board Options Exchange (CBOE)
C) Municipal Securities Rule Board (MSRB)
Under the Uniform Securities Act (USA), state laws require that registered representatives must register in a state in which of the following circumstances?
- The registered representative is a resident of the state.
- The registered representative solicits business in the state.
- The registered representative vacations in a state more than twice per year.
- The registered representative owns rental property in a state.
1 and 2
Monthly and quarterly statements must be kept for ____ years. The confirmations and order tickets must be kept for ____ years.
6
3
Trial balances, usually run at the end of a reporting period to ensure that the firm’s credit and debit columns arrive at identical sums, must be kept for ____ years after the trial balance was run.
3
How long must a FINRA member firm maintain a file copy of a complaint?
4 years
What regulatory body oversees trading in the over-the-counter (OTC) market?
Finra
FOCUS reports, U4 forms, and order tickets are examples of records that must be kept for___
3 years
A firm’s monthly financial report must be kept for how long?
3 years
The authorities delegated to FINRA by the SEC include all of these except
A) establishing initial margin requirements.
B) investigating complaints.
C) establishing membership requirements.
D) establishing testing and standards for associates of broker-dealers.
A) establishing initial margin requirements
these are established by federal reserve under regulation T
The following records must be kept for how many years?
A list of the offices where registered representatives conduct business
Compensation records for registered representatives
The firm’s compliance manuals
3 years
All of these are rules set down by an exchange except
A) capital requirements for members.
B) order priority.
C) revoking a corporate charter.
D) listing and delisting of a security.
C) revoking a corporate charter.
Which of the following sets of FINRA rules focuses on broker-dealers doing business with other broker-dealers?
A) Conduct Rules
B) Uniform Practice Code
C) Code of Arbitration
D) Code of Procedures
D) Code of Procedures
The FDIC provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks up to $250,000 for each deposit ownership category in____ insured bank.
each
Any record of written complaints must be kept for four years ____.
after resolution
Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members?
A) Securities Investor Protection Corporation (SIPC)
B) Financial Industry Regulatory Authority (FINRA)
C) Securities and Exchange Commission (SEC)
D) Municipal Securities Rule Board (MSRB)
B) Financial Industry Regulatory Authority (FINRA)
Amendments to articles of incorporation are kept__
Indefinitely
In which circumstances may a FINRA member firm conduct securities business with a nonmember broker-dealer?
A) If the nonmember broker-dealer is a foreign firm and properly registered in their home jurisdiction
B) If the broker-dealer is temporarily suspended and any transaction is related to ongoing business
C) If the broker-dealer is a Canadian firm without regard to registration
D) Under no circumstances
A) If the nonmember broker-dealer is a foreign firm and properly registered in their home jurisdiction
Which of these is not a division of the Treasury Department with some level of oversight for the securities industry?
A)Financial Crimes Enforcement Network
B)Office of the Comptroller of the Currency
C)Financial Industry Regulatory Authority
D)IRS
C) Financial Industry Regulatory Authority
The Hoffman Equipment Company of Anaheim, California is preparing to sell shares to the public in an IPO. They plan to sell exclusively to residents of the state of California and use the proceeds to build a new showroom in Long Beach, California. This offer would need to be registered with
A)no one; this is an exempt transaction.
B)the administrator of the state.
C)the SEC.
D)MSRB.
B)the administrator of the state.
Under the Uniform Securities Act of 1956, who is responsible for enforcement of state securities regulations?
A)The Financial Industry Regulatory Authority
B)The Administrator
C)The State Securities Rulemaking Board
D)The Securities Exchange Commission
B)The Administrator
Appeals on FINRA decisions first go to an internal group called the _____. ____ decisions may be appealed up to the SEC, and then the courts.
National Adjudicatory Council
All of these enforce MSRB rules except
A) the Securities Exchange Commission.
B) the MSRB Enforcement Department.
C) FINRA.
D) the Federal Reserve Board.
B) the MSRB Enforcement Department.
The MSRB does not enforce!!
MSRB rules apply to all of the following except
A) investment bankers.
B) municipalities.
C) municipal dealers.
D) FINRA member firms performing trades with municipal bonds.
B) municipalities.
The MSRB has no authority over municipal governments.
Which of the following agencies collects and disseminates intelligence on financial transactions?
A) The Office of the Comptroller of the Currency
B) The Financial Crimes Enforcement Network
C) The Securities Investors Protection Corporation
D) The Internal Revenue Service
B) The Financial Crimes Enforcement Network
FinCEN is a bureau of what department within the federal government?
A) Interior
B) Justice
C) Treasury
D) Defense
C) Treasury
