Unit 4 Flashcards
Registration
National Adjudicatory Council (NAC) establishes rules, regulations, membership eligibility and standards.
Broker Dealer Registration
any broker dealer registered with SEC is eligible to apply for membership to FINRA
affects transactions - broker dealers, investment bank - also register with FINRA
municipal bond firm - register with FINRA
firms agreement to:
- comply with association rules and regulations
- comply with federal securities laws
- pay dues, assessments, other charges in manner and amounts fixed by association
application made to FINRA district office, passes qualification, accepted into membership
Associated Person
any person associated with member firm who intends to engage in the investment banking or securities business must be registered with FINRA as an associated person.
must be sponsored by firm
member firm must ascertain persons business reputation, character, education, qualification, experience.
a member firms failure to register an employee who performs any function of a registered representative may lead to disciplinary action by FINRA
associated person may also be disciplined
no broker dealer may allow someone been barred to associate without commissions express permission
Fingerprint records
RR BD must have fingerprint records
sent to US Attorney General
sales, handle cash
receptionist handles incoming mail would need to be fingerprinted
Fingerprint exemptions
those selling only mutual funds, variable annuities, or direct participation programs are exempt from fingerprinting.
certain broker dealer employees are exempt
- not involved in securities sales
- not handle or access to cash, securities, books, records of entry
- do not supervise
Registered Representative (RR)
all associated person engage in investment banking and securities industry
- assistant officer not function as principal
- individual supervises, solicits, conducts business
- trains people to supervise, solicit, conduct
Registered Principal
anyone who manages or supervises any part of a members investment banking or securities business must be registered with FINRA.
Unless member firm is sole proprietorship - employ 2 registered principals.
Ineligibility
may not act unless FINRA eligibility standards are met
statutory disqualification - disciplinary sanctions by SEC, SRO, foreign, may be cause for statutory disqualification
Rejected Registration
- expelled or suspended from membership in any SRO or foreign
- under SEC order/ foreign order denying, suspending, or revoking registration, barring
- found to be cause of another BD to be expelled
- misstatements willfully made in application
- any felony, misdemeanor involving securities money
- court conjunctions prohibiting
Central Registration Depository (CRD)
maintains information on disciplinary history of all person currently registered.
customer can access
broker check required on all FINRA member websites
Denied Membership
- expelled or suspended
- subject to SEC ordering, suspending, revoking
- willfully filed false or misleading application
while bankruptcy or unsatisfied lien does not disqualify one from registering, failure to disclose the facts would
Continuing Education Requirement
registered person are required to participate in CE
firm and regulatory element
CE - Firm Element
requires member firms to prepare annual training plan taking into account recent regulatory developments, scope of member firms business activities, performance of its personal.
must be given to all registered person who have direct contact with public
CE - Regulatory Element
requires all registered persons to complete computer based training sessions within 120 days of persons second registration anniversary and every three years thereafter.
content is determined by FINRA and is appropriate to RR or principal status of person
if fail to complete - FINRA will deactivate until met
Home Offices
approval of member firm SRO is required
all normal business activities are permitted
subject to premise visits
home office address, telephone advertised in any normal manner.
FINRA Rules
- Conduct Rules
- Uniform Practice Code
- Code of Procedure
- Code of Arbitration
Conduct Rules
fair and ethical trade practices must follow when dealing with public
Uniform Practice Code (UPC)
uniform trade practices -settlement - good delivery - ex dates - confirmations - DK procedures BD follow when conducting business
Code of Procedure
how violations of code and conduct rules heard and handled
Code of Arbitration procedure
governs resolution of disagreements and claims between members, RR, public
addresses monetary claims
Form U-4 / U-5
representatives and principles must be registered with FINRA
u-4 = when hiring u-5 = when terminated
Form U-4
register associated person
not effective until pass exams
fails exam = 30 days
3 fails = 180 days
- name, address, any aliases
- five year residency history
- 10 year employment history
- any charges, arrest, conviction investment business
any changes CRD 30 days)
must satisfy registration requirements of each state
information on martial status, education background is not required on form u-4, within 10 year employment if full time education must include
Form U-5
must file if resign or terminated to CRD within 30 days
failure results in late fee
indicate reason for termination
if RR leaves to join another, copy of u-5 within 60 days
License and Jurisdiction Retention
person Leave and affiliate within two years - license remains valid
after 2 years must repass exams
FINRA retains jurisdiction over person 2 years, customer complaints or charges, subject to FINRA rules for 2 year period following termination
Representative Park - parking is subject to sanctions
Misleading or Omitting Information
BD and AP must not promote or disseminate false or misleading information
- recruitment advertising - potential commission or fee claims at never be exaggerated
- Brochures - chart with brochure shows long call neglects to reflect maximum loss from premium paid (graphs may never show opportunity for gain without showing loss potential)
- Professional or Educational designation (use of degree or designations may never be misleading nor can reference)
must consider nature of audience
Customer Complaints
customer complaint received - red flag
notify
account representative, account principal, branch manager, compliance department
principal will need to address
complaint is defined as written statement by customer
Customer Complaints - Take Note
it is common industry practice for new account form to have an arbitration agreement which binds the client to submitting all disputes to arbitration if they cannot be resolved.
without such an agreement, disputes between members and public customers can only go to arbitration at the insistence of the customer
Customer Complaints - Example
customer opens new account - disputes price paid for securities - limit order - firm contends given market order
if complaint not resolved - directed to FINRA directors
if involves allegation of theft - notify FINRA within 10 days
excessive customer complaints red flag indicating improper use of customer funds, securities or both
Recordkeeping Customer Complains
maintained in file at OSJ
each complaint accompanied by state of resolution endorsed by principal
member firms electronically file with FINRA
filing made within 15 days end of each calendar quarter
remember , copies of customer complaints, as well as quarterly files, must be retained for four years
Outside Business Activities
must provide prior written notice to member
permission is not required
right to reject
Passive investments - not considered outside business activity, does not need approval
teaching night classes on finance would require
volunteering does not
Private Securities Transactions
Also known as selling away
RR does not allow options transactions, but RR wants to, RR can accommodate client new option contract and transaction but go through another BD.
RR is selling away because transactions are not part of normal business
- provide written notice
- detail proposed transaction
- describe role in transaction
- disclose receive compensation
Private Securities Offering - With Compensation
if transaction involves compensation, member firm may approve or disapprove.
approve - done on own books
disapprove - not allowed
supervision, and thus responsibility of all that is associated with the transaction, is that of employing member firm, NOT the bd who is accommodating the private securities transaction.
Private Securities Offering - Without Compensation
not received or will not receive compensation, member firm must acknowledge receive written notification.
transactions associated with immediate family are excluded
Political Contributions
should never be used to procure business
Political contributions - RR
Investment Adviser Act of 1940
if made - may not provide services to any government for a fee for two years.
when soliciting business may not make contributions
Political Contributions - Municipal Securities Dealer
MSRB - interpret rules, rules are enforced by FINRA
MSRB Rule G-37
MSRB Play for Pay
deals with influence of political contributions on selection of underwriters.
- negotiated underwriters, municipal issuer select underwriter
- financial advisory work in which municipal issuers select municipal firm to structure New Issue
Rule G-37
prohibits municipal firms from engaging in municipal securities for two years if contribution is made.
- municipal firm
- MFP
- PAC
Municipal Finance Professional (MFP)
associated person of FINRA member firm engaged in municipal securities underwriting, trading, sales, financial advisory, research, investment advice, and any other activities that involve communication with public investors.
associated personal whose activity are limited solely to sales or have clerical or ministerial functions are not MFPS
able to donate max $250 - does not apply to municipal firms
Gifts and Gratuities
- compensation is not condition of sales or promise of sales
- employing member firms prior approval
- for year not exceed $100 per year
Noncash compensation
acceptable not condition of sales target.
- member firms prior permission
- location appropriate
- no payment or reimbursement of guest
- payment / reimbursement not condition on sales target
- no payment or reimbursement for golf outings, cruises, tours, similar entertainment
- member firms create record of all compensation
