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Series 52 > Unit 4-Supervision and Dispute Resolution > Flashcards

Unit 4-Supervision and Dispute Resolution Flashcards

1
Q

Municipal Firm Registration

A

All muni firms must register with the SEC. Assuming no hold up, acceptance or rejection typically is done within 45 days of application
-Muni firms must then register with the MSRB and provide their SEC number

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2
Q

Muni Firm Contacts (Form A12)

A

Lists imported contacts like CCO and data quality analyst. Changes can be made by resubmitting form

  • Any change must be submitted within 30 days
  • Each member must resubmit its Primary Electronic Mail Contact (PEMC) within 17 business days following the end of the calendar year
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3
Q

WSPs

A

Must detail processes for handling customer complaints and outline business operations
-Must also include full list of appropriate officers (CCO, AML., etc)

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4
Q

Minimum Principals and Exceptions

A

-All muni firms must have at least 2 S53s unless:
-BDs that are members of SRO like FINRA and conduct other securities business
-BDs or Bank dealers with 10 or fewer employees conducting muni business
NOTE: In these exceptions, there still needs to be at least one S53

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5
Q

Activities Mandating a S53

A
  • Underwriting
  • Advisory or consulting with an issuer on a new issue
  • Processing, clearing, or custody
  • Research and Investment Advice
  • Maintenance of muni securities records
  • Training of other municipal principals (full, limited) or representatives regarding municipal securities
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6
Q

Differences between S53 and 9/10

A
  • S53 can supervise issues relating to municipal securities and municipal fund securities
  • S9/10 can supervise sales to and purchases from customers in muni securities or muni fund securities
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7
Q

Who supervises overall muni compliance?

A

S53

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8
Q

Who can handle complaints?

A

S53 or 9/10

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9
Q

Who can review and approve customer accounts?

A

S53 or 9/10

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10
Q

Who can conduct review of field offices?

A

S53

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11
Q

Who maintains muni books and records?

A

S53

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12
Q

Who supervises processing and clearing of muni trades?

A

S53

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13
Q

Who can supervise daily trades, discretionary trades, all correspondence relating to muni solicitation, and 529s?

A

S53 or 9/10

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14
Q

Series 51 (Limited Municipal Fund Principal)

A

Typically employed by BDs who deal in muni fund securities but not munis themselves that would require a S53
-Must be used in conjunction with either an S24 or S26
NOTE: Municipal securities firms can count S51s as part of their minimum required principals so long as it only deals with municipal fund securities

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15
Q

FinOps (S27/28)

A

Oversee books and records, prepare financial reports, and supervise record safekeeping and clearing operations

  • All muni firms must have an FinOp with the exception of bank dealers
  • FinOps and 9/10s cannot approve advertising
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16
Q

Municipal Advisors

A

Firms that advise or act a fiduciary for state and local governments, hospitals, colleges, etc
-While muni advisors must be registered, they do not have their own qualification exam

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17
Q

Series 52

A

Required of those who conduct municipal securities business on behalf of a BD. Includes:
-Underwriting, trading, or sale of muni securities
-Financial advisory or consultation regarding an new issue
-Research and/or investment advice
-Any activity relating to direct or indirect public communication regarding muni securities
The S52 typically needs to be passed within 180 days of employment. Waivers are extremely rare
NOTE: A series 52 cannot sell packaged muni products such as UITs without also having a S6 or S7
NOTE 2: A S6 does not need to get the S52 if they are only dealing with municipal fund securities (mutual funds)

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18
Q

When do exam qualifications lapse?

A

After 2 years (unless called for military service)

NOTE: I believe this has changed

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19
Q

Statutory Disqualification

A
  • Suspension or expulsion from any SRO
  • Suspension or license revocation from SEC
  • Caused the suspension or expulsion of a firm
  • Willful misrepresentation or omission on U4
  • Been denied registration with an SRO
  • Been convicted of any securities/money related offense within the last 10 years
  • Been temporarily or permanently enjoined from engaging in the securities business
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20
Q

Reg CE

A

Required within 120 days of 2nd anniversary and 120 days every 3 years after

  • Content determined by FINRA
  • Failure to complete in time results in suspension of license until completed
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21
Q

Firm CE

A

Annual CE designed based on regulatory changes, scope of BDs business
-Required of all registered employees who have contact with the public

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22
Q

When are WSPs updated?

A
  • Whenever there is a significant regulatory change
  • If a BD decides to begin engaging in municipal activities, it must demonstrate to FINRA that it can handle this type of business
  • Annually
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23
Q

How long do municipal firms need to keep a list of their designated principals?

A

Six years

24
Q

Gift Rules

A
  • Limited to $100/person/year (not counting employees)
  • Gifts of meals or sports tickets are allowed so long as they are occasional
  • Sponsoring legitimate business functions is allowed
25
Q

Non-Cash compensation

A

Any compensation related to the sale of municipal securities

  • Merchandise, Gifts, Prizes, travel Expenses, and Lodging
  • De minimis items include: pens, notepads, small desk ornaments
26
Q

Cash Compensation

A

Any discount, concession, loan fee, or asset based sales charge relating to the sale of municipal securities

27
Q

Lending Employees between Firms

A

Permissible so long as there is a written contract between both firms spelling out the nature of the assignments, roles and responsibilities, compensation to be received

28
Q

Repurchase Agreement

A

A loan of cash from a customer to a member firm, collaterized by an equal amount of bonds. At a later date, the firm will repurchase bonds from client at higher price

  • Cannot be advertised as a guarantee against loss
  • Cannot be conditional
  • Can only be done with exempt securities (US Govt or Muni Bonds)
  • Can only be done if agreement is in writing, securities are exempt, and repurchase date and price are established beforehand
29
Q

Sharing in Customer Accounts

A

Only allowed if:
-Profit/Loss is proportional to each party’s contribution
-A S53 or 9/10 approved the arrangement beforehand
-If an immediate family member, proportion rule is not applicable. However account must still be disclosed and principal approved
NOTE: Firms themselves cannot share in customer accounts

30
Q

Using Client Info

A

If, in the course of advisory or consultation services, a member gets a list of clients, it cannot use that info to solicit unless given explicit permission from the issuer

31
Q

Markups and Commissions

A

The MSRB does not adhere to FINRA’s 5% recommendation. Rather, all trades must be priced in a fair manner considering the issue, availability, and total price of trade

32
Q

Broker’s Broker

A

Firms used to execute trades for another member

  • Prices must be fair and reasonable
  • If part of the same firm, must be separately operated and supervised
  • Often used by BDs to maintain anonymity
  • Similar to, but NOT an ATS
33
Q

Prohibited Activities of Broker’s Broker and ATS

A
  • Maintaining Prop accounts (other than settlement acts)
  • Self-dealing
  • Spoofing
  • Giving preferential bids or tipping off a bidding about a bid that is “sticking out”
  • Changing bid/ask without permission
  • Failing to inform seller of highest bid
  • Accepting a change bid from a bidder in the same session
  • Providing bid information (other than to seller and winning bidder) unless information is equally disseminated without cost
34
Q

What Constitutes Advertising?

A

Circulars, market letters, form letters, telemarketing scripts, seminar texts, press releases concerning products and services of a BD and any reprint of the above

35
Q

Form Letter

A

Any letter/email send to 25 or more people in any 90 day period

36
Q

What is not advertising?

A

A general list of issues available, OS, POS,

NOTE: Summaries or abstracts of a POS is considered advertising as it is dealer prepared

37
Q

Secondary Market Advertising

A

-Any ad for securities in the secondary market cannot contain current yield without also showing YTC or YTM. If YTC is displayed, the call date and price must also be listed
-A dealer can advertise bonds it does not have so long as it says, “Subject to Availability.” It must also state that price and yield is subject to change
NOTE: A dealer cannot advertise an issue it knows is no longer available in the secondary

38
Q

New Issue Advertising

A

An underwriter may publish an ad for new securities with price and yield (even if these have changed). This is permissible so long as the date the securities were purchased from the issuer is disclosed

39
Q

Date of Sale

A
  • In a competitive bid, it is the date bids are required to be submitted to issuer
  • In a negotiated offering, it is the date the contract between underwriter and issuer is executed
40
Q

Municipal Fund Disclosures and Advertising

A

Each publication for muni fund securities must:

  • Advise investor to review IO, fees, risks
  • Explain that info is available in OS
  • Investor should read OS before investing
  • Where investor can obtain an OS (assuming fund has one)
  • If 529, investor should research tax consideration (not required if ad is only sent to residents of the state)
  • If advertised as a money market, must state fund is not FDIC insured, may fall below $1 NAV
41
Q

Use of Performance Data

A
  • If used, must have legend stating past performance is no guarantee of future performance
  • A toll free number or website where investors can look at total return figures
  • The maximum possible sales charge/load
  • If fees and loads are not included in past performance numbers, this must also be disclosed
42
Q

Who/When can approve advertising?

A

S53 or S24 prior to first use.

-BD must also contain a separate file for municipal advertising

43
Q

Discussing Tax Advantages in Advertising

A

Must not be misleading

  • Ads must state that any tax advantage or other benefits is conditional to meeting certain requirements (residency, timing of distributions, justifiable expenses, etc)
  • These disclosures must be in close proximity and no less prominent that the description of benefits.
  • Municipal bonds can be advertised as federally tax exempt, so long as it also discloses interest may be subject to AMT
44
Q

Providing a Copy of MSRB Rules (upon request)

A

Must be provided in any office that:
-Underwrites, trades, or sells munis
-Provides advisory or consultation services to a muni
-Generates Muni investment research/advice
-Any other activity that involves direct or indirect communication with public investors
NOTE: Format can be soft-cover, loose-leaf, the MSRB website, or other software that contains MSRB rules

45
Q

Telemarketing Times

A
  • 8:00AM-9:00PM in time zone of person receiving call
  • This does not apply to calls made to other BDs or to those with whom the firm has an existing relationship
  • Caller must state name, name of BD, and address or telephone number where BD may be contacted, and that purpose of call is to solicit securities business or other service.
  • Number for BD cannot be 900 number or any number that imposes a charge
46
Q

Existing Business Relationship

A

-Person has had a balance, made a trade or other activity in last 18 months
-The person has proactively reached out to the BD about a product or service within last 3 months
-The BD is the BD of record for an account belonging to the client in the last 18 months
NOTE: These relationships do not extend to any subsidiaries or affiliates of the BD

47
Q

Safe Harbor Provision for Violating Do Not Call

A

Must have been made in honest error and:
-BD must have WSPs regarding DNC numbers
-The BD has a training program for employees regarding the DNC list
-The BD has a list of numbers it may not contact
-The BD regularly accesses the DNC registry and does not let their copy go beyond 31 days old
NOTE: Some BDs may outsource the maintenance of its DNC list. While this is permissible, the BD is still liable for any violation of DNC rules and any related compliance violation.

48
Q

How often to AML policies need to be approved?

A

Annually by an outside auditor and approved by senior mgmt. If the approving manager leaves, a new manager should review and approve the AML policy promptly
NOTE: If the BD only does prop trading or business with other BDs, the AML audit need only be done every 2 years

49
Q

AML Officer Contact Info

A
  • Name, title, mailing address, email, phone, and facsimile number of AML officer must be reported to FINRA via FCS
  • Any change must be reported within 30 days
  • Name of AML officer must be resubmitted to FINRA within 17 business days after calendar year end
50
Q

Currency Transaction Report (CTR)

A

Required by FinCEN (under the supervision of Treasury Department)

  • BDs must file Form 112 for any cash deposits of more than $10K in a single day
  • Failure to report can lead to $500K fine and/or 20 yrs
  • CTR must be filed within 15 calendar days of deposit via BSA E-filing system
  • CTR records must be retained for 5 years
  • Any enforcement actions are handled by the FED and Dept. of Treasury
51
Q

Suspicious Activity Report (SAR)

A
  • Dictated by PATRIOT Act
  • Filed on Form 111
  • BDs must report to FinCEN any transaction(s) of $5,000 in aggregate it deems suspicious
  • Records of wires $3K+ must be kept with name and address of sender and recipient, amount, account number at receiving bank, and bank name
  • If the activity exceeds 10K and is suspicious, a CTR and SAR should be filed
  • For situations requiring immediate attention, the BD should call law enforcement, the appropriate regulatory authority, and file a SAR
  • SARs must be filed within 30 days of the suspicious event (records retained for 5 years)
52
Q

SAR Confidentiality

A

The subject of a SAR cannot be notified. If subpoenaed, the BD may refuse to disclose info, but must notify FinCEN of the request.
-Info can be provided if the requesting authority is FinCEN, the SEC, another SRO, or law enforcement agency

53
Q

Stages of Money Laundering

A

Placement, Layering, Integration

54
Q

Reporting Interdealer Transactions

A

Trades between BDs must be reported to the NSCC along with name of firms involved and accrued interest (if known), and time of trade
-If trade is from introducing firm through its clearing firm, the introducing broker makes report
NOTE: Bonds without CUSIPS, those maturing in less than 9 months, and those that have a put feature that can be used at least every 9 months do not need to be reported

55
Q

Reporting Customer Transactions

A 
BDs must report all transactions done with customers by midnight of the trade date and include:
-CUSIP
-Trade Date and Time
-Executing Broker ID
-Whether BD was a buyer or seller
-Par value
-Price (excluding commissions)
-Yield
-Agent or principal
-Settlement Date (if known)
-Commissions, if any
NOTE: These rules do not apply to securities with no CUSIP or Municipal Fund Securities
NOTE 2: Every BD that conducts muni business must provide the MSRB with the name and phone number of the person at the firm who tests trade reporting and accuracy
56
Q

Municipal Arbitration

A

As of 2002, the MSRB does not have an arbitration program. All claims must be made to, and handled by FINRA

Series 52 (10 decks)

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