UNIT 17 Checkpoint
An individual who has worked as a registered representative must requalify for registration if he subsequently takes a job outside the securities industry for more than
. 24 months A resigned registered representative may reenter the industry without passing an examination if his resignation lapse is less than 2 years; after 2 years, he must requalify by examination.
Under the Code of Procedure, the maximum fine for a minor rule violation (MRV) is
. 2500 According to the Code of Procedure, the maximum fine for a minor rule violation is $2,500.
Which of the following violations could bar an agent from employment in the securities industry? A)Conviction for the misdemeanor of petty theft of money from a client B)Failing to qualify by examination as an agent C)Associating with a known felon D)Being convicted of a traffic violation
. A. Conviction of a felony or a misdemeanor involving money within the past 10 years may subject an individual to a statutory disqualification from the industry. Failing to pass the exam would prohibit the individual from acting as an agent but would not disqualify that individual from performing other duties.
In compliance with FINRA's requirement to maintain a plan to continue conducting business in the event of a significant occurrence, all of the following statements regarding a business continuity and disaster recovery plan are accurate EXCEPT A)the member firm must designate as contact persons any 2 employees of the firm B)the member firm must designate a senior member of management who is also a principal of the firm to initially approve the plan and to conduct a review of the plan annually C)the plan must document how the firm will continue to communicate with clients in the event of a significant disruption D)the plan must document how the firm will continue to communicate with employees in the event of a significant disruption of business
. A. FINRA requires that firms create and maintain business continuity plans to be utilized in the event of a significant occurrence. All of the items listed would be requirements associated with a business continuity plan, except that the 2 individuals designated as contact persons to FINRA must be members of senior management who are also principals of the firm.
Your broker/dealer has received a written complaint from a customer. FINRA rules require that a record of the written complaint be kept on file by the BD for how long? A)4 years B)As long as the broker/dealer is in existence or a continues to be a FINRA member firm C)Until the complaint is resolved D)3 years
. A. FINRA rules require that records of written complaints be preserved or kept on file for a period of 4 years.
Which of the following materials is subject to FINRA's filing requirements? A)Retail communications for an open-end management investment company B)Prospectus for a closed-end management investment company C)Prospectus for a face amount certificate company D)Internal memo describing the benefits of an investment in a certain unit investment trust
. A. Retail communications for investment companies are subject to filing requirements with FINRA. Those that include a performance ranking that is either created by the investment company or from a source that is not regularly published require pre-filing. Those that do not include such a performance ranking can be filed within 10 business days of first use. Prospectuses and internal memos need not be filed with FINRA.
The firm element of the continuing education requirement must be completed A)annually B)on the 2nd registration anniversary and every 3 years thereafter C)every 3rd year D)on the 3rd registration anniversary and every 2 years thereafter
. A. The firm element of continuing education must be completed each year by all registered persons who have direct contact with the public.
A customer can make a toll-free inquiry to determine the disciplinary history of a registered representative by contacting the A. SIPC B. Nasdaq C. SEC D. CRD
. D. The Central Registration Depository (CRD), through BrokerCheck, maintains information on the disciplinary history of all persons currently registered.
A broker/dealer allows registered representatives to utilize social networking sites such as Facebook and LinkedIn but prohibits the use of delivery platforms such as blogs where comments can be posted, starting discussions on blog sites, or starting discussions in Internet chat rooms and posting tweets on Twitter. One of the BD's registered representatives tweets that he is going to learn the details about a new investment product today. The Twitter posting A)is allowed because no investment advice was offered regarding the new product in the tweet B)is not allowed because the BD has in-house rules prohibiting tweeting in regards to business C)would be allowed as long as the registered representative had adhered to all of FINRA's guidance on utilizing electronic platforms and devices D)is not allowed because FINRA prohibits modes of communication where content can be posted impulsively such as on blogs, in chat rooms, or tweeting
. B. FINRA has offered guidance on the use of electronic modes of delivering business-related content communications to the public. It does not prohibit the use of any technology or device but can offer and update guidance with regards to any specific technology or device. Within that guidance, FINRA has stated that in-house prohibitions on the use of any technology or device that have been mandated by the BD must be adhered to by all BD personnel.
Market letters may be supervised as correspondence instead of retail communications A)never B)as long as they are distributed to 25 or fewer existing retail customers within any 30 calendar-day period C)only when they are distributed to more than 25 existing retail customers within any 30 calendar-day period D)at all times
. B. Market letters, which are a form of sales literature used to communicate with the public, may be supervised as correspondence only if the communication adheres to the definition of correspondence. Correspondence is any communication piece, written or electronic, that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
A registered representative gives a free financial seminar at a resort to an audience composed entirely of retail investors. Which of the following statements is TRUE? A)The registered representative also must be licensed as an investment adviser. B)Approval by a principal of the firm is necessary. C)No principal approval is necessary. D)A copy of the script or materials distributed must be provided to the SEC.
. B. Materials or scripts used to present information to retail investors are considered retail communications with the public, and therefore, principal approval is required. There is no requirement for a copy of the materials to to be submitted to the SEC. It is not necessary for the registered representative to be licensed as an investment adviser to engage in such an activity.
Before becoming registered as a representative, an individual may A)effect trades for customers with commissions deferred until registered B)compile a prospect list C)send research reports to prospective clients D)solicit indications of interest from prospective purchasers
. B. A representative may not solicit any orders before registration. Compiling a prospect list is a passive procedure that is not soliciting.
Content having to do with the business of a broker/dealer or registered representative delivered electronically to the public on social networking Websites and blogs A)is never subject to supervisory rules if it is static content such as a RR's profile or background B)is not subject to the rules and regulations addressing communications with the public because it is delivered electronically C)is subject to all rules and regulations governing communications with the public D)can only be subject to supervisory rules but not filing rules
. C. Content having to do with the business of a BD or RR is subject to the rules and regulations governing communications with the public. Whether delivered in written form or by electronic means, it is the content for whom it is intended and the number of recipients that determines what category of public communications it falls under, and whether approval or supervision is applicable and/or filing with FINRA is required.
Your firm prepares a communications piece to be made available to several of your institutional customers only. Your broker/dealer is aware that some of these institutional customers will use the pieces your broker/dealer has prepared for them from time to time and distribute the pieces to their retail customers unaltered. How must the piece be handled by your broker/dealer regarding FINRA approval and filing requirements? A)As correspondence B)As an internal piece intended for its own personnel C)As a retail communications piece D)As an institutional communications piece
. C. FINRA mandates that no member may treat a communication as having been distributed to an institutional investor if the member firm has reason to believe that the communication, or any part of it, will be forwarded or made available to any retail investor.
A registered representative wants to advertise the address and telephone number of his home residence, from which he works one or two days per week, on a social website. This is A)allowed only if the registered representative does not accept customer orders there B)not allowed because this type of advertisement would be prohibited on any form of website or social media C)not allowed because a residence can not be considered an office from which to conduct business for a broker dealer D)allowed only if the location was approved by his firm's self regulatory organization
. D. Commonly referred to as working from a home office, approval of the member firm's self regulatory organization (SRO) is required for the location as it would be for any office associated with the broker/dealer. All normal business activities, including taking customer orders for the purchase and sale of securities, would be permitted. Considered an office of the broker dealer, the home residence address and telephone number may be advertised in any normal manner such as on business cards, letter heads, or through various media venues like newspapers and websites.
Which of the following statements regarding investment companies is TRUE? A)Pre-filing for investment company retail communications is always required. B)Pre-filing for investment company retail communications is never required. C)Retail communications for investment companies must be pre-filed 10 business days before first use when the communication does not include a performance ranking. D)Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking.
. D. Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking. For retail communications that do include a performance ranking, a 10 day pre-filing is required.
A broker/dealer informs registered personnel that, to satisfy the annual compliance meeting requirements, they have recorded a Webcast that individuals can view at their own convenience. A Webcast of this type would be A)allowed for registered representatives but not for principals B)prohibited because this is recorded and not a live Webcast C)allowed for principals only D)allowed for all registered personnel if informed of the opportunity to submit questions and receive answers in a timely fashion
. D. Using a recorded Webcast for the annual compliance meeting is allowed for all registered personnel so long as certain safeguards are in place. One such safeguard is the opportunity to ask questions and receive answers in a timely fashion; the firm's registered individuals should be made aware of this opportunity.
To which of the following persons may a broker/dealer pay commissions under a continuing commission contract? I.To a retired employee, for past business II.To the widow of a former employee, for past business III.To a retired employee who refers a neighbor to the broker/dealer IV.To a retired employee who, in the course of his travels, acquires new business for the broker/dealer
. I and II A FINRA member firm may continue to pay commissions to either a retired employee or a former employee's widowed spouse if a prior written contract exists. Commissions may be paid only on business generated while employed.
An individual is employed as a research analyst for a member firm that specializes in investment banking and has just completed a research report comparing two companies in the semiconductor business. Which of the following would be considered prohibited activities by this analyst, under FINRA rules? I.Purchasing shares of a semiconductor company before that issuer's IPO II.Trading in these two stocks or their derivatives in a manner inconsistent with that analyst's recommendation III.Purchasing shares of either of these two stocks for a personal account after the research report has been issued IV.Purchasing shares of the XYZ Semiconductor Fund, a fund qualifying as a diversified management investment company under the Investment Company Act of 1940 but not covered or analyzed in the research report
. I and II FINRA rules restrict personal trading by research analysts. They are never permitted to acquire shares in advance of an IPO in a company in the same type of business that the analysts research. They are never permitted to engage in trading contrary to their opinions, as published in their firm's research reports. Once the report has been issued, they may trade in accordance with their recommendations. Purchasing shares of a mutual fund, even one that specializes in their field of research, is permitted.
Which of the following disputes must be resolved using the Code of Arbitration? I.Dispute between two FINRA members II.Dispute between two banks III.Dispute between a member and an associated person IV.Dispute between two customers
. I and III The Code of Arbitration is mandatory in member-against-member disputes, and in disputes involving a member and an associated person. FINRA has no jurisdiction over banks or over disputes between nonmembers such as customers.
Which of the following are differences between the Code of Procedure and the Code of Arbitration Procedure? I.The Code of Procedure deals with violations of the Conduct Rules, whereas arbitration is used to settle disputes. II.Mediation is not required with the Code of Procedure but is mandatory with Arbitration. III.Code of Procedure decisions may be appealed, whereas decisions reached under Arbitration may not. IV.Arbitration is used for violations that are more serious than those for which the Code of Procedure is used.
. I and III The Code of Procedure is used to deal with violations of the Conduct Rules, whereas the Code of Arbitration is used to settle disputes. Adverse decisions and penalties under the CoP can be appealed to the National Adjudicatory Council, then to the SEC, and, eventually, to the federal appellate court system. Settlements under arbitration are not subject to appeal, and mediation is not mandatory.
FINRA requires that each registered representative and principal receive compliance training on an annual basis. Regarding the FINRA requirement, which of the following statements are TRUE? I.The meeting delivery method can be individually or in groups. II.Webcast must be live and may not be recorded. III.Participants must be able to ask questions in a live format. IV.The meeting can be in person or by Webcast.
. I and IV Annual compliance reviews can be done individually or in groups either in person or by Webcast. If by Webcast, the presentation may be live or recorded. In any format the participants must have the opportunity to ask questions or engage in dialogue either live or electronically or be told where they can send questions to be answered.
Regarding a FINRA member broker/dealer website which of the following is true? I.When FINRA is referenced on a member broker/dealer website it is meant to imply that the broker/dealer has the approval of FINRA. II.If FINRA is referenced on a member broker/dealer website a hyperlink to the FINRA website is mandated. III.When FINRA or its logo is referenced it must not appear in a typeface larger or more prominent than the broker/dealer's own name and logo. IV.A reference to FINRA membership is mandated by FINRA on member broker/dealer websites.
. II and III There is no requirement to list or mention FINRA membership or any other SRO membership on a broker/dealer website. If however a broker/dealer chooses to have the FINRA name or logo on its website, a hyperlink to the FINRA website is required, and its name or logo may not appear in a typeface larger than or more prominent than the broker/dealer's own name or logo and should never be meant to imply approval of FINRA.
FINRA may take which of the following actions against members or associated persons who violate the Conduct Rules? I.Imprisonment II.Censure III.Indictment if the charge involves a violation of criminal law IV.Suspension
. II and IV FINRA members or employees of members who violate the Conduct Rules are subject to procedural penalties only. No SRO may arrest, indict, convict, or imprison a violator.
An employee involved in the management of a FINRA member's business, particularly in the supervision of business solicitation or in training, must be registered as a
. Principal Supervision of business solicitation or training requires that a person be registered as a principal.
