CH 6
Code of Procedure
A section of FINRA rules. It describes the procedure to be used when dealing with violations or complaints related to the Conduct Rules. -Notice of violation sent to respondent in writing. failure to respond is deemed admission of responsibility. -Respondent may disagree with the claim and request a hearing. -A decision must be rendered within 60 days of hearing. Decision is effective for 30 days after announcement, unless appealed. Potential decisions: -Censure, suspension, revocation, bar or potentially unlimited fine. (prison not option for FINRA) -Disciplinary actions are reported on Form U6.
The Code of Procedure deals with which of the following situations?
A violation resulting from a member failing to report transactions in a timely manner he Code of Procedure deals with disciplinary action when a member firm or one of its employees violates SRO rules. The FINRA Department of Enforcement may schedule a hearing to determine what action should be taken if a member or one of its employees has committed a sales or trade practice violation. A customer complaint may result in enforcement action or the customer may file for arbitration, which is used to settle monetary disputes.
Under the Code of Procedure, the Hearing Panel must notify the subject of a complaint about a hearing how many days prior to the hearing? A) 28 B) 45 C) 10 D) 21
A) 28
Which of the following persons does NOT qualify for breakpoints in order to receive a discount on purchases of additional shares of a mutual fund? A) A sister who has an account at the same broker-dealer B) The client s account at another broker-dealer C) A spouse who has an account at the same broker-dealer D) A daughter who has an account at the same broker-dealer
A) A sister who has an account at the same broker-dealer Quantity discounts or breakpoints are established by the mutual fund company. Although there is no regulatory requirement, the industry standard is to offer discounts to a single account. This is defined as an account owned by an investor, the investor s spouse, any children under the age of 21, or a trustee or fiduciary for a single account. It may include an UTMA/UGMA account as well as retirement accounts such as IRAs. Whether the account is at another broker-dealer is not relevant. It is based on the investor and the mutual fund company.
An RR is concerned that her supervisor is making inappropriate advances. This allegation must be settled by: A) Any method of the RR's choosing, including remediation through the court system B) Litigation C) Arbitration D) Mediation
A) Any method of the RR's choosing, including remediation through the court system By signing the application for securities industry registration (Form U4), registered persons agree to a statement that says, in part, "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or bylaws, of the SROs indicated ... " FINRA rules require that disputes between firms, a firm and its employee, or a firm and a clearing corporation, must go to arbitration. An exception exists when the dispute involves statutory discrimination claims, such as sexual harassment. The aggrieved party (the employee) may choose mediation, or may pursue her claim in either arbitration or the court system.
Appeals are permitted for decisions of all of the following choices, EXCEPT a(n): A) Arbitration Panel B) National Adjudicatory Council C) Hearing Panel D) SEC Administrative Law Judge
A) Arbitration Panel The Code of Arbitration does not provide for appeals. Decisions of an arbitration panel are final. The decisions of Hearing Panels and the National Adjudicatory Council are appealable under the Code of Procedure. Decisions of SEC Administrative Law Judges may be appealed to the Commission and the federal courts.
Simplified arbitration is traditionally used if the: A) Dispute amount does not exceed $50,000 B) National Arbitration Committee stipulates it C) Client has signed a predispute clause stipulating this expedited process D) Parties involved are both broker-dealers
A) Dispute amount does not exceed $50,000 Simplified arbitration procedures are used if the amount in dispute does not exceed $50,000. Regular and simplified arbitration is used between member firms, associated persons, and customers who wish to bring members to arbitration. However, members may not bring a customer to arbitration unless the customer agrees. For regular arbitration proceedings in which more than $50,000 is in dispute, the National Arbitration Committee appoints a panel to hear the dispute. The signing of a predispute clause does not govern the type of arbitration venue to be used. The size of the monetary claim determines whether a simplified arbitration process is to be employed.
The maximum fine that may be levied for minor violations, if the respondent does not dispute the charges, is: A) Three times the damages to the client B) $2,500 C) $7,500 D) $5,000
B) $2,500
Which of the following may suspend or expel a member firm from FINRA membership? A) The MSRB B) A hearing panel C) The state Administrator D) An arbitration panel
B) A hearing panel
The Code of Procedure deals with which of the following situations? A) Monetary disputes resulting from a trade between member firms B) A violation resulting from a member failing to report transactions in a timely manner C) Reviewing customer complaints D) A new broker-dealer's application for membership
B) A violation resulting from a member failing to report transactions in a timely manner The Code of Procedure deals with disciplinary action when a member firm or one of its employees violates SRO rules. The FINRA Department of Enforcement may schedule a hearing to determine what action should be taken if a member or one of its employees has committed a sales or trade practice violation. A customer complaint may result in enforcement action or the customer may file for arbitration, which is used to settle monetary disputes.
A registered representative is planning to take a client to a sporting event where the tickets cost $85 each. On the day of the event, the RR is not able to attend and asks your advice. Which of the following choices is BEST for the principal to recommend? A) Ask the client to return the ticket B) Ask another RR at your firm to attend the event C) Have the client pay you for the face value of the ticket D) Have the client take a friend or relative
B) Ask another RR at your firm to attend the event The best action for the principal to recommend is to ask another RR at the firm to attend the event. In this way, the action would be considered a business expense and not a gift. Member firm personnel may not give, or permit to be given, a gift of material value exceeding $100 per recipient per year to any person who can direct business to their employer. Exempt from the $100 limit are occasional meals, tickets to sporting and cultural events, and expenses related to legitimate business travel. In order for the activity to be considered an expense, the RR must attend the event.
The executive representative of a member firm is: A) The person designated to handle any firm-to-firm disputes under Uniform Practice Code (UPC) and Code of Arbitration (COA) B) Designated by the member to vote and act for the firm in all matters concerning FINRA C) Primarily responsible for the recruitment of new account executives D) Appointed by FINRA as the individual responsible for the supervision of all account executives
B) Designated by the member to vote and act for the firm in all matters concerning FINRA
Due to an infraction of a house rule, a branch manager has fined one of his salespersons $7,500 and suspended her for two weeks. The next course of action would be to report the disciplinary action to: A) The SEC's CRD system B) FINRA C) The DBCC D) The OSJ within two weeks
B) FINRA The various SROs have a similar reporting rule regarding employee discipline. If an associated person is subject to action taken by a member and the fine is greater than $2,500, the member is obligated to promptly notify the appropriate SRO. FINRA manages the Central Registration Depository (CRD) system
Which of the following statements is TRUE regarding simplified arbitration under the Code of Arbitration? A) It may be used only if a public noninstitutional customer is involved in the dispute B) It may be used to settle disputes involving claims of $50,000 or less C) It may be used to settle disputes between member firms only if there is no claim for monetary damages D) Unlike regular arbitration, the decision can be appealed to the National Adjudicatory Council
B) It may be used to settle disputes involving claims of $50,000 or less For both industry arbitration and customer arbitration, disputes involving claims of no more than $50,000 may be handled thorough simplified arbitration. As with regular arbitration, simplified arbitration does not allow appeals. The decision of the single arbitrator is final.
Joan Travers is a registered representative working for Integrated Brokerage, a member firm. She sees an opportunity for her clients to earn higher-than-normal returns by selling participations in loans needed by Reynolds & Co., a venture capital firm. If she participates and receives a fee, which of the following statements is TRUE? A) Integrated may waive its supervisory responsibilities if it does not share in the fee paid to Ms. Travers on the transaction B) She must give written notice to Integrated describing the transaction C) She must give written notice to Integrated and FINRA describing the transaction D) Integrated must provide written approval but Joan will not be permitted to collect any fees from this transaction
B) She must give written notice to Integrated describing the transaction The activity contemplated by Joan Travers is considered a private securities transaction. This is a securities transaction outside the regular course or scope of an associated person's employment with a member firm. The registered representative must provide written notice to Integrated indicating the nature of the transaction. Integrated must approve of her participation and acknowledge that she will be paid a fee. Since the RR is receiving compensation, Integrated must record the transaction on its books and properly supervise the representative's activities.
Which of the following statements is TRUE regarding the FINRA Manual? A) The Manual must be sent to clients upon request B) Customer questions about interpretations of the Manual must be answered by the branch manager C) A copy of the Manual must be made available to customers upon request D) An abridged copy of the Manual must be kept in every branch office of the firm
C) A copy of the Manual must be made available to customers upon request FINRA rules require members to make available a current copy of the FINRA Manual for examination by customers upon request. The Manual may be maintained and made available in electronic format if the member chooses. There is no requirement to interpret the rules for customers, or send a copy to clients.
Which of the following statements is TRUE regarding the FINRA Manual? A) Customer questions about interpretations of the Manual must be answered by the branch manager B) An abridged copy of the Manual must be kept in every branch office of the firm C) A copy of the Manual must be made available to customers upon request D) The Manual must be sent to clients upon request
C) A copy of the Manual must be made available to customers upon request FINRA rules require members to make available a current copy of the FINRA Manual for examination by customers upon request. The Manual may be maintained and made available in electronic format if the member chooses. There is no requirement to interpret the rules for customers, or send a copy to clients.
Which of the following employees would be allowed to open an account at another member firm without requiring prior written approval of his employer? A) A trader in U.S. government securities employed by a broker-dealer B) An insurance agent employed by the broker-dealer who sells variable annuities C) A trader at a mutual fund that transacts business with a member firm D) A clerk in the payroll department of the member firm
C) A trader at a mutual fund that transacts business with a member firm With the exception of the trader at a mutual fund, all of the individuals listed are employees of a FINRA member firm, and would require prior written consent of their member firm in order to open an account at another member firm. Since the insurance agent is selling variable annuities as an employee of a member firm, he would also be subject to the rule.
A file of written complaints must be maintained: A) At each branch office B) By each accused RR and at the OSJ C) At each office of supervisory jurisdiction D) At the main office only
C) At each office of supervisory jurisdiction
A client of a member firm wrote a letter to a branch manager detailing a series of recommendations that his registered representative recently provided. The letter explains that these recommendations were not suitable and suggests that the manager monitor the accused salesperson's activity more closely. Which of the following statements is TRUE? A) A copy of this letter should be forwarded to the SEC B) The manager should discuss the matter with the RR immediately and suspend his trading activity C) The salesperson's trading activity should be examined pending an investigation D) The firm must report this event to FINRA as well as any other customer complaint it receives
C) The salesperson's trading activity should be examined pending an investigation A member firm is required to submit reports periodically to an SRO with respect to customer complaints it receives. There is no requirement to suspend the activities of a registered representative under these circumstances, and there is no requirement to send a copy of the letter to the SEC. However, all complaints should be investigated.
Form U6
report disciplinary actions against a RR or a firm
OBA for b/d employees
to open a account for any employees of another member firm (or spouse/dependent children) -The associated person must obtain prior written consent from his employer and notify the executing firm in writing as to his associated status. -The executing member shall upon written request by a employer member, transmit duplicate copies of confirmations and statements. duplicate statements are NOT required, only if requested. -If the account is limited to transactions involving mutual funds, variable contracts, UIT's, and 529 plans the previous rules do NOT apply.
Which of the following statements is TRUE regarding the Code of Procedure? A) The respondent should either accept or reject a complaint within 15 days of receiving it B) The Department of Enforcement may not issue a complaint if it believes a registered person has violated FINRA rules C) Within 60 days after the Hearing Panel has stopped accepting evidence, it must render a decision D) Expulsions of members go into effect no sooner than 30 days after the respondents have received notice of a final disciplinary action
C) Within 60 days after the Hearing Panel has stopped accepting evidence, it must render a decision Complaints handled under the Code of Procedure are often initiated by public customers. However, if the Office of Disciplinary Affairs believes, as a result of its own surveillance, that a registered person has violated SRO rules, it can instruct the Department of Enforcement to issue a complaint. Respondents have 25 days to answer a complaint once received and the Hearing Panel, which has original jurisdiction in Code of Procedure matters, must render a decision within 60 days after all evidence has been received. When FINRA expels a member, it is effective as soon as the decision is served on the respondent.
Which of the following employees would be allowed to open an account at another member firm without requiring prior written approval of his employer? A) A clerk in the payroll department of the member firm B) A trader in U.S. government securities employed by a broker-dealer C) An insurance agent employed by the broker-dealer who sells variable annuities D) A trader at a mutual fund that transacts business with a member firm
D) A trader at a mutual fund that transacts business with a member firm With the exception of the trader at a mutual fund, all of the individuals listed are employees of a FINRA member firm, and would require prior written consent of their member firm in order to open an account at another member firm. Since the insurance agent is selling variable annuities as an employee of a member firm, he would also be subject to the rule.
A broker-dealer with offices in several states could sell all of the following to its customers without registering with the SEC, EXCEPT: A) Commercial paper B) A money-market account C) Bankers' acceptances D) An ETF
D) An ETF Under Section 15(a)(1) of the 1934 Act, it is unlawful for any broker or dealer (other than a broker or dealer whose business is exclusively intrastate and who does not make use of any facility of a national securities exchange) to induce or attempt to induce the purchase or sale of any security (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) unless the broker or dealer is registered. A money-market account is not a security, however, a money-market mutual fund is considered a security and must be registered with the SEC. An exchange-traded fund (ETF) is a security, and a firm is required to be registered to sell this product. (
According to federal securities law, all of the following persons are excluded from the definition of investment adviser, EXCEPT a(n): A) Economics professor who teaches classes in portfolio analysis B) Consulting engineer who receives fees for occasionally reviewing new stock offerings of aerospace companies for clients C) Tax accountant who evaluates clients' portfolios as part of their annual tax review D) Attorney who sets up a financial planning practice
D) Attorney who sets up a financial planning practice Lawyers, accountants, teachers, and engineers are not considered investment advisers if they provide advice that is incidental to the practice of their profession. Setting up a financial planning practice is not incidental to the practice of law. The attorney would not be eligible for the exclusion. (
If a registered representative opens an account at another member firm, what action must be performed by the executing firm? A) It must provide duplicate confirmations to the employing firm B) It must provide duplicate confirmations to both the employing firm and FINRA C) If must notify the employing firm prior to opening the account and before executing each order D) It must notify the employing firm before opening the account
D) It must notify the employing firm before opening the account If an employee of a member firm intends to open an account with another member firm, the executing firm must notify the employing firm in writing prior to opening the account and, if requested, must provide the employing firm with duplicate confirmations and statements. The executing firm is not required to obtain preapproval to enter an order once the employing firm's approval to open the account has been obtained. Also, there's no requirement for the executing firm to provide trade confirmations to FINRA.
A broker-dealer uses a fiscal year ending in June to aggregate its gift limits. A registered person at this firm sends a gift valued a $80 to a client in April and another gift of the same value to the same client in October of the same year. Is this a violation? QID: 1475030 Mark For Review A) Yes, since you are not permitted to give more than one gift per year to a client B) Yes, since the value of the gifts exceeds the limit in one year C) No, since the value of the gifts is less than $250 D) No, since the value of the gifts does not exceed the limit in one year
D) No, since the value of the gifts does not exceed the limit in one year The FINRA gift limit is $100 per individual recipient per year. Each firm is permitted to create its own policy on the method it uses to aggregate all gifts, for example, using the fiscal or calendar year. Since this firm uses a fiscal year ending in June, each $80 gift would be permitted. There is no limit to the number of gifts, only the aggregate value of the gifts.
Outside business activities (OBAs)
To be involved and earn compensation written notice to employer is required. -RR must update U4 -information disclosed on BrokerCheck -must update U4 within 30 days For a RR to be permitted to accept part time position working for another member firm, specific written consent from primary employer must be obtained.
Private Securities Transactions
Transactions outside the regular scope of an associated person's employment with the firm. -If no compensation is to be received the RR must provide written notice to her employer which details the trade and she must obtain written acknowledgement from the firm. -If compensation is to be received, the RR must also obtain her employers written approval and the firm must record the transaction on its books. "Selling away" may include the participation in private placements, traditional public offerings, and arranging loans. Failure to comply is "selling away" Must be disclosed and approved.
Can a RR loan $$$ to client for OBA?
Yes, if disclose and get written approval.
Can a RR lend $$ to another RR?
Yes, if personal relationship exists
Gift limit
Gifts to employees of another member firms are limited to $100 per person per year. -FINRA approval is NOT required -Rule applies to gifts and gratuities from mutual fund distributors or wholesalers to B/D salespersons. -limit may be excessive for events that involve family relationships -if attended by the gift giver, an occasional meal, sporting event, or theater production is exempt from the limit.
Soft Dollar Arrangements
Investment advisor receiving research or other service from a B/D in exchange for order flow. -ultimately what the IA receives must benefit its clients. ALLOWED -research reports -access to analysts -portfolio analysis software -Subscription to industry publications -attending cost for conference -IA software DISALLOWED -office space -accounting fees -Adverting/marketing expenses -travel reimbursement -professional licensing fees -subscription to WSJ -bloomberg hardware -computer
Alex has recently opened a new account with your firm, signing a customer agreement that contains a predispute arbitration clause. Five days after signing the agreement, Alex requests a copy of the predispute arbitration agreement. Your firm:
Must provide a copy within 10 business days of the request A member must provide a customer with a copy of a signed predispute arbitration clause within 10 business days of a request, or within 30 days of the signing, whichever is earlier. After receiving the copy, the customer must acknowledge receipt on the signed form or other document.
Can RR loan a client $$$?
No
If a penalty is assessed by a Hearing Panel, it generally becomes effective:
No less than 30 days after the penalty is assessed A Hearing Panel adjudicates complaints against a member firm and assesses penalties. The penalty becomes effective unless appealed to the National Adjudicatory Council 30 days from the date of the decision. However, a ban or expulsion is effective as soon as the decision is served on the respondent.
Sharing in Accounts
RR cant share in profits of customer accounts. sharing in profits and losses only allowed if: -the RR has the written permission of both the client and the B/D and -The sharing is proportionate to the RR's investment. -A arrangement with a family member is exempt from the proportionate sharing requirement.
If an employee of a broker-dealer wants to open a brokerage account at another member firm, the employee's obligation is to: A) Obtain her employing firm's prior written consent and provide written notification to the executing firm B) Obtain her employing firm's prior written consent and provide verbal notification to the executing firm C) Obtain her employing firm's written consent and its prior written consent for each order D) Obtain her employing firm's prior written consent and provide written notification to the executing firm by no later than 30 days after the account is opened
A) Obtain her employing firm's prior written consent and provide written notification to the executing firm Employees of broker-dealers who intend to open outside accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. In addition, before an outside account is opened, the employees are required to provide written notification to the executing firm of their association with another member firm. However, there is no requirement to obtain their employing firm's approval for each order. If a newly hired employee wants to maintain an account that he had opened prior becoming associated with a broker-dealer, he is required to obtain his employing firm's written consent within 30 days of the beginning of his employment.
A Hearing Officer may call a prehearing conference to: A) Prepare the parties for the hearing or to make the process more efficient B) Decide if the matter warrants a hearing C) Inform the respondent that any untruthful evidence presented at the hearing may result in expulsion D) Intimidate the respondent into making an offer of settlement
A) Prepare the parties for the hearing or to make the process more efficient
An associated person of a member firm wants to open a managed account with an investment adviser. According to FINRA rules: A) The associated person is required to obtain his employing firm's written approval to open the account B) An exemption from notifying the member firm is provided since the account is to be maintained with an investment adviser C) There are no specific requirements for associated persons who open accounts with investment advisers D) The associated person is only required to notify his employer of his intention to open the account
A) The associated person is required to obtain his employing firm's written approval to open the account If an associated person of a member firm intends to open an account at another member firm, non-member broker-dealer, bank, credit union, trust company, insurance company, investment company, or investment adviser, he's required to both notify his employer and receive its prior written consent. (
Dotty Russell has filed a complaint in court against her firm that includes claims contained under a signed predispute arbitration clause. Which of the following statements is TRUE concerning the complaint? A) The customer may require that all claims in the complaint be settled through arbitration even if they are not covered by a predispute clause B) Customers are required to use arbitration for all alleged infractions unless FINRA grants them a predispute clause waiver C) The firm may require that those claims subject to arbitration be settled through mediation D) All claims must be settled through arbitration
A) The customer may require that all claims in the complaint be settled through arbitration even if they are not covered by a predispute clause When a complaint is filed in court that includes items that are contained under a signed predispute arbitration clause, the member may compel arbitration on those items. However, if the customer then requests that all items be settled through arbitration, even those not included under a signed predispute arbitration clause, the member must agree to arbitrate all items. There is no such thing as a predispute clause waiver. Mediation is not compulsory for either party. The process is voluntary
All of the following statements regarding private securities transactions by a person associated with a member firm are TRUE, EXCEPT: A) The transactions may not involve private placements, even if the activity is otherwise acceptable B) A registered representative's personal transactions in mutual funds are not covered by this rule C) If a registered representative will not be compensated, the firm must be notified of the representative's participation D) If a registered representative will be compensated, the firm must approve the transaction in writing
A) The transactions may not involve private placements, even if the activity is otherwise acceptable Private securities transactions are transactions outside the regular scope of an associated person's employment with a member firm. An associated person engaging in such transactions must provide written notice to the employing member. In addition, if a registered representative is to receive compensation for the transaction, the member must specifically approve the transactions in writing in order for the person to participate. However, personal transactions in investment company and variable annuity securities are not covered by this rule. There is no specific prohibition regarding private placements.
What is the maximum fine that may be levied by a self-regulatory organization (SRO)? A) Unlimited B) $250,000 per infraction C) $5,000,000 per firm D) $250,000 per associated person
A) Unlimited SROs, such as FINRA, may fine their member firms and employees for violations of their rules. Although FINRA publishes its Sanctions Guidelines publication, there is no limit as to the monetary fine that it may levy against a member firm or its employees.
A registered representative wishes to sell interests in a private placement to her clients. The private placement is not being offered through her firm. If she will not be compensated for the transactions, which of the following statements are TRUE? A) She must provide written notice to FINRA and her firm B) She must provide written notice to her firm and the firm must provide written acknowledgment and may require her to adhere to specified conditions C) She must provide written notice to her firm, but the firm does not need to provide her with written acknowledgment D) Since she is not being compensated, she only needs to provide verbal notice to her firm
B) She must provide written notice to her firm and the firm must provide written acknowledgment and may require her to adhere to specified conditions The SRO rule on private securities transactions (selling away) requires an RR to provide written notice to her firm if she will be engaging in securities transactions that are not within the scope of her firm's business. If she will be compensated for the transactions, she must also receive written approval from her firm to participate. If she will not be compensated, the firm is required to provide a written acknowledgement to her and has the right to impose conditions on her participation.
Which of the following statements is TRUE concerning a predispute arbitration clause? A) The clause is binding on the customer but allows a member to pursue settlement in court B) The customer must be provided with a copy of the clause within 30 days of signing C) The clause must be signed or waived prior to the placement of the first order D) The customer may choose to opt out of the clause within 90 days of account opening
B) The customer must be provided with a copy of the clause within 30 days of signing According to SRO rules, predispute arbitration clauses contained in customer account forms must be highlighted and must contain certain information, including: All parties are giving up the right to sue in court, and arbitration awards are generally final and binding. Arbitrators do not need to explain the decisions for their award. Within 30 days of signing the agreement, the customer must be sent a copy and, after receiving a copy, the customer must acknowledge receipt. Predispute arbitration clauses may not limit the ability to make an award or limit the amount of the award.
Which of the following statements is TRUE regarding simplified arbitration? A) The panel convened must be made up solely of unaffiliated arbitrators B) There is only one arbitrator C) This process is used only if the dispute involves another member or an affiliated person D) This process may only be used by member firms and/or associated persons
B) There is only one arbitrator Simplified arbitration is used if the amount of the dispute does not exceed $50,000 and the dispute involves a public customer. If the dispute is between members or affiliated persons and does not exceed $50,000 then the type arbitration used would be simplified industry arbitration and the arbiter would be a nonpublic arbitrator. Normally with simplified arbitration there will be a single nonpublic arbitrator deciding the case based on written evidence without a hearing but the public customer can either demand or consent to both a hearing and an arbiter from within the industry.
For what period of time is a member firm required to keep on file the written preapproval of the borrowing or lending arrangement between a registered representative (RR) and a customer A) Six years B) Three years C) One year D_m30 days
B) Three years Under certain conditions, an RR may enter into an arrangement to borrow or lend funds to a customer. The firm is required to preapprove these arrangements in writing. The firm is also required to retain the written preapproval for at least three years after the date of the arrangement or for at least three years after the RR has been terminated from the member firm.
In which of the following situations would the Code of Procedure be used? A) To settle a monetary dispute between two broker-dealers B) To impose disciplinary action on a registered representative for breakpoint sales C) To decide a dispute between two broker-dealers over a due bill D) To settle a monetary dispute between a broker-dealer and a customer
B) To impose disciplinary action on a registered representative for breakpoint sales FINRA takes disciplinary actions against member firms and their associated persons under the Code of Procedure (COP
During a routine audit, an examiner for a self-regulatory organization has found what she believes is a pattern of excessive corporate underwriting fees charged by the firm's investment banking department. Disciplinary actions for such violations would be imposed: A) By a federal court, since the violation falls under the 1933 Act B) Under the Code of Procedure C) Under the Code of Arbitration D) Under state blue-sky laws
B) Under the Code of Procedure
Borrowing and lending
Borrowing from or lending to client is acceptable without firm notification if the customer: -is immediate family -is a financial institution regularly engaged in the business of providing loans. RR must obtain written notification to his firm and obtain prior written approval if: -The customer and RR are both registered with same firm -A personal relationship exists -A business relationship exists outside of the brokerage firm
Under industry rules, there would be a gifts-and-gratuities violation if a mutual fund wholesaler: A) Gives a $1,000 wedding gift to his brother who is employed at a member firm B) Takes four registered representatives to a dinner valued at $80 per person C) Gives two tickets (valued at $65 per ticket) to a salesperson to attend a basketball game with a guest D) Attends a concert with a salesperson valued at $105 per ticket
C) Gives two tickets (valued at $65 per ticket) to a salesperson to attend a basketball game with a guest Member firm personnel, involved with distributing securities products, may not give, or permit to be given, a gift of material value exceeding $100 per recipient, per year, to personnel employed by another member firm who is involved with distributing its products. Exempt from the $100 limit are occasional meals, tickets to sporting and cultural events, reminder advertising (boxes of pens, key chains, etc.), and expenses related to legitimate business travel. For the activity to be considered a legitimate expense, the wholesaler (who must be a FINRA member) must attend the event. Notice that in one choice, the tickets were given to another person and the value of the two tickets ($130) exceeds the $100 limit. An exemption is provided if the gift is given to another family member for an event associated with a family relationship (e.g., a wedding).
Jack Dean is a customer of Monarch Inc., a member firm. Mr. Dean recently became involved in a dispute with his registered representative. The dispute will be handled through FINRA's arbitration procedures. Which of the following statements is TRUE? A) A majority of individuals on the panel will be affiliated with the securities industry, unless Mr. Dean requests otherwise B) Arbitrators are selected by FINRA and may be removed only if a significant conflict exists C) Mr. Dean has the right to reject the selection of any arbitrator appointed by the Director of Arbitration D) A majority of individuals on the panel will be unaffiliated with the securities industry, unless the RR requests otherwise
C) Mr. Dean has the right to reject the selection of any arbitrator appointed by the Director of Arbitration In disputes involving public customers, arbitration panels are normally comprised of a majority of public arbitrators who are not affiliated with the securities industry. Once notified, the customer has the right to reject the selection of one arbitrator on a peremptory basis and has the right to unlimited challenges for cause. All decisions are final and binding on all parties. Arbitration awards must be paid within 30 business days of determination, or penalties may be assessed on late payments.
Which of the following statements regarding disciplinary proceedings under the Code of Procedure is TRUE? A) Both original and appellate jurisdiction rests with a Hearing Panel B) Original jurisdiction rests with the National Adjudicatory Council C) Original jurisdiction rests with a Hearing Panel D) Appellate jurisdiction rests with the National Adjudicatory Council unless the penalty exceeds $25,000
C) Original jurisdiction rests with a Hearing Panel Under the Code of Procedure, original jurisdiction rests with a Hearing Panel. It is the Hearing Panel that holds hearings, considers complaints, and assesses penalties. If a respondent disagrees with the findings of the Hearing Panel, he may appeal to the National Adjudicatory Council, which has both appellate and review jurisdiction, regardless of the size of the penalty.
Jake lost $14,000 on a new issue and complained to his registered representative. The firm provided a written response, and although Jake did not receive any reimbursement, he was satisfied with the response. The firm is required to: A) Report the complaint promptly to FINRA B) Do nothing, since resolved issues do not trigger reporting requirements C) Report information concerning the complaint quarterly to its SRO D) Have the compliance department conduct an investigation within 30 days
C) Report information concerning the complaint quarterly to its SRO Member firms are required to report to the appropriate SRO statistical and summary information regarding customer complaints, on a quarterly basis. If the complaint from a customer involves theft, forgery, or misappropriation of funds, the firm must notify the SRO promptly.
Which of the following statements is NOT TRUE regarding predispute arbitration clauses? A) The agreement must disclose that the customer is waiving the right to take disputes to court B) Account forms containing predispute arbitration clauses must contain a highlighted statement disclosing the presence of such clauses C) The agreement may limit the type of arbitration claim the customer may file D) The agreement must disclose that arbitration panels may include persons who are affiliated with the securities industry
C) The agreement may limit the type of arbitration claim the customer may file Predispute arbitration agreements may not limit the type of claim the customer may file, the award that an arbitrator may make, nor limit or contradict the rules of FINRA.
Which of the following statements is TRUE of a FINRA member who has failed to pay required fees or assessments? A) The member may continue to do business while appealing the assessment to the SEC B) The member may be suspended or expelled within 10 business days of nonpayment C) The member may be suspended or expelled upon 15 days' written notice from FINRA D) The member may continue to do business if the assessment is in arbitration
C) The member may be suspended or expelled upon 15 days' written notice from FINRA Members who have failed to pay required fees and assessments may have their memberships suspended or cancelled upon 15 days' written notice from FINRA.
Amy is unhappy with her registered representative. The client feels that her $500,000 loss was due primarily to several unsuitable IPO recommendations. Amy has offered to mediate the issue with the firm. Which of the following statements concerning this process is TRUE? A) Amy will give up her rights under the Code of Arbitration, if she pursues mediation B) The mediator may not be a FINRA member C) The process is voluntary for both parties D) Mediation panels typically have at least three members
C) The process is voluntary for both parties Mediation is a voluntary process entered into in an effort to solve a dispute. There is a single mediator who may be any neutral third party agreed to by the participants. Parties may withdraw from mediation and pursue other remedies, such as arbitration or civil court proceedings.
A registered representative wishes to sell interests in a private placement to her clients. The private placement is not being offered through her firm. If she will not be compensated for the transactions, which of the following statements are TRUE? A) She must provide written notice to FINRA and her firm B) She must provide written notice to her firm, but the firm does not need to provide her with written acknowledgment C) Since she is not being compensated, she only needs to provide verbal notice to her firm D) She must provide written notice to her firm and the firm must provide written acknowledgment and may require her to adhere to specified conditions
D) She must provide written notice to her firm and the firm must provide written acknowledgment and may require her to adhere to specified conditions The SRO rule on private securities transactions (selling away) requires an RR to provide written notice to her firm if she will be engaging in securities transactions that are not within the scope of her firm's business. If she will be compensated for the transactions, she must also receive written approval from her firm to participate. If she will not be compensated, the firm is required to provide a written acknowledgement to her and has the right to impose conditions on her participation.
A registered representative is permitted to borrow funds from, or lend funds to, customers in all of the following situations, EXCEPT in a situation where: A) The customer is an immediate family member of the registered representative B) The loan is based on a business relationship independent from the member firm customer relationship C) The customer has a personal relationship with the registered representative D) The customer is an accredited investor
D) The customer is an accredited investor Registered personnel of a member firm are generally prohibited from borrowing money from, or lending money to, any customer. However, if the firm has written rules and procedures that allow borrowing and lending between registered personnel and their customers that meet the following conditions, the activities are permissible. -The customer is an immediate family member of the registered person. -The customer is a financial institution or other entity that engages in the business of providing credit, financing, or loans in the course of its business. -The customer and the registered person are both registered with the same member firm. -The customer has a personal relationship with the registered person wherein the loan would not have been solicited, offered, or given if the relationship did not exist. -The loan is based on a business relationship other than that of a member firm customer. There is no exception based on the type of customer—for example, an accredited investor.
Code of Arbitration
F.I.N.R.A method of resolving disputes (usually money) in the securities business. All decisions are final and binding on all parties. -FINRA never a party to arbitration -Non business disputes (discrimination) are NOT subject to arbitration. Arbitration details: -Generally awards are final, binding and payable within 30 days. -Statue of limitations is 6 years from the event. -Customer new account forms may contain a pre-dispute arbitration agreement. -Arbitration panel consists of 1 or 3 persons. -simplified arbitration is available for disputes less than $50,000. Broker dealers cant take customers to arbitration.
Can RR borrow from a client?
Only if client is a Savings and loan