UNIT 10

Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with A) the Securities and Exchange Commission (SEC). B) the Municipal Securities Rule Board (MSRB). C) the Financial Industry Regulatory Authority (FINRA). D) the Chicago Board Options Exchange (CBOE).

A. The SEC is the securities industry's primary regulatory body. Broker-dealers that transact securities business with customers or with other broker-dealers must apply and be approved for registration with the SEC. LO 10.a

Records of original entry must be recorded no later than the next business day and must be kept readily available for A) two years. B) six years. C) four years. D) three years. Explanation

A. The records must be maintained for a period of six years, but must be readily available for two years. LO 10.g

If an arbitration agreement has not been signed, under which two of the following circumstances would a dispute between a Financial Industry Regulatory Authority (FINRA) member firm and a retail customer go to arbitration? The dispute cannot otherwise be resolved to the satisfaction of both parties. The customer requests that the dispute go to arbitration. The amount under dispute is less than $50,000. The FINRA director of arbitration so rules. A) I and III B) III and IV C) I and II D) II and IV

B.

All of the following are self-regulatory organizations (SROs) in the securities industry that are accountable for creating industry rules, as well as supervising securities practices within an assigned jurisdiction, except A) FINRA. B) the SEC. C) the MSRB. D) the CBOE.

B. All SROs, including FINRA, the MSRB, and all listed exchanges, are accountable to the Securities and Exchange Commission (SEC). The SEC is the securities industry's primary government body, not an SRO. LO 10.a

Dwight was appointed a principal for Seacoast Securities in June of 1996. He continued in the position until 2012, when he left to start his own firm. How long did Seacoast need to maintain the record of his principal designation? A) Until 2016 B) Until 2018 C) Until 2002 D) Until 2004

B. Principal designations are retained for six years after the designation ends. Six years after Dwight left is 2018. LO 10.g

Which of the following items are required to be kept more than three years? I. U4 forms II. U5 forms III. Customer order tickets IV. Customer confirmations A) III and IV B) I only C) II and III D) I and IV

B. Explanation U4 forms must be kept for three years after the rep terminates, so if the rep worked for the firm 30 years, the form would have to be kept for 33 years. All others are three-year records. LO 10.g

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) Municipal Securities Rule Board (MSRB) D) Securities and Exchange Commission (SEC) Explanation

B. FINRA regulates all matters related to investment banking, trading in the over-the-counter (OTC) markets and some exchange markets, and the conduct of FINRA member firms and associated persons including the promotion of self-discipline among members. It also investigates and looks to resolve grievances between the public and members and between members. The MSRB relies upon FINRA to perform dispute resolution. LO 10.e

Correspondence must be maintained by a member firm for A) six years. B) five years. C) three years. D) the life of the firm.

C. Explanation Correspondence, along with all other communications with the public, must be maintained for three years since last use. LO 10.g

If an arbitration agreement has not been signed, under which two of the following circumstances would a dispute between a Financial Industry Regulatory Authority (FINRA) member firm and a retail customer go to arbitration? The dispute cannot otherwise be resolved to the satisfaction of both parties. The customer requests that the dispute go to arbitration. The amount under dispute is less than $50,000. The FINRA director of arbitration so rules. A) I and III B) III and IV C) I and II D) II and IV

C. Explanation Generally speaking, a broker-dealer firm has the customer sign a binding arbitration agreement before opening the account. In the absence of such an agreement, if a dispute cannot otherwise be resolved, the dispute can go to arbitration if the customer wishes it so. LO 10.e

The DOE will hold a hearing to determine the outcome of any violation. FINRA may do any of the following to a member firm or an associated person upon a finding of a violation:- Suspend, expel, or bar from membership- Impose fines - Censure- Any other action deemed appropriateNote that FINRA does not have arrest powers, but it is certainly able to refer issues to law enforcement. COP decisions may be appealable to whom?

COP decisions may be appealable to the National Adjudicatory Council (a FINRA division), then to the SEC, and from there to the appellate courts.

FINRA has numerous rules designed to protect the integrity of securities markets. These can be broken down into what four sections?

Conduct Rules Code of Procedure (COP) Uniform Practice Code (UPC) The Code of Arbitration

Broker-dealers who transact securities business with other broker-dealers or customers must be registered with A) the Federal Reserve Board (FRB). B) the Options Clearing Corporation (OCC). C) the Financial Industry Regulatory Authority (FINRA). D) the Securities and Exchange Commission (SEC).

D. Any entity such as a broker-dealer intending to do business with other broker-dealers or customers involving securities must be registered with the SEC. LO 10.a

Which of the following records must be kept by a broker-dealer firm for six years? I. Customer new account forms II. Advertising the firm has published III. Stock records IV. Minute books A) II and III B) I and IV C) II and IV D) I and III

D. Explanation New account forms filled out when the customer account was opened and stock records showing all the securities held by the firm and where they are held must be kept for six years. Minute books showing the minutes of directors' meetings are lifetime records. Advertising need only be kept for three years. LO 10.g

Amendments to articles of incorporation are kept A) for six years. B) for 10 years. C) for three years. D) indefinitely.

D. Explanation These records are kept for the life of the company. LO 10.g

Under the Securities Exchange Act of 1934, registration is required for A) securities. B) foreign securities exchanges. C) initial public offerings (IPOs). D) broker-dealers.

D. Under the Securities Exchange Act of 1934, broker-dealers and domestic exchanges are required to register with the Securities and Exchange Commission (SEC). Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act. The SEC does not have authority over foreign exchanges. LO 10.a

FINRA Conduct Rules establish the relationship between what?

Firms and their customers

Written complaints must be maintained for how long?

Four years

MSRB rules are enforced on the banking industry primarily through who?

MSRB rules are enforced on the banking industry primarily through the comptroller of the currency, The Federal Reserve, and the FDIC.MSRB rules on securities firms are enforced primarily by the SEC and FINRA.

Financial records and those having to do with assets and holdings must be maintained for how long?

Six years

Who holds a hearing to determine the outcome of violations?

The Department of Enforcement (DOE)

A FINRA member firm may only do business with another FINRA member firm unless it meets one of the exceptions. What are a couple of the more common exceptions?

-A bank in the underwriting of a municipal issue -A foreign firm that is a member of its nation's FINRA equivalent

FINRA's purpose and objectives

-Promote the investment banking and securities business, standardize principles and practices, promote high standards of commercial honor, and encourage the observance of federal and state securities laws; -provide a medium for communication among its members and between its members, the government, and other agencies; -adopt, administer, and enforce rules designed to prevent fraudulent and manipulative practices as well as to promote just and equitable principles of trade; and -promote self-discipline among members and investigate and resolve grievances between the public and members and between members.

The exchanges have the power to remove a listed security (delisting), as well as suspending trading on a listed security. The NYSE is the model used for this exam.

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How long must a record be maintained of an associate being appointed principal?

Six years

The MSRB writes the rules and has what enforcement powers?

The MSRB writes the rules but does not have enforcement powers—it depends on other regulators for the enforcement of its rules.

How long must advertising records be kept?

Three years

FINRA regulates all matters related to investment banking, and?

Trading in the OTC market, trading in exchange-listed securities and the conduct of FINRA member firms and associated persons

The Municipal Securities Rulemaking Board (MSRB) has no regulatory power over the municipalities that issue municipal securities, true or false?

True. The MSRB has no regulatory power over the municipalities that issue municipal securities.

Exchanges are regulators, true or false?

True. The exchanges regulate trading activity that occurs on the exchange and have some authority over the securities that are listed on the exchange, as well as the issuers of those securities.

For three and six year records, how long must they be "readily accessible?"

Two years

The Municipal Securities Rulemaking Board (MSRB) is the primary industry (SRO) regulator for

underwriting and trading of state and municipal securities.