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Which of the following statements about employees of a broker-dealer are true?
I. All employees are permitted, under certain conditions, to accept securities orders from customers.
II. Employees with securities registrations may accept securities orders from customers.
III. Non-registered employees may take phone messages from customers to be directed to a registered representative for proper processing.
IV. All employees involved in any way in the handling of money and/or securities must undergo fingerprinting in accordance with SEC regulations.
All of the above statements are true
II and III only
II, III and IV only
I and II only
Question 1 Explanation:
All answers except I are true. Employees without proper securities licensing are prohibited from accepting securities orders from customers.
Persons who wish to register with FINRA are required to fill out the Form U4 which is then reviewed and approved by FINRA. Candidates won't be approved if they have certain items on their record, which is referred to in FINRA rules as:
Denial of registration
Question 2 Explanation:
Statutory disqualifications include any felony convictions within the past 10 years as well as certain misdemeanors involving money or securities within the past 10 years. Persons subject to disqualification are generally considered ineligible for FINRA membership or association.
Each state in the U.S. has securities regulations which may differ in some ways from the laws of other states. Collectively, these state securities laws are most commonly known as:
Series 63 regulations
Question 3 Explanation:
State securities laws and regulations are best known as ‘blue-sky’ laws. Most states require registered representative candidates to take and pass the state securities law examination known as the Series 63 (along with an appropriate qualification exam) in order to sell securities in that particular state.
Whereas all FINRA member firms are required to establish formal in-house continuing education programs for their registered personnel, FINRA also has CE requirements for registered representatives known as:
Question 4 Explanation:
FINRA administers a Regulatory Element training session due within 120 days of the second anniversary of a registered representative’s initial registration date, and every three years thereafter. NOTE: In 2021, FINRA announced a shift to annual CE requirements starting on January 1, 2023. It is unclear at this time when this update will be reflected in the SIE exam content, but for now, stick with the 3-year cycle.
Under FINRA rules, the formal definition of a customer complaint is:
An oral allegation of a violation of SRO and/or federal rules and regulations
A written or oral allegation of a violation of SRO and/or federal rules and regulations
A written allegation of a violation of SRO and/or federal rules and regulations
Any of the above would meet the definition of a customer complaint
Question 5 Explanation:
Under FINRA rules, customer complaints are considered as such only when they are put in writing. This includes text messages and social media posts. Member firms have 30 calendar days after they know – or should have known – that the firm or an associated person is the subject of any written customer complaint alleging theft or misappropriation of funds or securities, or forgery.
A private securities transaction is defined by FINRA rules as a transaction in which:
An agent engages in a securities transaction outside the regular scope of their employment with their member firm
An agent trades for their own account
An agent trades for a customer’s account
Any employee of the firm makes a private placement investment as such is defined in Regulation D of the Securities Act of 1933
Question 6 Explanation:
When a registered representative wishes to engage in a securities transaction outside the regular scope of their employment with their member firm, they are required to get advance written permission from their firm prior to the transaction taking place. Without such authorization, engaging in the private securities transaction would be a serious violation, especially if the registered representatives were to receive any compensation for doing so.
When filling out the Form U4, candidates are required to provide details about their OBAs, also known as:
Outside business activities
Official business activities
Other business activities
Outside brokerage accounts
Question 7 Explanation:
Outside business activities might include such things as owning rental real estate, playing in a band at weddings on the weekends, and any other work that may generate income apart from activities as a registered representative of the member firm. This section would not include investments held by the rep in their own personal accounts.
The maximum gift or gratuity to be given to customers by registered representatives in a given year is limited to items valued at no more than:
Question 8 Explanation:
Under FINRA Rule 3220, member firms and their associated persons are prohibited from giving anything of value in excess of $100 per year to any customer.
A Form U5 would need to be filed in which of the following scenarios?
When a registered person retires
When a registered person changes firms
When a registered person is terminated
All of these scenarios would require a Form U5 filing
Question 9 Explanation:
One of our favorite expressions describing Forms U4 and U5 is the following: U4 is how you say ‘hello’ and U5 is how you say ‘goodbye.’ Any time a registered representative no longer needs to be registered – regardless of the circumstances – their employing member firm is required to file the Form U5 with FINRA. If the registered representative goes on to affiliate with a new firm in the future, or even reaffiliate with their previous firm, then a Form U4 filing will be submitted on their behalf.
When a customer complaint makes it all the way to an arbitration hearing, the panel’s ruling:
May be appealed by either party within 25 days of the ruling
May be appealed by either party within 45 days of the ruling
Is final and binding on all parties; there is no right of appeal
May be appealed at any time; there is no time limit
Question 10 Explanation:
Arbitration panel rulings are not appealable; they are final and binding on all parties.
FINRA pay-to-play rules limit political contributions made by covered associates of member firms. The maximum contribution for covered associates who are entitled to vote at the time of the contribution is set at:
$350 per election
The same as the federal law
$350 per year
Question 11 Explanation:
When the rule states the maximum as $350 per election – not per year – it is recognizing that in most elections, there is a primary followed by a general. One can contribute $350 in the primary election and another $350 in the general election. Firms are required to maintain books and records that demonstrate compliance with pay-to-play rules.
In order for their initial FINRA registrations to be approved, prospective registered representatives must do all of the following except:
Pass a qualification exam
Submit to a background check
Fill out the Form U4
Complete FINRA CE requirements
Question 12 Explanation:
While registered representatives do have FINRA CE obligations, such are not a prerequisite for FINRA registration (unless the person was registered previously and is currently CE Inactive). FINRA administers a Regulatory Element training session due within 120 days of the second anniversary of a registered representative’s initial registration date, and every three years thereafter. NOTE: In 2021, FINRA announced a shift to annual CE requirements starting on January 1, 2023. It is unclear at this time when this update will be reflected in the SIE exam content, but for now, stick with the 3-year cycle.
Which of the following would not require an amendment to a registered representative’s Form U4?
Starting a new outside business activity
Engaging in a private securities transaction
Moving to a new address
Filing for bankruptcy
Question 13 Explanation:
While private securities transactions require written preapproval from a registered representative’s member firm, such would not require an amendment to their public Form U4 record.
A registered representative receives approval to form a new LLC to provide tax consulting services. This would be considered a(n):
Outside business activity
Private securities transaction
Conflict of interest
Question 14 Explanation:
In this example, the registered representative has started a new business activity that exists outside the scope of their relationship with their member firm, known as an outside business activity (OBA). OBAs require preapproval from member firms.
Firm employees whose functions are solely and exclusively clerical or ministerial are referred to as:
Question 15 Explanation:
Non-registered persons are exempt from FINRA registration. These are individuals whose functions are solely and exclusively clerical or ministerial, such as providing onboarding paperwork to customers.
As part of the FINRA registration process, registered representatives are required to submit their fingerprints:
No later than 30 days after their Form U4 is filed
No later than 60 days after their Form U4 is filed
At least 30 days prior to their Form U4 being filed
At least 60 days prior to their Form U4 being filed
Question 16 Explanation:
As part of a criminal background check, registered representatives are required to submit their fingerprints to FINRA no later than 30 days after their Form U4 is filed. FINRA will then submit the fingerprints to the FBI and make the results available to regulators as well as the employing member firm.
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There are 16 questions to complete.