Exam Alert: FINRA Adds Additional FOCUS Report Supplement

Effective December 31, 2014, certain firms that are required to file FOCUS reports will be required to file an additional form called the Supplemental Inventory Schedule. Continue reading

Exam AlertEffective December 31, 2014, certain firms that are required to file FOCUS reports will be required to file an additional form called the Supplemental Inventory Schedule. On this form, firms report their gross long and short inventory positions in specified categories of securities and commodities. The requirement does not apply to firms that have (1) a minimum dollar net capital or liquid capital requirement of less than $100,000 or (2) inventory positions consisting only of money market mutual funds.

Source: FINRA Regulatory Notice 14-43: SEC Approves Supplemental Inventory Schedule

This alert applies to the Series 26 and Series 99.

Study Question of the Week: August 27, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 24, 26, 55, 62, 79, and 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6Series 7Series 24, Series 26, Series 55, Series 62Series 79, and Series 82): 

What is the maximum civil penalty that can be imposed on a firm when an employee engages in insider trading?

Answers:

A. The greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of the violation

B. The lesser of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of the violation

C. Three times the amount of the profit gained or loss avoided as a result of the violation

D. $0

Correct Answer: A. The greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of the violation

Rationale: The maximum civil penalty that can be imposed on a firm when an employee engages in insider trading is the greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of the violation.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA Excludes Research Reports on Exchange-Listed Securities From Filing Requirement

Effective July 11, 2014, FINRA revised its rules on filing retail communications. The new rules do not require firms to file research reports on securities listed on national exchanges, except for certain research reports on investment companies. Continue reading

Effective July 11, 2014, FINRA revised its rules on filing retail communications. Generally, FINRA requires firms to file retail communications on registered securities within ten business days of first use. The new rules exclude from filing research reports on securities listed on national exchanges. However, firms must still file certain research reports on investment companies. Specifically, research reports on open-end investment companies, unit investment trusts, and face-amount certificate companies must still be filed if they will be distributed to prospective investors.

Additionally, FINRA clarified that free-writing prospectuses that are exempt from the SEC’s filing requirements do not need to be filed with FINRA.

Retail communications are written communications, including electronic communications, that will be distributed or made available to more than 25 retail investors within any 30-calendar-day period. “Retail Investor” is defined as any person other than an institutional investor, regardless of whether the person has an account with the firm.

A research report is a written communication that includes information, analysis, and/or recommendations on a security.

Open-end investment companies, also known as mutual funds, are companies that offer shares of a portfolio of securities in the form of a fund to the public. Every time shares in the fund are purchased, the shares are issued new by the mutual fund company. Additionally, when shareholders wish to sell their shares, they must sell them back to the mutual fund company. The mutual fund company will then “redeem” them and expire the shares.

A unit investment trust (UIT) is an investment company that buys and holds a fixed portfolio of securities that are put into a trust in “units” that are sold to investors (unit holders). UITs have a stated termination date that varies according to the type of investments in the portfolio. A UIT in bonds may have as much as a 30-year life; a UIT in stocks may mature in one year or less. Unit holders receive a share of the principal at termination, and any income earned is distributed to investors in periodic payments of dividends or interest.

A face-amount certificate company is an investment company that issues debt securities called face-amount certificates backed by assets such as real property or other securities. Issuers of face-amount certificates promise to pay a stated amount (face-amount) to the investor at a specified time in the future. In return, investors pay the issuer a fixed amount of money either as a lump sum payment or in periodic installments. The rate of return is calculated by comparing the amount paid into the investment and the face-amount received.

A free-writing prospectus (FWP) is any written offer to sell or a solicitation to buy the securities in an offering, distributed during the cooling-off period, after a registration statement has been filed. It is not required to have the detail or depth of information of the preliminary prospectus.

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 82, and Series 99.

Source: FINRA Regulatory Notice 14-30: SEC Approves Amendments to FINRA Rule 2210 to Exclude Research Reports on Exchange-Listed Securities From Filing Requirements and Clarify the Standards Applicable to Free Writing Prospectuses

Personal Finances and Your Registration

Customers sometimes ask whether a poor credit rating or a personal bankruptcy could negatively impact their ability to get licensed to work in the securities industry. Here is some information about how your personal financial situation may affect your registration process … Continue reading

Customers sometimes ask whether a poor credit rating or a personal bankruptcy could negatively impact their ability to get licensed to work in the securities industry. Here  is some information about how your personal financial situation may affect your registration process.

First an important caveat: this is not legal advice and, as an education company, Solomon Exam Prep provides this information for educational purposes only. Please consult with a compliance professional to identify and address any issues regarding your situation or your state’s regulations. Always check with your compliance department regarding compliance issues.

1. Be sure to disclose relevant information on Form U4.

Form U4 is the registration form for broker-dealer agents and investment adviser representatives. It asks several questions about your history, including some on your finances. Such questions include whether you or a company you controlled have been subject to a bankruptcy within the past ten years. Answer these questions completely and honestly! Failing to disclose this information could jeopardize your ability to work in the securities industry–it could result in a statutory disqualification.

2. You may be denied registration based on insolvency.

If the state securities administrator discovers that you are insolvent (meaning that you can’t pay your debts), they may deny your registration if they feel that it is in the public’s interest.

3. You may be denied registration based on your financial history.

FINRA may deny your registration based your answers to the questions on Form U4. This means that FINRA could deny your registration if:
-you or a company you controlled have been subject to a bankruptcy within the past ten years
-a bonding company denied, paid out on, or revoked a bond for you
-you have unpaid legal judgments or liens

4. You may be denied registration for having a poor credit history.

Having a poor credit history could result in your registration being denied. Regulators may require applicants to submit balance sheets, and the information on such sheets will be factored into the overall decision of whether to approve or deny your application.

5. Your application for registration will not be automatically accepted if you have financial issues that are required to be reported on Form U4.

If you report financial problems on your application, it will not be automatically accepted. Instead, it will be transferred to a manual review process.

6. Once you are registered, you may lose your registration due to poor credit, bankruptcy, or insolvency.

Even if you are already registered, you are still required to report certain events by updating Form U4, and your registration is still subject to review when you do so.

7. You may be able to get registered even if you don’t have a spotless financial history.

Regulators are looking out for your customers and they want to collect all relevant information so they can stop problems before they start. They will only deny your registration if they feel it is in the public’s interest.

If a checkered financial history fit with other red flags, such as a criminal record or a history of regulatory violations, then a denial would be more likely. However, an isolated financial incident would be less likely to cause regulators to deny a registration. Regulators look at each case individually.

Note that regulations vary by state, and that in some states regulators will not look at your credit rating when evaluating your application. Certain regulators may also allow you to send your information before you apply, so you can see whether they would accept your application. For more information, contact your state securities administrator. Contact information may be found on the NASAA’s website.

Reminder: this is not legal advice and is provided for educational purposes only. Please consult with a compliance professional to identify and address any issues regarding your situation or your state’s regulations. Always check with your compliance department regarding compliance issues.

 

Sources:

Form U4

Form U4 Instructions

“Why Bad Credit Is Bad For Financial Careers”

Exam Alert: FINRA Revises Series 26 Exam

Effective June 16, 2014, FINRA will modify the outline for the Series 26 exam. The changes affect the structure of the outline, the distribution of the exam questions, and the content tested on the exam. The total number of scored and unscored questions and the score required to pass remain unchanged. Continue reading

Effective June 16, 2014, FINRA will modify the Series 26 exam. The changes affect the structure of the outline, the distribution of the exam questions, and the content tested on the exam. The total number of scored and unscored questions and the score required to pass remain unchanged.

The structure of the new outline places topics into three “functions” (job responsibilities of an investment company and variable contracts products principal). These functions are then broken down into specific tasks as subsections. This is in contrast to the old outline, which has five broad sections and had subsections based on topics and/or rules.

The question distribution for the exam will change alongside the outline format. There is less of a focus on hiring and qualification and training of representatives. There is an increased focus on supervision, sales practices, and business processing and recordkeeping rules. According to FINRA, “the questions on the revised Series 26 examination place greater emphasis on key tasks such as supervision of registered persons, sales practices and compliance.” FINRA states that this adjustment “better reflects the key tasks performed by an Investment Company and Variable Contracts Products Principal.”

New content that may be tested on the revised exam includes the USA PATRIOT Act and associated anti-money laundering rules, the Fair and Accurate Credit Transaction Act of 2003 (FACT Act) and associated anti-identity theft rules, the Office of Foreign Assets Control (OFAC) Specially Designated National List (SDN), and Federal Deposit Insurance Corporation (FDIC) disclosures. Several new FINRA and SEC rules are on a wide range of topics may also be tested. These topics include disclosures during registration, deferred variable annuities, networking arrangements, proxies, business continuity plans, and holding customer mail, among others.

While some content that was listed on the old outline is not explicitly included on the new outline, test takers should still learn the material. For example, while the new outline does not specifically mention 529 plans or retirement plans, test takers will still be expected to know the rules regarding those products so that they may properly supervise individuals that sell such products.

Source: FINRA Regulatory Notice 14-18: FINRA Revises the Investment Company and Variable Contracts Products Principal (Series 26) Examination Program

This alert applies to the Series 26.

Study Question of the Week: April 30, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6, Series 7,  Series 24, Series 26Series 62, Series 79, Series 82, and Series 99): 

XYZ stock is trading at $10/share. ABC Co. makes a partial tender offer for XYZ stock at $11/share. John Johnson holds 1000 shares of XYZ stock. After ABC Co. announces the tender offer, John writes 10 calls of XYZ stock at $10.50/share. John then tenders as many shares of XYZ stock as he is legally permitted to. How many shares of XYZ does John tender?

Answers:

A. 0

B. 500

C. 1000

D. 2000

Correct Answer: A. 0

Rationale: John sold 10 calls after the tender offer was announced at a strike price lower than the tender offer price. As a result, the call is considered a short position for the purposes of calculating how many shares he can tender. John can tender up to his net long position in the stock, which is his long position (1000 shares) minus his short position (10 calls * 100 shares each = 1000 shares). 1000 – 1000 = 0, so John can tender 0 shares.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: April 16, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6Series 7Series 24Series 26, Series 62Series 79, Series 82, and Series 99): 

For the question below, assume that each of the answers is solely for the benefit of the recipient and are classified as gifts, not business entertainment.

Which of the following gifts would be a violation under Rule 3220:

Answers:

A. A $20 giftcard given to a salaried employee

B. A holiday fruit basket valued at $80 paid for, or provided by, a third party vendor

C. A vase valued at $120, given as a wedding present and paid for by the employee

D. A dinner cruise valued at $120, if written consent was provided by the recipient’s employer

Correct Answer: D. A dinner cruise valued at $120, if written consent was provided by the recipient’s employer

Rationale: FINRA Rule 3220 is a broad rule with few exceptions. In the above examples, a $20 gift card given to a salaried employee would not violate the rule because it is not over the $100 limit. Regardless of the entity that pays for it, an $80 fruit basket would not violate the rule because it is not over $100. A dinner cruise valued at $120, even if written consent was provided by the recipient’s employer, is a violation because a flat $100 standard is applied, whether or not the recipient’s firm deems it appropriate. Note that in prior years, employees of NYSE firms were able to make such gifts under this scenario.

Even though it exceeds the $100 standard, a vase valued at $120, given as wedding present and paid for the by the employee is not a violation because it falls outside of the Rule 3220 restrictions. If a gift is given in commemoration of a life event (wedding, birth, etc.) and it is paid for by the individual employee, it is classified as a personal gift that is not “related to the business“ of the recipient’s employer. It is important to recognize that if the giver is ultimately reimbursed by their firm for the price of the present, the gift would be reclassified as a business-related gratuity and would then be in violation of the Rule’s $100 limitation.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA Updates Regulatory Extension (REX) System

Effective April 2, 2014, FINRA has updated its Regulatory Extension (REX) system for allowing firms to submit extension of time requests under the Customer Protection rule. Firms should submit for a time extension request either the first or second business day after the 30 day period under the rule has passed. Continue reading

Effective April 2, 2014, FINRA has updated its Regulatory Extension (REX) system for allowing firms to submit extension of time requests under the Customer Protection rule. The rule requires firms to obtain physical possession or control of securities that are in a short position for more than 30 days in either the dealer’s account or a customer account. Note that the firm is not required to buy-in the security – they may borrow the security instead.

Firms should submit for a time extension request either the first or second business day after the 30 day period has passed. In order to submit a time extension request, the firm must have an active user ID and password to access the online REX system. Additional details about what information is required in the time extension request may be found here.

Source: Regulatory Notice 14-13: Extension of Time Requests Relating to New SEA Rule 15c3-3(d)(4)

This alert applies to the Series 7, Series 24, Series 26, and Series 99.

Study Question of the Week: April 9, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 24, Series 26, Series 52, Series 53, Series 66, Series 79, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6Series 7, Series 24, Series 26, Series 52, Series 53, Series 66Series 79, and Series 99): 

Which of the following are correct dollar minimums for the Bank Secrecy Act’s requirements for broker-dealers?

I. $3,000 or more received or transmitted must be recorded in a monetary instrument log (MIL)

II. $5,000 or more received or transmitted must be recorded in a monetary instrument log (MIL)

III. Cash transaction of $5,000 or more must be reported to the IRS

IV. Cash transaction of $10,000 or more must be reported to the IRS

Answers:

A. I and III

B. I and IV

C. II and III

D. II and IV

Correct Answer: B. I and IV

Rationale: In any one day, a transmittal of $3,000 or more or a cash transaction must be recorded in a monetary instrument log (MIL) and cash transaction of $10,000 or more must be reported to the IRS.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: February 5, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 24, Series 26, Series 52, Series 62, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6Series 24, Series 26, Series 52Series 62, Series 79, and Series 82): 

When must a Suspicious Activity Report be filed under the Bank Secrecy Act?

Answers:

A. Within 15 days of the transaction

B. Within 15 days of discovery

C. Within 30 days of the transaction

D. Within 30 days of discovery

Correct Answer: D. Within 30 days of discovery

Rationale: The Bank Secrecy Act requires that money service businesses file Suspicious Activity Reports (SARs) within 30 days of becoming aware of any suspicious transaction that is required to be reported. In the securities business, suspicious transactions are required to be reported if they involve $5,000 or more. A copy of the report must be kept for five years.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.