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Definition
| Any individual, corporation, or legal entity engaged in transacting securities business for the account of other. |
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Definition
| Any individual, corporation or other legal entity that performs securities transactions for its own account as part of regular business. |
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| Any investment in another company that can be exchanged for value and involves risk. |
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Definition
| A federal court case that clarified the definition of an investment contract, stating that a security or an investment contract exists when a person invests in common enterprise and expects a return from the efforts of a third party. |
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| The Uniform Practice Code |
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Definition
| Relates to dealing between member firms, covering all transactions in nonexempt securities and requiring orderly completion of dealer-to-dealer transactions. |
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| Address a member's firm's dealings with the public. |
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| Outlines the procedural process in the event of violations and complaints. |
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Definition
| Is concerned with settling disputes between dealers or brokers and the public. |
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| Those required to file annual reports: |
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Definition
1. Publicly held companies
2. Broker/dealers engaging in interstate business
3. National securities exchanges
4. FINRA |
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Definition
| Persons associated with a member, who are actively engaged in the management of the member's securities business, including supervision, solicitation or the training of persons associated with a member, must be registered as this. |
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Term
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Definition
| A principal may register as this if activities are expressly limited to dealings of shares of open-end investment companies, closed-end investment companies during the period of original issuance only, an variable contracts and insurance premium funding programs. |
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Term
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Definition
A firm who is registered withe the Commissions under the Act of '34; Defines an associate person as:
-An individual registered under the rules of FINRA (or)
-An individual who is directly or indirectly controlled by a member firm, regardless of whether the person is registered. |
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Term
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Definition
| Applicants must complete a U-4 form that is submitted to FINRA electronically and contains an agreement to comply with all federal securities laws, to pay dues, and assessments to FINRA, and to keep information on the application current at all times; must submit fingerprints. If they have been previously registered, then they fill out the U-5 form. |
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Definition
| A continuing education requirement that must be completed by each registered person on the second anniversary date of their registration and every 3 years thereafter. |
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Definition
| A continuing education requirement; each member must evaluate and prioritize its training needs and develop a written training plan at least annually. |
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Term
| Termination of Registration (from FINRA) |
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Definition
| Registered may voluntarily terminate their registration and any time by written notice using a U-5 form; take effect 30 days after the filing. |
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Term
| Statutory Disqualification |
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Definition
| Can prevent a person or firm from becoming registered, or can result in a revocation of registered status; occurs if an applicant has been convicted of a felony or substantial misdemeanor, or if they have been expelled, barred, or denied registration or membership with an industry SRO or member firm, or have willfully violated securities industry regulations. |
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Term
| Violations of the Securities Exchange Act of 1934 or SEC rules are subject to: |
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Definition
-Max. fine of $1 million for person
-Imprisonment for 10 years
-Max. fine of $2.5 million on a business |
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Term
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Definition
| Is any written or electronic communication distributed or made generally available to customers or public, assuming such communications does not meet the definition of advertisement. |
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Definition
| Any material used in the media. General information to the general public is an indirect audience. |
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Definition
| Refers to any participation in seminars, radio or television interviews, or other public speaking activities. |
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Term
| Independently Prepared Reprint |
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Definition
| Refers to any reprint of an article or its excerpt issued by a publisher no affiliated with the member using the reprint, or to any report concerning a registered investment company prepared by an independent entity; considered sales literature. |
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Definition
| Refers to any written or e-mail messages distributed to either existing customers or to fewer than 25 prospective customers within any 30 calendar-period. |
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Term
| Institutional Sales Material |
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Definition
The communication with institutional investors, defined as any:
-Government entity or subdivision
-Employee benefit plan with at least 100 participants
-Quality plan with at least 100 participants
-FINRA member, registered associated person, or person acting solely on behalf of any such institutional investor. |
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Definition
| Any person for who the member carries an account, or who has an account with any registered investment company for which the member serves as principal underwriter, and who is not an institutional investor. |
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Term
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Definition
| Must be entirely free and without conditions or obligations on the part of the respondent. |
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Term
| Approval and record keeping of advertisements: |
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Definition
| Prior to use, advert. and sales lit. must be approved by a principal of the member firm. Materials must be kept on file for 3 years along with the name of the preparing person and the name of the approving person. |
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Definition
| Is a telephone call or message for the purpose of encouraging the purpose of investment, goods, or services. |
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Definition
| A way to communicate on a new issue, which names the issuer, the underwriter and other basic information, can be published conjointly with an offering, but no other form of advertising is allowed. |
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Definition
| A type of advertising that must contain the name and address of a registered broker or dealer or other person sponsoring the communication. |
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Definition
| The only type of advertising that doesn't require disclosure of the identity of the member firm (type of personnel recruitment ad). |
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Term
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Definition
| When prospectuses are electronic, these are applicable to printed documents and ensuring all required information in a format readily communicated to investors, and where indicated, in a manner reasonably calculated to draw attention to specific information; determines paper size, type size, and font, bold-face type, italics and red ink. |
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| Standards for Communications with the public about Variable Insurance and Annuities: |
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Definition
1. Product Identification
2. Liquidity
3. Claims regarding guarantees |
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Term
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Definition
| A violation under conduct rules for a member firm to offer a quotation that is not qualified and then fail to transact an order based on such a quote. |
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Term
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Definition
| Are qualified and justified quotes; subject to confirmation and are not considered firm. |
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Term
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Definition
Must be provided by a broker/dealer at or before the completion of a transaction and must include the following:
-date and time, price, # of shares, identity
-Whether the broker dealer is acting as an agent for the customer or some other person, or as principal for its own account.
-The nature and amount of any compensation, fee or commission received by the member as a result of the transaction. |
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Term
| Office of Supervisory Jurisdiction |
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Definition
Any office of a member at which any of the following takes place:
-Order execution
-Structuring of public offerings or private placements
-Maintaining custody of customers' funds
-Final acceptance of new accounts
-Review and endorsement of customer orders
-Final approval of advertising or sales literature
-Supervising the activities of persons associated with the member |
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Term
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Definition
| Any location identified by any means to the public or customs as a location at which the member conducts an investment banking or securities business. |
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Term
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Definition
| This system is required for each member to supervise the activities of each registered representative and associated person designed to comply with applicable securities laws, regulations, and rules. |
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Term
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Definition
Authorized by FINRA an Adjudicator or Authority staff has the right to:
1. Require a member, a person associated with a member, or a person subject to the Association's jurisdiction, to provide information and testify under oath or affirmation administered by a court reporter or a notary public.
2. Inspect and copy books, records, and accounts of such member or person with respect to any matter involved in the investigation or complaint. |
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Term
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Definition
| The section of FINRA by-laws that covers the handling of securities violations and complaints. |
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Term
| Department of Enforcement (DOE) |
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Definition
| Who a customer submits a written complaint to against a member firm or is personnel; has the initial jurisdiction for the handling of complaints. |
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Term
| National Adjudicatory Council (NAC) |
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Definition
| When it comes to complaints, this body has the appellate and review jurisdiction. |
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Term
| Letter of Acceptance, Waiver and Consent (AWC) |
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Definition
| If the respondent does not dispute the allegations in the complaint, they are given the opportunity to sign this in which they accepts a finding of violation, consents to the imposition of sanctions and waives his right to a hearing and his right to an appeal. |
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Term
| Summary Complaint Procedure |
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Definition
| This procedure is available is available to respondents who do not dispute the charges and waive their right to a hearing. The max penalty is $2,500. The respondent has 10 days from the offering of this procedure to accept it. |
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Term
| Minor Rule Violation Letter (MRV) |
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Definition
| By signing this, the respondent gives up their right to appeal the decision. |
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Term
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Definition
| One of these may be called to prepare the parties for the hearing and collect documents and evidence. Witnesses may provide testimony at the hearing, and any witness under FINRA must testify. The hearing panel must render a written decision within 60 days. |
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Term
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Definition
| Potential disciplinary options. |
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Term
| Potential Sanctions under FINRA: |
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Definition
-Fine
-Suspension of membership or registration
-Expulsion, membership revocation
-Suspend or bar
-Impose any other fitting sanction |
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Term
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Definition
| A free resource provided through FINRA that allows public persons to research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers. |
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Term
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Definition
| The bylaw that is concerned with settling disputes between brokers or dealers and the public through arbitration; provides a cost-effective method through which disputes are typically settled much sooner than in court. |
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Term
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Definition
| Available for disputes with $50k or less. Under this proceeding, there is no opportunity for a hearing. One arbitrator renders a decision on the case based upon a review of written submissions by both parties. |
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Term
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Definition
| Any resulting monetary award is required to be paid within 30 days; awards are final and binding without opportunity for appeal. If fails to pay, then subject to suspension. |
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Term
| Private Securities Transactions |
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Definition
| A violation known as "Selling Away. Transactions effected outside the normal business of an associated person's employment with a member firm and that are not recorded on the firm's books and records. |
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Term
| Outside Business Activities |
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Definition
| No person associated can accept compensation from any other entity for any business activity, other than a passive investment unless the associated person has provided prior written notice to the member firm. |
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Term
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Definition
| Refers to any compensation paid directly or indirectly as a result of the purchase or sale of a security, including commissions, finder's fees, rights of participation in profits, tax benefits, expense reimbursement, etc. |
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Term
| Cash/Non-Cash Compensation |
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Definition
No member or person associated with a member can directly or indirectly accept or make payments or offers of payments of any non-cash compensation except:
-Gifts that do not exceed $100 annually
-An occassional meal, ticket, or comparable entertainment
-Payment or reimbursement by offerors for the purpose of training or education |
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Term
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Definition
| A director, officer, or owner of 10% or more of the stock of a corporation. These persons are required to notify the SEC within 10 days of becoming this position. Any changes must be reported within 2 days. |
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Term
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Definition
| The use of information that is unavailable to the general public for the purpose of manipulating or exploiting a market opportunity; prohibited by law. |
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Term
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Definition
| Maximum penalty is 3 times the profit gained or the loss avoided from the use of the information due to insider traiding. Loss is known as "Treble Damages". |
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Term
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Definition
| Monetary penalty may not exceed $5 million fine and/or up to 20 years for an individual. Corporations may be subject to finds up to $25 million. |
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Term
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Definition
| Other investors who believe they were harmed by insider trading violates and may sue the insider for damages. |
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Term
| Selling dividends is prohibited because: |
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Definition
1. The price includes the distribution soon to be paid.
2. The price drops on the ex-dividend date by the exact amount of distribution.
3. The distribution will be taxable to the buyer. |
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Term
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Definition
| A written selling agreement and these broker/dealers are considered part of a selling group of the sponsor. |
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Term
| Statement of Additional Information |
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Definition
| If there are any changes to information contained in the prospectus, this needs to be included. This statement is attached and becomes part of the prospectus and must be made available to all current and potential investors upon request. |
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Term
| The Investment Advisers Act of 1940 |
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Definition
| Was established to regulate investment advisory activities and define requirements for registration. |
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Term
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Definition
Is a firm that is paid a fee to advise others, either directly or indirectly, as to the advisability and merit of purchasing or selling securities.
-Provided advise, analysis or reports concerning securities.
-Provide these services as a regular course of their business.
-Receive compensation for those services. |
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Term
| The Securities Investor Protection Act of 1970 |
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Definition
| Established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent. |
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Term
| Securities Investor Protection Corporation (SIPC) |
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Definition
| Is empowered to collect assessments from broker/dealers in order to protect customers from loss due to a failed broker/dealer. SIPC coverage is provided for each separate customer up to $500,000, with a max of $250k in cash. |
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Term
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Definition
| Are purchased to protect against employee left or loss of customer securities. The amount of coverage is based on the firm's scope of operations and sufficiency of the coverage must be reviewed every year. Min. coverage is $100k. |
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Term
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Definition
| Broker/dealers must implement privacy policies with respect to consumer nonpublic information. Consumers must be provided with an initial privacy notice, and those who become customers must receive annual privacy notices. |
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Term
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Definition
| Legislation that enabled a sweeping review of homeland security; addressing several social, economic and global initiatives to fight and prevent terrorist activities. |
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Term
| Financial Crime Enforcement Network (FinCEN) |
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Definition
| Required banks, broker-dealers and several other financial institutions to establish new anti-money laundering (AML) standards. |
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Term
| Anti-Money Laundering (AML) Program |
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Definition
| A program designed to achieve and monitor the member's compliance with the requirements of the Bank Secrecy Act; must be approved by a member of senior management. |
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Term
| 3 Steps of Money Laundering Process: |
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Definition
1. Placement- insert the illicit funds into the monetary system.
2. Layering- moving the funds around to obscure and audit trail.
3. Integration- making the laundered funds available to the criminal party. |
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Term
| Customer Identification Program |
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Definition
| Required during the account opening process; the regulations require to implement reasonable procedures to verify the identity of the customer opening an account, maintain records used to identify the customer, and consult government provided lists o f know or suspected terrorists (Office of Foreign Asset Control). |
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Term
| Suspicious Activity Reports (SARs) Rules |
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Definition
| State that procedures and plans must be in place to identify activity that one would deem suspicious of money laundering, terrorists financing and/or other illegal activities. These reports must be filed within 30 days of initial discovery to FinCEN. |
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Term
| The Bank Secrecy Act (BSA) |
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Definition
| Was designed to help identify the source, volume, and movement of currency transported into or out of the United States, or deposited in financial institutions. Authorizes the US Department of Treasury to require financial institutions to maintain records of financial transactions and to report any suspicious transactions. |
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Term
| Currency Transaction Report (CTR) |
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Definition
| Required from broker/dealers for single transactions involving currency that exceed $10k or multiple transactions during one business day that total more than $10k; must be filed with the Financial Crimes Enforcement Network (FinCEN)within 15 days. Records must be kept for 5 years. |
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Term
| Regulated Investment Company |
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Definition
| This type of company distributes 90% of its investment income back to its shareholder; eligible for special tax considerations (Conduit/Pipeline Theory). |
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Term
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Definition
| These considerations are designed to alleviate extra tax burdens on shareholders. |
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Term
| Corporate Dividend Exclusion |
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Definition
| A corporation investing ins stock other than its own may exclude 70% of any dividends received from its taxable income. |
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Term
| Cost Basis (of a security) |
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Definition
| The original price paid for the security, plus any sales charges or commissions. |
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Term
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Definition
| An increase or decrease in the value of a security (prior to sale). |
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Term
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Definition
| When a security is sold, any gain or loss that then becomes a tax issue. |
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Term
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Definition
| Assets held less than 1 year. |
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Term
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Definition
| Assets held 1 year or longer. |
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Term
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Definition
| If an investment is sold for less than its cost basis. |
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Term
| Net Capital Losses (Above-the-Line Deduction) |
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Definition
| Are allowed to be used as a deduction against ordinary income on a dollar-for-dollar basis. |
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Term
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Definition
| Determined by dividing the total cost of all shares owned by the total number of shares. To be calculated correctly, investors must also take into account all taxes previously paid on shares and that have been purchased through dividend or capital gains reinvestment programs. |
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Term
| FIFO (First In First Out) |
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Definition
| The assumption that the investor is redeeming the oldest shares. The cost of the shares held the longest become the cost basis for the shares being redeemed. |
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Term
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Definition
| Under this method, the investor keeps track of the cost of each share purchased and identifies the specific shares being redeemed; most accurate method of taxation, but also the most cumbersome. |
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Term
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Definition
| Is paid by the donor if the value exceeds $14k. |
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Term
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Definition
| If a security is inherited, the beneficiary gets this type of cost basis. The cost basis is altered to the fair market value of the securities on the day of the deceased's death. |
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Term
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Definition
| When an investor sells a security in order to establish a tax loss, it is possible that the IRS may not recognize the loss; the investor repurchases the same security within 30 days. |
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Term
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Definition
| Treats the separate account used to fund a variable annuity contract as life insurance. Investment income in the separate account is non-taxable; therefore a separate account can realize net investment and reinvested dividends without tax consequences. |
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Term
| Life Expectancy Multiplier Table |
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Definition
| Is used to determine the percentage of each payment that is taxable. The schedule provides a formula based on the annuitant's cost basis. |
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