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Ch 9 (FINA-270)

Terms in this set (30)

FINRA must retain correspondence records for how many years?
Three (3)
Prohibited Activities
1. matching buy/sell orders to create the appearance of active markets
2. trading for the sole purpose of increasing the price of a security
3. spreading false rumors to get others to buy or sell
Insider
anyone who has access to material (important) non-public information
Insider trading
when someone uses material, non-public information to decide whether to buy or sell
The person who buys or sells based on material, non-public information is not liable of insider trading if they did not know the information was material or non-public
True
Max Penalty for insider trading
individual: 3 x the profit gained or loss avoided
firm: either $1 million or 3 x profit gained or loss avoided, whichever is greater
Restricted persons
anyone who has a beneficial interest in an IPO (greater than 10%)
Examples of restricted persons
-FINRA member firms & other broker-dealers
-Broker-dealer personnel
-Lawyers, accountant, finl. consultants, anyone acting in a fiduciary capacity to the lead underwriter
-portfolio managers
-anyone with greater than 10% ownership interest in the broker-dealer
Front-running
when a member or registered representative trades a security ahead of a client's trade because they expect the trade to affect the security's price
Trading Ahead of Research Reports
member firms cannot buy or sell a security ahead of the release of a research report on the security
Painting the tape
when reps tade a security back and forth to create the appearance of high trading volume and get the price to go up
Marking the open/close
making multiple trades minutes after the opening or before the closing of the market to manipulate the price of the security
Market manipulation
when an individual or firm uses deceptive techniques to change the price of a security
Market makers cannot take compensation from an issuer
True
Churning
when a rep makes excessive transactions in a customer's account to generate more commissions
Trade shredding
splitting orders into multiple, smaller orders to earn higher commissions (ex: one $1,000 trade turns into 10 $100 trades)
Interpositioning
using an unnecessary middleman to increase commissions
Cold calls can only be made between the hours of
8:00 am - 9:00 pm
Correspondence
any written or electronic communication sent to 25 or fewer customers in a 30-day period
Correspondence does not need principal approval
True
Retail communication
info made available to the public through the media
Retail communication must be approved by principal beforehand
True
Sales literature
a type of retail communication, also must be approved by principal beforehand
Institutional communications
communications that are only given to institutional investors & will not end up in the hands of retail consumers
Institutional communications do not need principal approval & do not need to be filed with FINRA
True
Communications that must be filed with FINRA within 10 days of first use
-advertisements about investment companies
-direct participation programs
-CMOs (collateralized mortgage obligation)
Communications that must be filed with FINRA 10 days before first use
-security futures
-bond funds with volatility ratings
-investment company advertisements with performance rankings
1st-year firms must file all retail communications with FINRA 10 days PRIOR to first use
True
Testimonials cannot suggest that membership in FINRA means the firm is endorsed by FINRA
True
Disclaimers needed in testimonials:
-testimonial may not be representative of other customers
-testimonial is no guarantee of future performance
-testimonial is paid (if it is paid)
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