SIE Study Guide Navigation
- SIE Study Guide Home
- 1.1 Regulatory organizations, establishments and participants in the capital market
- 1.2 Structure of capital markets
- 1.3 Understanding economic factors
- 1.4 Types of security offerings
- 2.1 Securities products in capital markets
- 2.2 Various types of investment risk
- 3.1 Settlement, trading, and corporate actions
- 3.2 Compliance considerations and customer accounts
- 3.3 Prohibited activities
- 4.1 Associated persons SRO regulatory requirements
- 4.2 Reportable events and employee conduct
In this section of the study guide, we specifically look at reportable events as well as employee conduct.
Reportable events
Within the regulatory framework that governs registered representatives and firms such as broker-dealers that work in the securities industry, there are a host of reportable events to take note of.
Let’s look at some that are the most critical to know.
- Outside business activities: If a registered representative takes part in outside business activities, they have to disclose this when filling in a Form U-4. Some examples of these kinds of activities as described by FINRA Rule 3270 include if they are an employee at another company, if they serve on any board in some capacity (a director for example), and if they receive compensation for services outside of their job or if they own rental real estate.
- Selling Away violations: This is linked to private securities transactions. Registered representatives have an approved list of the securities products their firm trades in. They may not deviate from this approved list at all and receive compensation for selling other securities unless they first get written permission that they are allowed to. Note that if permission is given, the transaction is supervised through the firm. In some cases, even if there is no compensation to be received, written permission may still be required.
- Political contributions: This falls under MSRB rule limitations. It states that firms that market municipal bonds and the registered representatives that work for them can only make contributions of $250 per election campaign. This means they cannot have influence over a politician who when elected could provide underwriting business for a firm from his municipality, for example.
- Maximum gifts: Customers may only give receive gifts of up to $100 per year from their customers. If they are giving gifts to their customers, they can on spend $100 per annum on them.
- Noncash compensation: There are maximum amounts stipulated in FINRA rules when it comes to gifts as well as meals and lodging related to training seminars, for example.
- Liens and bankruptcies: These must be reported as part of the completion of the Form U4.
Employee conduct
- Customer complaints: A specific procedure is to be followed if a written customer complaint is received against a registered representative. These could constitute a violation of not only FINRA rules but SEC regulations as well. Depending on the validity of the complaint, a hearing in front of arbitrators appointed by FINRA could be called. Should the registered representative be found guilty, they have no right of appeal as these rules are considered final.
- Forms U4 and U5: A Form U4 contains critical information about registered representatives. If their position changes, for example, they move residence, become bankrupt, are involved in a lawsuit, or face criminal charges, it must be updated. A Form U5 is necessary if a registered representative leaves their job. This could be voluntary or involuntary but the U5 must include the reasons for the departure as stipulated by the firm.
