FINRA Series 6 Free Practice Questions Quiz 21

NASD Rule 2420 states that members shall deal with non-members at the same prices, fees, and terms and commissions as in their dealings with the general public. Additionally, the rule states that no member shall:
1. Join with any non-member broker or dealer in any syndicate or group contemplating the distribution to the public of any issue of securities or any part thereof
2. Sell any security to or buy any security from any non-member broker or dealer except at the same price at which at the time of such transaction such member would buy or sell such security.

Transactions between members and non-members (IM-2420-1)
B.Exempted securities/transactions – the Rule does not apply to exempted securities defined in Section 3(a)(12) of the Act. The Rule does not apply to transactions enacted on an exchange.
Over-the-counter transactions in securities other than exempted securities – A member may not participate in a selling group with a suspended or expelled dealer.

MSRB Rule G-19 requires that, prior to trading in a retail customer’s account, the registered individual must collect suitability information regarding the customer’s financial status, tax status, investment objective concerning the municipal security being traded, and any other information that might be required to ensure that the transaction meets the customer’s suitability needs. – 19 expressly forbids churning in accounts through multiple transactions, or unreasonably large transactions to provide larger commissions to the registered person.

NASD Rule 2830 provides for the regulation of securities of companies that are registered under the Investment Company Act of 1940. The rule provides for the definition of a number of key terms, as follow:
“Brokerage commission”,“Covered account”, prime rate, public offering price, rights of accumulation, service fees, funds of funds, asset based sales charge, deferred sales charge, and front-end sales charge, selling dividends, withholding orders, and a refund of sales charges

Pursuant to NASD Rule 2830, “brokerage commission” shall not be limited to commissions on agency transactions but shall include underwriting discounts or concessions and fees paid to members in connection with tender offers.

Pursuant to NASD Rule 2830, “public offering price” shall mean a public offering price as set forth in the prospectus of the issuing company.

An “asset based sales charge” is a sales charge that is deducted from the net assets of an investment company and does not include a service fee. Asset-based sales charges may not exceed 0.75%.

FINRA Rule 2830 provides for certain restrictions and limitations on the circumstances and types of compensation that can be paid to members and associated persons for the sale of investment company securities, as follows:
1. No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated.
2. No member or person associated with a member shall accept any compensation from an offeror in the form of securities.
3. Members are obligated to maintain records of all compensation received by the member or its associated persons and such records shall include the names of the offerors, names of the associated persons, and amounts of cash and non-cash compensation.
4. No member shall accept any cash compensation from an offeror unless it is described in a current prospectus of the investment company.

The Securities Act of 1933 defines an issuer as “every person who issues or proposes to issue any security.” Please bear in mind that person is defined as “an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof.” The issuer plays a key role in the securities markets because the return to the investor, whether through capital appreciation and dividends on equity securities or through coupon and principal repayments on debt securities, will be dependent upon the financial performance of the issuer.

As stated by the SEC, their mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate
capital formation.” The SEC accomplishes these objectives by interpreting federal securities laws in order to issue new rules and amend existing rules.
Additionally, the SEC plays a critical role in overseeing the inspection of securities firms, brokers, investment advisers, and ratings agencies as well as private regulatory organizations in the fields of securities, accounting, and auditing. The SEC is also responsible for coordinating the regulation of securities across the federal state and foreign regulatory bodies. The Securities and Exchange Commission (SEC) is responsible for ensuring that market participants have adequate information with which to make informed investment decisions.