FINRA Series 6 Free Practice Questions Quiz 78

Customer account information
FINRA Rule 4512 requires that for each new account that is opened, the following information must be collected and kept in the account’s records:
1. Customer’s name, address, and age
2. The names and responsibilities of any persons associated with the account other than the customer
3. Customer’s signature, or the signature of an authorized representative in the case of an institutional customer
4. The names of any persons authorized to act on the customer’s behalf
5. For accounts that are not institutional accounts, the member must also collect the customer’s tax identification number or Social Security number,
the occupation and name and address of the customer’s employer and whether the customer is an associated person of another member firm.

Payments involving publications that influence the market price of a security
FINRA Rule 5230 states that no one may receive anything of value in exchange for publishing something that will influence the purchase or sale of a security. This includes any publications that occur via the Internet, television, and in writing. There are specific exemptions laid out in the rule, including the following:
A communication that is clearly an advertisement
A communication that includes a disclosure of the amount of compensation received
A research report, as specifically defined by NASD Rule 2711

In order to comply with Rule 482 of the Securities Act of 1933, any advertisement of an investment company must include a statement that advises an investor to consider the investment objectives, risks, and charges and expenses of the investment company carefully before investing; explains that the prospectus and, if available, the summary prospectus contain this and other information about the investment company; identifies a source from which an investor may obtain a prospectus and, if available, a summary prospectus; and states that the prospectus and, if available, the summary prospectus should be read carefully before investing.

A legend disclosing that the performance data quoted represents past performance; that past performance does not guarantee future results; that
the investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than
their original cost; and that current performance may be lower or higher than the performance data quoted.

Sales literature deemed to be misleading
Rule 34b-1 provides important guidance for investment companies in developing sales literature that accurately portrays their security and would not be classified as misleading to investors. Specifically, sales literature must contain many things. Some of them are:
 A statement that advises an investor to consider the investment objectives, risks and charges and expenses of the investment company carefully before
investing, explains where the investor may obtain the prospectus and statement of additional information and that the prospectus should be read
carefully before investing
 Advertisements used prior to the effectiveness of the registration statement must include a “subject to completion” legend
 Advertisements including performance data must include

FINRA Rule 2020 Use of Manipulative, Deceptive or Other Fraudulent Devices states: “No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive, or other fraudulent device or contrivance.” The importance of this rule is in ensuring the integrity of the capital markets and the confidence of retail investors that the markets are not “rigged” for the larger, institutional investors or those with critical inside information.

Dealing with Non-members
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. In any transaction with any non-member broker or dealer, allow or grant to
such non-member broker or dealer any selling concession, discount, or other allowance allowed by such member to a member of a registered securities
association and not allowed to a member of the general public;
2. 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; or
3. 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, as the case may be, from or to a person who is a member of the general public not engaged in the investment
banking or securities business.

Employment of manipulative and deceptive devices by brokers or dealers (Rule 10b-3) – it is prohibited for a broker or dealer to purchase or sell a security otherwise than on a national exchange with an act that is manipulative, deceptive, or fraudulent. The same is also prohibited for municipal securities dealers and municipal securities.

Employment of manipulative and deceptive devices (Rule 10b-5) – it is prohibited for any person to employ and device, scheme, or artifice to defraud; to
make any untrue statements of material fact; or to engage in any act, practice, or course of business that would be a fraud or deceit upon any person in connections with the purchase or sale of any security.

Use of manipulative, deceptive, or other fraudulent devices
A member would be in violation of Rule 2020 if he used falsified, enhanced financial reports to entice an investor to purchase a certain security. In addition to being dishonest and illegal, such activities have significantly negative repercussions for the markets as they reduce market efficiency and drastically reduce market participation among smaller investors if discovered.