3.1 Trading, Settlement and Corporate Actions

3.1.1  Orders and Strategies

• Types of orders (e.g., market, stop, limit, good-til-canceled (GTC), discretionary vs. non-discretionary, solicited

  vs. unsolicited)

  • Market Order: An order to buy or sell a security immediately at the best available price.
  • Limit Order: An order to buy or sell a security at a specific price or better. It only executes when the specified price is reached.
  • Stop Order: An order to buy or sell a security once it reaches a certain price, known as the stop price. Once the stop price is reached, it becomes a market order.
  • Good-Til-Canceled (GTC): An order that remains in effect until the investor decides to cancel it or the order is filled.
  • Discretionary vs. Non-Discretionary: Discretionary orders allow the broker some leeway in terms of price or time. Non-discretionary orders must be executed exactly as specified by the client.
  • Solicited vs. Unsolicited: Solicited orders are based on advice or recommendations from the broker, while unsolicited orders come directly from the client without any prompting or advice from the broker.

• Buy and sell, bid-ask

  • Buy (or Ask) Price: The price at which an investor is willing to purchase a security.
  • Sell (or Bid) Price: The price at which a seller is willing to sell a security.
  • Bid-Ask Spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to sell (ask).

• Trade capacity (e.g., principal, agency)

  • Principal: When a broker-dealer buys securities for its account or sells securities from its inventory.
  • Agency: When a broker acts as an intermediary between the buyer and the seller.

• Long and short, naked and covered

  • Long Position: When an investor buys a security expecting its price to rise.
  • Short Position: When an investor borrows a security and sells it, expecting to repurchase it later at a lower price to return to the lender.
  • Naked (Shorting): Selling short without actually borrowing the security or ensuring that it can be borrowed. It's riskier than a covered short.
  • Covered (Shorting): When the seller of the shorted security can deliver the shares, either because they own them or have borrowed them.

• Bearish and bullish

  • Bearish: A view or sentiment that expects a decline in the price of a security or market.
  • Bullish: A view or sentiment that expects a rise in the price of a security or market.

3.1.2  Investment Returns

• Components of Return:

  • Interest: Money earned from debt investments like bonds or savings accounts.
  • Dividends: Payments made by corporations to their shareholders, typically from profits.
  • Realized Gains: Profits from selling an investment for more than the purchase price.
  • Unrealized Gains: Increases in the value of an investment that hasn't been sold yet.
  • Return on Capital: Profit as a percentage of the investment's cost.

• Different Types of Dividends:

  • Cash Dividends: Payments made to shareholders in cash.
  • Stock Dividends: Payments made to shareholders in the form of additional shares.

• Dividend Payment Dates:

  • Record Date: The date by which you must be registered as a shareholder to receive the dividend.
  • Ex-Dividend Date: The date on or after which a security is traded without its previously declared dividend. If you buy a stock on its ex-dividend date or after, you will not receive the next dividend payment.
  • Payable Date: The date on which the dividend payment is made to shareholders.

• Concepts of Measurement:

  • Yield: The annual income from an investment as a percentage of its current price.
  • Yield to Maturity (YTM): The total return anticipated on a bond if held until it matures.
  • Yield to Call (YTC): The yield of a bond or note if you were to buy and hold the security until the call date.
  • Total Return: The overall gain or loss on an investment over a particular period, including income and capital appreciation.
  • Basis Points: A unit equal to 1/100th of 1% used to denote the change in a financial instrument.

• Cost Basis Requirements:

  • The cost basis of an investment refers to its original value, adjusted for stock splits, dividends, and capital distributions. It's used to determine the capital gains or losses on an investment when it's sold.

• Benchmarks and Indices:

  • Benchmarks are standards against which the performance of a security, mutual fund, or investment manager can be measured. They are often based on certain indices.
  • Indices represent a section of the stock or securities market and are used to give an investor a point of reference for the performance of their portfolio. Common indices include the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite.

3.1.3  Trade Settlement

• Settlement time frames for various products (e.g., T, T + 1, T + 2)

  • T: Represents the trade date, i.e., the day on which the trade takes place.
  • T + 1: Settlement occurs one business day after the trade date.
  • T + 2: Settlement occurs two business days after the trade date. This is the standard settlement period for many securities, including stocks, bonds, and exchange-traded funds (ETFs) in several markets around the world.
  • Different securities and markets might have different settlement periods, and it's essential for investors and traders to be aware of these periods to ensure timely settlement and avoid potential penalties.

• Physical vs. book entry (e.g., delivery and settlement)

  • Physical Delivery:
    • In this method, the actual physical certificates of the securities are handed over from the seller to the buyer.
    • Physical delivery is now rare, especially for most common securities like stocks and bonds, due to the inefficiencies and risks associated with handling and storing paper certificates.
  • Book Entry:
    • Most modern securities are now held in electronic or "book entry" form.
    • Instead of handing over a physical certificate, the securities are registered electronically in the accounts of the respective parties.
    • The transfer of ownership in book entry form is much more efficient and secure. The changes are made in the electronic ledger or "books" of the depository, and there's no need for any physical movement.
    • Centralized systems, such as the Depository Trust & Clearing Corporation (DTCC) in the U.S., facilitate these electronic settlements.

3.1.4  Corporate Actions

• Types of corporate actions (e.g., splits, reverse splits, buybacks, tender offers, exchange offers, rights offerings,

  mergers and acquisitions (M&A))

  • Splits: A stock split increases the number of shares in a company, with a proportional decrease in the share price. For example, in a 2-for-1 split, shareholders receive an additional share for every share they own, but the price of each share is halved.
  • Reverse Splits: Opposite of a stock split. The number of shares is decreased, with a proportional increase in the share price.
  • Buybacks: When a company repurchases its own shares from the open market, decreasing the number of outstanding shares.
  • Tender Offers: A proposal to buy shares from shareholders for a specific price and within a particular time frame.
  • Exchange Offers: A company offers to exchange one type of security for another.
  • Rights Offerings: Existing shareholders are given the right to buy additional shares at a discount to the current market price.
  • Mergers and Acquisitions (M&A): When companies consolidate. Mergers are combinations of equals, while acquisitions involve one company purchasing another.

• Impact of stock splits and reverse stock splits on market price and cost basis

  • On Market Price: After a stock split, the share price will decrease proportionally, while in a reverse split, it will increase. However, the overall market capitalization remains the same.
  • On Cost Basis: The cost basis per share is adjusted in line with the split. For example, if you bought 100 shares at $50 each (total cost basis of $5,000), after a 2-for-1 split, you'd have 200 shares with a cost basis of $25 each, but the total cost basis remains $5,000.

• Adjustments to securities subject to corporate actions

  • When corporate actions occur, adjustments might be made to securities, especially derivative contracts like options, to ensure that holders of these securities aren't unfairly advantaged or disadvantaged by the action.

• Delivery of notices and corporate action deadlines

  • Companies are required to provide shareholders with timely notices about corporate actions, often through regulatory filings, press releases, and direct communications.
  • These notices will detail the nature of the action, its implications, and any relevant deadlines by which shareholders must take specific actions.

• Proxies and proxy voting

  • A proxy is an authorization given by shareholders for someone else to vote on their behalf during company meetings.
  • Proxy voting allows shareholders to participate in company decisions without being physically present. Companies send proxy materials to shareholders, detailing issues to be voted on and providing options for shareholders to cast their votes, either by mail, online, or through other means.

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3.2 Customer Accounts and Compliance Considerations

3.2.1  Account Types and Characteristics

• Cash Account:

  • Description: An account in which the investor must pay the full amount for securities purchased.
  • Characteristics:
    • No borrowing allowed.
    • Trades need to be fully funded by the settlement date.
    • Suitable for most retail investors who buy and hold securities.

• Margin Account:

  • Description: An account that allows investors to borrow money from their brokerage to purchase securities.
  • Characteristics:
    • Requires a minimum balance (often set by regulatory bodies).
    • Interest is charged on borrowed funds.
    • Provides leverage, allowing for potentially higher returns but also greater risks.
    • Maintenance margins must be maintained to avoid margin calls.

• Options Account:

  • Description: An account that allows investors to trade options contracts.
  • Characteristics:
    • Requires approval due to the complex nature of options.
    • Different levels of options trading permissions based on experience and risk tolerance.
    • Investors can buy and sell call and put options, among other strategies.

• Discretionary vs. Non-Discretionary:

  • Discretionary Account:
    • A broker or investment manager has the authority to make trades without the client's consent for each trade.
    • Typically used by investors who don't have the time or expertise to manage their portfolios.
  • Non-Discretionary Account:
    • The client makes all investment decisions.
    • The broker can only execute trades based on the client's instructions.

• Fee-Based vs. Commission:

  • Fee-Based Account:
    • Investors pay a fixed fee, often a percentage of assets under management (AUM).
    • Aligns the interests of the advisor and client as both benefit when the portfolio grows.
  • Commission Account:
    • Brokers earn a commission for each trade executed.
    • Potential for conflict of interest as brokers might be incentivized to encourage more trading.

• Educational Accounts:

  • Description: Accounts designed to help save for educational expenses.
  • Characteristics:
    • Often offer tax advantages.
    • Examples include 529 Plans, Coverdell Education Savings Accounts (ESA), and prepaid tuition plans.
    • Withdrawals are typically tax-free when used for qualified educational expenses.

3.2.2  Customer Account Registrations

 

• Individual:

  • Description: Registered in the name of a single person.
  • Characteristics:
    • Sole owner of the account.
    • Full control over investment decisions.
    • Beneficiaries can be designated for inheritance purposes.

• Joint:

  • Description: Account owned by two or more individuals.
  • Characteristics:
    • Joint tenants with rights of survivorship (common form) means that if one owner dies, the surviving owner(s) inherits the account.
    • Tenants in common allows each joint holder to own a specific percentage, which can be passed on to their beneficiaries.

• Corporate/Institutional:

  • Description: An account for businesses or institutions.
  • Characteristics:
    • Requires more documentation like articles of incorporation.
    • Often managed by designated officers or employees.

• Trust:

  • Description: An account established to hold assets on behalf of beneficiaries.
  • Characteristics:
    • Revocable Trust: Can be altered or canceled by the grantor.
    • Irrevocable Trust: Cannot be altered after it's created.
    • Managed by trustees.

• Custodial:

  • Description: Account established for a minor.
  • Characteristics:
    • Under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA).
    • Controlled by a custodian until the minor reaches a certain age.

• Partnerships:

  • Description: Account for business partnerships.
  • Characteristics:
    • Requires a partnership agreement.
    • Can have multiple partners, each with specific ownership percentages.

•  

• Retirement:

  • Individual Retirement Account (IRA):

    • Tax Treatment:
      • Traditional IRA: Contributions are often tax-deductible, meaning you can reduce your taxable income in the year you contribute. However, withdrawals in retirement are taxed as regular income.
      • Roth IRA: Contributions are made with after-tax dollars (not tax-deductible). However, qualified withdrawals in retirement are tax-free.
    • Contribution Limits (as of the last update in 2022):
      • Maximum of $6,000 annually for those under 50.
      • Additional $1,000 catch-up contribution allowed for those 50 and older, making it a total of $7,000.

  • Qualified Plans:

    • 401(k) and 403(b):
      • Tax Treatment:
        • Traditional 401(k) and 403(b): Contributions are pre-tax, reducing your taxable income. Withdrawals in retirement are taxed as regular income.
        • Roth 401(k) and 403(b): Contributions are post-tax (not reducing your taxable income), but qualified withdrawals in retirement are tax-free.
      • Contribution Limits (as of the last update in 2022):
        • Maximum of $19,500 annually for those under 50.
        • Additional $6,500 catch-up contribution for those 50 and older, making it a total of $26,000.
    • 457 Plans (often for government employees):
      • Similar tax treatments as 401(k) and 403(b).
      • Contribution limits are also similar to 401(k) and 403(b) plans.

  • Simplified Employee Pension (SEP) IRA:

    • Tax Treatment: Contributions are tax-deductible for the employer or self-employed individual. Withdrawals in retirement are taxed as regular income.
    • Contribution Limits (as of the last update in 2022): The lesser of 25% of the employee's compensation or $58,000.

  • Savings Incentive Match Plan for Employees (SIMPLE) IRA:

    • Tax Treatment: Contributions are pre-tax, and withdrawals in retirement are taxed as regular income.
    • Contribution Limits (as of the last update in 2022):
      • Employee deferrals up to $13,500 annually for those under 50.
      • Additional $3,000 catch-up contribution for those 50 and older.

  • Solo 401(k) (for self-employed individuals):

    • Tax Treatment: Similar to traditional and Roth 401(k) plans.
    • Contribution Limits (as of the last update in 2022):
      • Employee and employer contributions combined: Up to $58,000, or $64,500 with the catch-up contribution for those 50 and older.
  • Required Minimum Distributions (RMDs): Mandatory withdrawals that typically start at age 72.

3.2.3  Anti-money Laundering (AML)

• Definition of Money Laundering:

  • The process of making illegally-gained proceeds (dirty money) appear legal (clean). This is done by concealing the origins of ill-gotten money and converting it into legitimate assets.

• Stages of Money Laundering:

  • Placement: Introducing the illicit funds into the financial system. This could be done by depositing cash into a bank, purchasing assets, or using the money for gambling.
  • Layering: The purpose of this stage is to obscure the origins of the money. This can be achieved by moving the money around through complex layers of financial transactions, making it difficult to trace. Examples include transferring between different accounts (often across different banks or even countries), changing the form of the money by buying and selling assets, or simply withdrawing and depositing the money repeatedly.
  • Integration: The 'cleaned' money is integrated into the legitimate economic and financial system and is used to acquire legal assets or fund legal business activities. At this stage, it becomes very difficult to distinguish legal money from laundered money.

• AML Compliance Program:

  • A set of procedures and policies established by financial institutions to detect and prevent money laundering activities. This often includes customer due diligence, transaction monitoring, and regular training for employees.

• Suspicious Activity Report (SAR):

  • A document filed by financial institutions when they identify potentially suspicious or unusual activities. It's a way to report these suspicions to the relevant authorities.

• Currency Transaction Report (CTR):

  • Filed by financial institutions for any transaction involving more than $10,000 in cash. It's designed to help authorities spot large cash transactions that might be a sign of money laundering or other illicit activities.

• FinCEN:

  • Stands for the Financial Crimes Enforcement Network. It's a bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat money laundering, terrorist financing, and other financial crimes.

• Office of Foreign Asset Control (OFAC) and the Specially Designated Nationals and Blocked Persons (SDNs) List:

  • OFAC: An office of the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against targeted foreign countries, terrorists, international narcotics traffickers, and others.
  • SDNs List: A list maintained by OFAC that includes individuals, companies, and other entities that are owned or controlled by, or acting on behalf of, targeted countries. It also lists individuals, groups, and entities involved in terrorism or drug trafficking. U.S. persons and businesses are generally prohibited from dealing with those on the SDNs list.

3.2.4  Books and Records and Privacy Requirements

• Books and Records Retention Requirements:

  • Financial institutions are required to maintain and preserve certain types of business-related records for specified periods, often for several years. This ensures accurate record-keeping, aids in audits, and ensures regulatory compliance.

• Confirmations and Account Statements:

  • Confirmations: Documents sent to customers verifying that a specific transaction took place. These are typically sent promptly after a trade is executed.
  • Account Statements: Periodic summaries sent to customers detailing account activity, including transactions, fees, balances, and other relevant information.

• Holding of Customer Mail:

  • If requested by a client (often due to travel or other reasons), financial institutions can hold mail for a specified period. However, there are guidelines to follow, ensuring that holding mail doesn't hinder essential communications.

• Business Continuity Plans (BCP):

  • Plans designed to ensure that financial institutions can continue to operate during and after significant disruptions, such as natural disasters, cyberattacks, or other crises. BCPs address data backup, alternate communication channels, and relocation strategies, among other things.

• Customer Protection and Custody of Assets:

  • Regulations ensure that customer funds and securities are protected and correctly held by financial institutions. This involves segregating customer assets from the firm's assets and maintaining proper custody procedures.

• Privacy Requirements:

  • Regulation S-P: A U.S. regulation that addresses the privacy practices of financial institutions. It mandates certain practices concerning the collection, disclosure, and protection of non-public personal information.

    • Background:

      • Adopted by the U.S. Securities and Exchange Commission (SEC) in 2000, Regulation S-P is part of the SEC's effort to implement the Gramm-Leach-Bliley Act (GLBA). It addresses how financial institutions must handle personal information.

    • Who is Affected:

      • Regulation S-P applies to brokers, dealers, investment companies, and registered investment advisers.

    • Initial Privacy Notice:

      • Financial institutions must provide consumers with an initial privacy notice when the customer relationship is established. This notice outlines the institution's information-sharing practices and describes the consumer's right to opt-out if they do not want their information shared with non-affiliated third parties.

    • Annual Privacy Notice:

      • After the initial notice, institutions must send customers an annual privacy notice, updating them on the institution's current privacy practices.

    • Opt-Out Provisions:

      • If a financial institution wishes to share nonpublic personal information with non-affiliated third parties (excluding specific exceptions like sharing with service providers), it must give consumers an opportunity to opt-out.

    • Protection of Information:

      • Institutions must protect the security, confidentiality, and integrity of the nonpublic personal information they collect. This includes protecting against anticipated threats and unauthorized access.

    • Exceptions:

      • Regulation S-P does allow for certain exceptions. For instance, institutions can share information with third parties that market the institution's products or services or with third parties that perform services on the institution's behalf (like processing or servicing transactions).

    • Safeguard Rule:

      • A key component of Regulation S-P, the Safeguard Rule, requires financial institutions to adopt written policies and procedures to ensure the security and confidentiality of customer records and information. These should be designed to protect against potential threats or hazards to the security of such records.

    • Enforcement:

      • Failure to comply with Regulation S-P can result in penalties. The SEC is responsible for enforcing this regulation, ensuring that financial institutions are upholding the privacy and protection standards set out.

  • Nonpublic Personal Information:

    • Personal information that isn't publicly available, such as Social Security numbers, account balances, transaction history, and other similar data.

  • Confidentiality of Information:

    • Financial institutions are required to maintain the confidentiality of customer information, ensuring that it isn't disclosed improperly.

  • Privacy Notifications:

    • Institutions must provide their customers with notices detailing their privacy policies and practices. These notices are often given when a customer relationship is established and then annually.

  • Safeguard Requirements:

    • Financial institutions must implement security practices to protect customer information. This includes physical measures (like secured offices and file cabinets) and technological measures (like encryption and firewalls).

3.2.5  Communications with the Public and General Best Interest Obligations and Suitability Requirements

• Communications with the public and telemarketing

  • Classifications and General Requirements: Communications with the public, especially in the financial sector, are subject to rigorous standards to ensure clarity, fairness, and accuracy. They must not be misleading and should provide a balanced view, especially when discussing potential risks and rewards. Types of communications can include advertisements, sales literature, and correspondence.

  • Do-Not-Call List: A list maintained to protect consumers from unsolicited telemarketing calls. Financial institutions must respect this list, refraining from calling those who have registered on it. Additionally, firms often maintain their own internal do-not-call lists based on specific customer preferences.

• Best interest obligations and suitability requirements

  • Know-Your-Customer (KYC): An essential principle in the financial industry, KYC involves thoroughly understanding a client's financial situation, investment experience, and risk tolerance. It aids in ensuring that professionals only make suitable recommendations tailored to individual client needs.

  • General requirements (e.g., what constitutes a recommendation)

    • What Constitutes a Recommendation: A "recommendation" in the financial industry refers to any communication that, based on its content, context, and presentation, would reasonably be viewed as a call to action or influencing a client's decision regarding a particular investment or investment strategy. This can include advice on buying or selling securities or even holding an existing investment. When making such a recommendation, the financial professional must believe that the recommendation is in the client's best interest and must not place their own interests ahead of the client's.

    • Disclosures: Financial professionals must provide clear, concise disclosures to their clients about the terms and risks of recommended transactions, potential conflicts of interest, and the firm's compensation for the transaction.

    • Care Obligation: Before making a recommendation, professionals must have a reasonable basis to believe that the investment or strategy is in the client's best interest. This includes considering potential risks, rewards, and costs associated with the recommendation.

    • Conflict of Interest Obligation: Firms must establish, maintain, and enforce written policies and procedures to identify, disclose, and mitigate or eliminate conflicts of interest. This ensures that clients receive advice that's genuinely in their best interest.

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3.3 Prohibited Activities

3.3.1  Market Manipulation

• Definition of market manipulation

  • Definition of Market Manipulation: Market manipulation refers to deliberate acts taken to artificially influence the price or trading volume of a security or commodity, deceiving investors and violating established trading practices.

• Types of market manipulation (e.g., market rumors, pump and dump, front running, excessive trading, marking

  the close, marking the open, backing away, freeriding)

  • Market Rumors: Spreading false or misleading information to move the price of a security.

  • Pump and Dump: Involves artificially inflating the price of a stock (pumping) through false or misleading statements, and then selling off the stock at its high point (dumping).

  • Front Running: When a broker or dealer executes orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers.

  • Excessive Trading: Also known as "churning," it involves brokers buying and selling securities for a client's account excessively to generate commissions.

  • Marking the Close: Manipulating trades to influence the closing price of a security.

  • Marking the Open: Manipulating trades to influence the opening price of a security.

  • Backing Away: When a market maker does not honor a quoted bid or ask price in a security, violating their obligation to maintain market liquidity.

  • Freeriding: Buying a security and selling it before paying for the purchase in full, in violation of Regulation T of the Federal Reserve Board.

3.3.2  Insider Trading

• Definition of insider trading

  • Definition of Insider Trading: Insider trading involves buying or selling a security based on material nonpublic information. This action is illegal when it breaches a fiduciary duty or other relationship of trust and confidence.

• Definition of material nonpublic information

  • Definition of Material Nonpublic Information: Information that a reasonable investor would consider important in making an investment decision and that has not been disclosed to the public.

• Identifying involved parties

  • Company insiders, such as executives, directors, and employees.
  • Family members, business partners, and friends of company insiders.
  • Outside individuals who come into possession of material nonpublic information, such as lawyers, accountants, consultants, and others who have a duty to maintain the confidentiality of information.

• Penalties (e.g., fines, expulsion, incarceration)

  • Fines: Both individuals and institutions can face hefty fines, often exceeding the amount of profit gained or loss avoided from the illegal activity.

  • Expulsion: Professionals may be banned from working in the securities industry.

  • Incarceration: Insider trading and market manipulation can lead to prison sentences.

  • Civil Penalties: Individuals may be required to pay back multiple times the amount of profit gained or loss avoided.

  • Reputation Damage: Beyond legal penalties, being associated with such illegal activities can irreparably damage an individual's or institution's reputation.

3.3.3  Other Prohibited Activities

• Restrictions preventing associated persons from purchasing initial public offerings (IPOs)

  • FINRA Rule 5130 prohibits associated persons (like brokers and dealers) from purchasing shares in an IPO for their own accounts. This ensures that IPO shares are distributed equitably among the public and prevents potential conflicts of interest.

• Use of manipulative, deceptive or other fraudulent devices

  • It's illegal to employ any manipulative or deceptive device in connection with the purchase or sale of any security. This includes spreading false information or creating false demand or supply for a security.

• Improper use of customers’ securities or funds

  • Borrowing from customers

    • Financial professionals are generally prohibited from borrowing money or securities from customers, unless the broker-dealer has written procedures in place allowing such borrowing under specific conditions.

  • Sharing in customer accounts

    • Without prior written consent, brokers and other financial professionals can't share in the profits or losses of a customer's account.

• Financial exploitation of seniors

  • Many regulatory bodies have rules in place to protect seniors and other vulnerable individuals from financial exploitation, including unsuitable investments or fraudulent activities.

• Activities of unregistered persons

  • Prohibition against paying commissions to unregistered persons

    • Registered broker-dealers can't pay commissions or other transaction-based compensations to unregistered persons

  • Prohibition against solicitation of customers and taking orders

    • Unregistered individuals are prohibited from soliciting customers and taking securities orders.

• Falsifying or withholding documents

  • Signatures of convenience

    • Forging or using pre-signed forms or other documents in client transactions is illegal and can lead to disciplinary actions.

  • Responding to regulatory requests

    • Firms and individuals are required to promptly and fully respond to requests for information from regulatory bodies. Withholding or delaying information can result in penalties.

• Prohibited activities related to maintenance of books and records (e.g., falsifying records and improper

  maintenance/retention of records)

  • Falsifying records: Altering or creating false records related to customer transactions, communications, or internal processes is illegal.
  • Improper maintenance/retention of records: Firms are required to maintain accurate records for specified periods. Failure to properly maintain or prematurely discarding records is a violation.

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Rules

FINRA Rules

• 2010 – Standards of Commercial Honor and Principles of Trade
• 2020 – Use of Manipulative, Deceptive or Other Fraudulent Devices
• 2040 – Payments to Unregistered Persons
• 2090 – Know Your Customer
• 2111 – Suitability
• 2120 – Commissions, Mark Ups and Charges
• 2150 – Improper Use of Customers’ Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts
• 2165 – Financial Exploitation of Specified Adults
• 2210 – Communications with the Public
• 2231 – Customer Account Statements
• 2251 – Forwarding of Proxy and Other Issuer-related Materials
• 2264 – Margin Disclosure Statement
• 2232 – Customer Confirmations
• 3150 – Holding of Customer Mail
• 3210 – Accounts at Other Broker-Dealers and Financial Institutions
• 3230 – Telemarketing
• 3240 – Borrowing from or Lending to Customers
• 3250 – Designation of Accounts
• 3260 – Discretionary Accounts
• 3310 – Anti-money Laundering Compliance Program
• 4210 – Margin Requirements
• 4370 – Business Continuity Plans and Emergency Contact Information
• 4511 – General Requirements
• 4512 – Customer Account Information
• 4514 – Authorization Records for Negotiable Instruments Drawn From a Customer's Account
• 5130 – Restrictions on the Purchase and Sale of Initial Equity Public Offerings
• 5210 – Publication of Transactions and Quotations
• 5220 – Offers at Stated Prices
• 5230 – Payments Involving Publications that Influence the Market Price of a Security
• 5240 – Anti-intimidation/Coordination
• 5270 – Front Running of Block Transactions
• 5280 – Trading Ahead of Research Reports
• 5290 – Order Entry and Execution Practices
• 5310 – Best Execution and Interpositioning
• 5320 – Prohibition Against Trading Ahead of Customer Orders
• 6438 – Displaying Priced Quotations in Multiple Quotation Mediums

MSRB Rules

• G-8 – Books and Records to be Made by Brokers, Dealers, Municipal Securities Dealers, and Municipal Advisors
• G-9 – Preservation of Records
• G-13 – Quotations
• G-14 – Reports of Sales or Purchases
• G-15 – Confirmation, Clearance, Settlement and Other Uniform Practice Requirements with Respect to Transactions with Customers
• G-18 – Best Execution
• G-21 – Advertising
• G-25 – Improper Use of Assets
• G-39 – Telemarketing
• G-41 – Anti-money Laundering Compliance Program
• G-47 – Time of Trade Disclosure

SEC Rules and Regulations

• Regulation M
• Regulation S-P – Privacy of Consumer Financial Information and Safeguarding Personal Information
• Securities Exchange Act of 1934
  • Section 10 – Regulation of the Use of Manipulative and Deceptive Devices
  • Section 11(d) – Trading by Members of Exchanges, Brokers and Dealers – “Prohibition on Extension of Credit by Broker-Dealer”
  • Section 14 – Proxies
  • Section 15 – Rules Relating to Over-the-Counter Markets
  • Section 20A – Liability to Contemporaneous Traders for Insider Trading
  • Section 21A – Civil Penalties for Insider Trading
  • 10b-1 – Prohibition of Use of Manipulative or Deceptive Devices or Contrivances with Respect to Certain Securities Exempted from Registration
  • 10b-3 – Employment of Manipulative and Deceptive Devices by Brokers or Dealers
  • 10b-5 – Employment of Manipulative and Deceptive Devices
  • 10b5-1 – Trading on Material Nonpublic Information in Insider Trading Cases
  • 10b5-2 – Duties of Trust or Confidence in Misappropriation Insider Trading Cases
  • 10b-10 – Confirmation of Transactions
  • 15c1-2 – Fraud and Misrepresentation
  • 15c1-3 – Misrepresentation by Brokers, Dealers and Municipal Securities Dealers as to Registration
  • 15c2-12 – Municipal Securities Disclosure
  • 15l-1 – Regulation Best Interest
  • 17a-3 – Records to be Made by Certain Exchange Members, Brokers and Dealers
  • 17a-4 – Records to be Preserved by Certain Exchange Members, Brokers and Dealers
  • 17a-14 – Form CRS, for Preparation, Filing and Delivery of Form CRS

• Investment Company Act of 1940

  • 17a-6 – Exemption for Transactions with Portfolio Affiliates
  • 17a-7 – Exemption of Certain Purchase or Sale Transactions Between an Investment Company and Certain Affiliated Persons Thereof

Insider Trading & Securities Fraud Enforcement Act of 1988 (ITSFEA)

Federal Reserve Board

• Regulation T

Federal Trade Commission

• Telemarketing Sales Rule

USA PATRIOT Act

• Section 314 – Cooperative Efforts to Deter Money Laundering
• Section 326 – Verification of Identification
• Section 352 – Anti-Money Laundering Programs