Series 24 - Chapter 2
Minimum Supervision Requirements - correct answer ✔✔Designate appropriate registered principals
with authority to enforce WSP
Identify to FINRA OSJ
Identify to FINRA which principals are responsible for reviewing firms supervisory system and taking
action
Office of Supervisory Jurisdiction - correct answer ✔✔Any office where following takes place:
1) Order Execution and Market Making
2) Formation/structuring public offerings or private placements
3) Custody customer funds or securities
4) Final approval by principal of new accounts on behalf of member
5) Final approval retail communications (except for office that conducts final approval research reports)
6) Supervision of activities of persons at one of more member branches
MUST have copy of WSP and FINRA Manual at each OSJ
Responsibilities of OSJ - correct answer ✔✔1) Enforce WSP
2) Periodically review customer accounts
3) Maintain copies of customer records, including complaints
4) Periodically inspect branch offices
Specific Policies and Procedures - correct answer ✔✔Firm must have supervisory controls that include
specific review of :
1) all transmittals of funds or securities from customer accts that would result in change of beneficial
owner, to outside entities, to locations other than customer's address and to registered reps
2) Customer address changes
3) Customer investment objective changes
,FINRA Rule 3110 - correct answer ✔✔Requires annual inspection and review of OSJs and the lines of
business.
Branches that do not supervise other locations every 3 years
Disciplined Firm - correct answer ✔✔One that has been expelled from membership and is subject to
special supervisory procedures
Special Supervisory Procedures - correct answer ✔✔60 days to implement after FINRA notification
Must be maintained for 3 yrs with quarterly reports on telemarketing supervision to FINRA - recordings
and reports retained 3 yrs
Can use one time opportunity for relief by terminating registered reps - must be done within 30 days of
receiving notice from FINRA
Branch Office - correct answer ✔✔Any location held out to be where one or more associated persons of
a member regularly conduct the business of effecting transactions in or inducing purchase or sale of
security
Annual Independent Review of Supervisory Control Procedures - correct answer ✔✔Annual report to
senior management summarizing results of testing including CEO certification
Should consider:
1) Supervision of Multiple OSJs by a Single Principal
2) Internal Office Inspections
3) Restrictions on Supervisory Personnel
4) Risk based Reviews of Transactions
5) Risk based reviews of correspondence and communications
6) Internal Supervisory Reports
7) Customer Complaints
8) Review of Securities Transactions for Insider Trading
9) Internal Investigations of Securities Transactions for Insider Trading
10) Written Reports for firms engaging in Investment Banking services
,FINRA Rule 3120 - correct answer ✔✔Requires regular testing of controls
Annual Supervisory Control Report for firms with $200M or more in Gross Revenue must include: -
correct answer ✔✔1) Info related to customer complaints
2) Info related to internal investigations
3) Firms compliance efforts related to:
a) trading and market activities
b) investment banking activities
c) anti-fraud and sales practices
d) finance and operations
e) supervision
f) anti-money laundering
Annual Independent Review - correct answer ✔✔Annually, designated principal must submit rpt to
senior mgmt summarizing tests of controls and any amendment so procedures including CEO
certification. Should consider:
Supervision of Multiple OSJ's by single Principal;
Internal Office Inspections
Restrictions of Supervisory Personnel
Risk-Based Review of Transactions
Risk-Based Review of Correspondence and Communications;
Internal Supervisory Reports;
Customer Complaints
Review of Securities Transactions for Insider Trading
Internal Investigations of Securities Transactions for Insider Trading;
Written Reports for Firms Engaged in Investment Banking
FINRA Rule 3160 - correct answer ✔✔Networking Arrangements
Customers Must be Aware:
Not FDIC Insured
, No Bank Guarantee
May Lose Value
NASD Rule 3040 - correct answer ✔✔Private Securities Transactions of AP's
Requires notice to member
No written notice or response required if transaction is for benefit of immediate family member and no
comp received
Private Security Transaction - correct answer ✔✔Any securities transaction executed outside the scope
of an AP's employment with a member firm.
FINRA Rule 3270 - correct answer ✔✔Outside Business Activities
Requires written notification by employee; Member not required to provide written consent.
Passive Investments excluded
Written notices must be kept 3 yrs
FINRA Rule 3220 - correct answer ✔✔Influencing Employees of Others
Prohibits gifts in excess of $100 per person per year.
Lucite tombstones not considered gifts;
Gifts given to employees by member not covered by this rule. Contracts not covered
Records of gifts - 3 yr retention
FINRA Rule 3240 - correct answer ✔✔Borrowing from or Lending to Customers
Can't borrow or lend to/from customer unless firm has written procedures allowing and falls into the
following category:
1) customer is member of RR immediate family
2) customer is in business of lending money
3) customer and RR registered at same firm
4) lending arrangement is based on personal relationship outside of broker-customer relationship
5) lending arrangement based on business relationship outside of broker-customer relationship
Minimum Supervision Requirements - correct answer ✔✔Designate appropriate registered principals
with authority to enforce WSP
Identify to FINRA OSJ
Identify to FINRA which principals are responsible for reviewing firms supervisory system and taking
action
Office of Supervisory Jurisdiction - correct answer ✔✔Any office where following takes place:
1) Order Execution and Market Making
2) Formation/structuring public offerings or private placements
3) Custody customer funds or securities
4) Final approval by principal of new accounts on behalf of member
5) Final approval retail communications (except for office that conducts final approval research reports)
6) Supervision of activities of persons at one of more member branches
MUST have copy of WSP and FINRA Manual at each OSJ
Responsibilities of OSJ - correct answer ✔✔1) Enforce WSP
2) Periodically review customer accounts
3) Maintain copies of customer records, including complaints
4) Periodically inspect branch offices
Specific Policies and Procedures - correct answer ✔✔Firm must have supervisory controls that include
specific review of :
1) all transmittals of funds or securities from customer accts that would result in change of beneficial
owner, to outside entities, to locations other than customer's address and to registered reps
2) Customer address changes
3) Customer investment objective changes
,FINRA Rule 3110 - correct answer ✔✔Requires annual inspection and review of OSJs and the lines of
business.
Branches that do not supervise other locations every 3 years
Disciplined Firm - correct answer ✔✔One that has been expelled from membership and is subject to
special supervisory procedures
Special Supervisory Procedures - correct answer ✔✔60 days to implement after FINRA notification
Must be maintained for 3 yrs with quarterly reports on telemarketing supervision to FINRA - recordings
and reports retained 3 yrs
Can use one time opportunity for relief by terminating registered reps - must be done within 30 days of
receiving notice from FINRA
Branch Office - correct answer ✔✔Any location held out to be where one or more associated persons of
a member regularly conduct the business of effecting transactions in or inducing purchase or sale of
security
Annual Independent Review of Supervisory Control Procedures - correct answer ✔✔Annual report to
senior management summarizing results of testing including CEO certification
Should consider:
1) Supervision of Multiple OSJs by a Single Principal
2) Internal Office Inspections
3) Restrictions on Supervisory Personnel
4) Risk based Reviews of Transactions
5) Risk based reviews of correspondence and communications
6) Internal Supervisory Reports
7) Customer Complaints
8) Review of Securities Transactions for Insider Trading
9) Internal Investigations of Securities Transactions for Insider Trading
10) Written Reports for firms engaging in Investment Banking services
,FINRA Rule 3120 - correct answer ✔✔Requires regular testing of controls
Annual Supervisory Control Report for firms with $200M or more in Gross Revenue must include: -
correct answer ✔✔1) Info related to customer complaints
2) Info related to internal investigations
3) Firms compliance efforts related to:
a) trading and market activities
b) investment banking activities
c) anti-fraud and sales practices
d) finance and operations
e) supervision
f) anti-money laundering
Annual Independent Review - correct answer ✔✔Annually, designated principal must submit rpt to
senior mgmt summarizing tests of controls and any amendment so procedures including CEO
certification. Should consider:
Supervision of Multiple OSJ's by single Principal;
Internal Office Inspections
Restrictions of Supervisory Personnel
Risk-Based Review of Transactions
Risk-Based Review of Correspondence and Communications;
Internal Supervisory Reports;
Customer Complaints
Review of Securities Transactions for Insider Trading
Internal Investigations of Securities Transactions for Insider Trading;
Written Reports for Firms Engaged in Investment Banking
FINRA Rule 3160 - correct answer ✔✔Networking Arrangements
Customers Must be Aware:
Not FDIC Insured
, No Bank Guarantee
May Lose Value
NASD Rule 3040 - correct answer ✔✔Private Securities Transactions of AP's
Requires notice to member
No written notice or response required if transaction is for benefit of immediate family member and no
comp received
Private Security Transaction - correct answer ✔✔Any securities transaction executed outside the scope
of an AP's employment with a member firm.
FINRA Rule 3270 - correct answer ✔✔Outside Business Activities
Requires written notification by employee; Member not required to provide written consent.
Passive Investments excluded
Written notices must be kept 3 yrs
FINRA Rule 3220 - correct answer ✔✔Influencing Employees of Others
Prohibits gifts in excess of $100 per person per year.
Lucite tombstones not considered gifts;
Gifts given to employees by member not covered by this rule. Contracts not covered
Records of gifts - 3 yr retention
FINRA Rule 3240 - correct answer ✔✔Borrowing from or Lending to Customers
Can't borrow or lend to/from customer unless firm has written procedures allowing and falls into the
following category:
1) customer is member of RR immediate family
2) customer is in business of lending money
3) customer and RR registered at same firm
4) lending arrangement is based on personal relationship outside of broker-customer relationship
5) lending arrangement based on business relationship outside of broker-customer relationship
