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Series 24
FINRA Series 24 Exam
| Term | Definition |
|---|---|
| Rule 147 | The intrastate exemption. 80% of consolidated revenues; 80% of consolidated assets; 80% of net proceeds from the offering are intended to be used by the issuer. |
| Regulation M | Regulates trading practices involving new issues; restricts distribution participants (ex. underwriters and issuers) from making purchases in the secondary market. Does NOT include nonconvertible debt, 144A transactions, and gov./municipal securities. |
| Rule 144 | Permits the resale of restricted stock under certain conditions. Holding period is 6 months for reporting issuers and 1 year for non-reporting issuers. |
| Regulation FD | Fair Disclosure. Applies to issuers that disclose material, non-public information. |
| New Issue Rule (exemption) | Personnel of a limited B/D (restricts business to investment company, variable contracts, or DPP) may purchase shares. |
| Schedule 13(D) | Requires anyone who acquires more than 5% of an issuer's equity to notify the issuer, the exchange, and the SEC within 10 days of acquisition. |
| Form S-1 (SEC registration) | Basic registration form that most companies are required to use for an IPO. |
| Form S-3 (SEC registration) | Used by seasoned issuers of securities. The min. requirement is a public float of $75 million in voting and non-voting equity. An issuer is prohibited from filing if they failed to pay a dividend/bond interest/delinquent SEC filings. |
| Form S-4 (SEC registration) | For securities being offered as a result of mergers, acquisitions, consolidations, reclassification of securities, or transfers of corporate assets. |
| Form S-8 (SEC registration) | To register securities that are made available through employee benefit plans. |
| Regulation S | Regulates US companies issuing securities outside of the country. Distribution compliance period is 40 days for debts and one year for equity securities. |
| Rollup Transaction | Involves the combination or reorganization of one or more limited partnerships. |
| At-The-Market Offering | Sold at the prevailing market rate directly into the secondary market through a designated B/D (shelf registration) |
| Free Writing Prospectus | Any communication that does not meet the standards of a statutory prospectus; constitutes an offer to sell or a solicitation to buy related to a registered offering (generally used after a registration statement has been filed) |
| Schedule 13F | Requires quarterly filings when institutional investment managers exercise discretion over at least $100,000,000 in equity securities; mutual fund securities are excluded from filing requirements. |
| Taping Rule (rehiring employees) | If a firm reduces staff so that it is no longer subject to the Taping Rule, the terminated employees may not be rehired for 180 days. |
| Rule 3130 | Requires each member firm to certify on an annual basis that it has in place written compliance policies and procedures to comply with all applicable SEC and SRO rules and regulations. |
| OSJ Functions | 1) approval of new accounts and transactions 2) structuring investment banking deal 3) market making 4) maintaining custody of customer funds and securities 5) approval of retail communications. |
| Investment Analysis Tool (material changes) | If a member firm makes a material change to its investment analysis tool, it is required to refile the tool within 10 business days. |
| Executive Representative | Authorized to act for the member in all official business concerning the member and FINRA.; B/D is required to review (revise) its designation of ER on a quarterly basis and must be met within 17 business days of the end of quarter. |
| SEC Rule 605 | Requires market centers to disclose order execution information. 1) effective spreads 2) the comparison of market orders 3) the execution of orders that have price improvements, fill rates, and execution speed |
| Rule 204 of SEC Regulation SHO | This rule will require a broker-dealer that sells an equity security to either deliver the security by settlement date (T + 2), or immediately purchase or borrow the security no later than the beginning of trading on the next settlement day (T + 3) |
| Manning Rule | FINRA rule that requires B/Ds holding a customer limit order to fill that order within 60 seconds if the firm executed an order for its own account that would have filled that customer's order. |
| Short Interest Reports | A member firm is required to file semi-monthly reports of its short positions (short interest). The reports must be received by FINRA by the second business day after the reporting settlement date. |
| Display Rule | A market maker must immediately display any customer limit order that would improve that market maker's quote. |
| Nasdaq Market Center Execution System | Also referred to as the Single Book. Nasdaq and exchange-listed securities (CSQ) are quoted and traded on this system. |
| Consolidated Quotation System (CQS) | Third market quotes in exchange listed securities |
| Third Market | Refers to the trading of listed stocks in the over-the-counter market. Such transactions by FINRA members must be reported within 10 seconds of the trade during normal market hours. |
| Alternative Display Facility (ADF) | An SEC-mandated quote display system that will allow quoting in any NMS stock, such as Nasdaq equity securities and exchange-traded funds. |
| NASDAQ Market Velocity | Measures order activity within the NASDAQ market center. |
| Proceeds Transaction | Transaction in which a customer sells securities and uses the proceeds to purchase another security. |
| Net Basis Transaction | Transaction in which a dealer holding a customer order to buy, acquires the stock on a principal basis and executes the customer order at a different price than the dealer's acquisition price. |
| Riskless Principal Transaction | Transaction in which a dealer receives an order to buy/sell a security and then purchases/sells the security as principal at the same price. |
| Order Audit Trail System (OATS) | System that enables FINRA to effectively review market activity in regard to customer orders within a member firm, to conduct surveillance, and to enforce rules; must be submitted DAILY |
| Trade Shredding | Splitting orders for the purpose of maximizing commissions. |
| Bond Dissemination Information | FINRA disseminates transaction information for all TRACE-eligible securities that are publicly traded except for private placements, takedown transactions, or Rule 144A transacted between QIBs. |
| Schedule 13E-3 | Going private transactions. |
| SEC Rule 10b-18 | Controls how an issuer, or affiliate, may purchase its own stock; The Safe Harbor applies only to open market purchases by an issuer of its common stock. |
| Commission (by B/D) | If a B/D is charging a commission, it is acting in agency capacity. |
| SEC Rule 15c2-11 | Initiation of quotations for non-exchange listed securities; certain information about the issuer must be collected and reviewed (ie. Reg A offering, prospectus < 90 days, etc.) |
| Regulation S-X | Sets forth the form and content for financial statements filed under the Securities Act of 1933 and reports filed under the Securities Exchange Act of 1934. |
| Market-Out Clause | Provision that is included in firm-commitment underwriting agreements that allows the underwriters to be released from their commitment to purchase the offering if materially adverse developments affect the market for the issuer's securities. |
| Green Shoe Option | Clause in an underwriting agreement that allows the syndicate to sell more of an issue than was originally available and acquire those shares from the issuer. |
| Prime Brokerage | A prime relationship (prime brokerage) exists when a client clears all trades through a centralized firm, although execution may occur at several firms (executing firms). |
| Focus Report - Part I | Must be filed monthly, within 10 business days of the end of the month. |
| Focus Report - Part II | Must be filed quarterly, within 17 business days of the calendar quarter. |
| Currency Transaction Report (CTR) - FinCEN Form 104 | Filed by financial institutions for deposits and withdrawals that exceed $10,000 in a single business day. The form must be filed no later than the 15th day following the transaction |
| FINRA's Code of Procedure | A section of FINRA bylaws that describes the procedure to be used when the SRO takes disciplinary action against member firms or associated persons. |
| Regulation A+ | Offering of no more than $50,000,000 over a 12-month period. However, the maximum amount that may be sold on behalf of existing shareholders is $15,000,000. |
| Reference Documents | A registrant is permitted to incorporate other docs into a registration statement or other SEC filing by reference if the document is on file with the SEC. |
| Uniform Practice Code | Sets standards for clearing and settlement procedures to be used by members when dealing with each other. |
| Regulation SP | An SEC rule that protects customer information; restricts financial institutions from disclosing non-public personal information about clients to third parties. |
| OATS (reporting requirement) | A broker-dealer is required to transmit to the Order Audit Trail System (OATS) all order-related information by 8:00 a.m. on the calendar day following the OATS business day (after the trade). |
| Mutilated Securities | For a delivery of mutilated securities to be considered a good delivery, they can be authenticated by the trustee, registrar, transfer agent, or issuer. |
| Trust Indenture Act of 1939 | Regulates the public issuance of debt for corporate securities that are sold interstate if the value exceeds $10,000,000. Exempt are offers sold under Rule 144A to QIBs and offerings sold outside the U.S. under Regulation S. |
| New Issue Rule | Applies to the sale of all new issues; a FINRA member should make a bona fide offering of new issues to the public and not withhold any shares for employee's accounts or insiders. |
| SEC Rule 4(6) | An offering by an issuer considered an exempt transaction if the amount of the offering does not exceed $5,000,000, no advertising or public solicitation is used to offer the securities, and the offering is only sold to accredited investors. |
| Form 8-K | If an event occurs that would materially affect the issuer's financial condition or share price, this report must be filed with the SEC. |
| Form 10-K | Annual report. |
| Form 10-Q | Quarterly report. |
| OATS (business day hours) | FINRA defines the OATS business day as beginning at 4:00:01 p.m. on one market day and ending at 4:00:00 p.m. on the next market day. |
| SEC Rule 605 | Requires market centers to report order execution information. Market centers are required to produce monthly reports. |
| SEC Rule 606 | Requires broker-dealers to disclose QUARTERLY non-directed order flow sent to market centers. |
| Minimum Net Capital (alternative method) | Some broker-dealers may elect to be governed by an alternative net capital requirement. This requirement is based on the aggregate debit items and requires net capital of $250,000 or 2% of the aggregate debit items, whichever is greater. |
| Trade Reporting and Compliance Engine (TRACE) | TRACE was created to provide greater transparency in the corporate bond market. Any transaction in a TRACE-eligible security executed between 8:00 a.m. and 6:29:59 p.m. must be reported within 15 minutes. |
| Aggregated Data | Information that is blind and does not contain personal identifiers about a consumer. An example would be names, addresses, and account numbers. |
| Block Trade | Transaction involving 10,000+ share or having a market value of $200,000+ |
| Stock Loan (between B/Ds) | On a loan of stock between broker-dealers, the customer lending the stock retains all rights of ownership, such as collecting dividends, but does not retain the right to vote. This right goes to the new owner of the stock. |
| Member Firm Contact Information - FINRA Review | Required to review contact info within 17 business days after the end of each calendar year; also required to update its contact information to FINRA promptly, but no later 30 days following any change in such information. |
| Automated Customer Account Transfer Service (ACATS) | 1) upon receipt of transfer instructions, the receiving firm must immediately send to carrying firm 2) carrying firm must validate/accept within 1 day 3) firm has three days to complete transfer |
| Rule 15c3-1 (Undue Concentration) | Assesses an extra net capital charge if any long or short position is more than 10% of the broker-dealer's tentative net capital. The undue concentration rule requires an additional deduction on the amount in excess of the 10% threshold. |
| Statutory Disqualification | A person convicted of a felony or certain misdemeanors is barred from the securities business for 10 years from the date of the conviction. |
| Fidelity Bond Coverage | A member firm must review its fidelity bond coverage annually based on its net capital requirement for the previous 12 months. If a substantial change needs to be made, FINRA must be notified immediately. |
| SEC 17a-11 | Immediate notice is required if the ratio of aggregate indebtedness to net capital exceeds 1:15, if the dollar amount of net capital falls below the minimum requirement, or if the B/Ds subordinated loans total more than 70% of its D/E for > 90 days. |
| Wire Transfers | B/Ds that transfer or transmit funds (wire transfers) must collect information about a transfer of $3,000 or more, including the names of the transmitter and the recipient. |
| Preliminary Proxy Statement | Required for business combinations, such as a proposed merger. |
| Buy-In Delivery (between B/Ds) | Notice to the contrabroker (seller) must be sent no later than 12:00 noon two business days before the execution of the proposed buy-in. |
| SEC Rule 17f-1 | Deals with missing, lost, counterfeit, or stolen securities. The Securities Information Center (SIC) acts as a clearinghouse for this information about these securities. |
| Rule 15c3-3 (Customer Protection Rule) | Securities are considered to be under the control of a broker-dealer if they are in an SEC-approved depository, are being held in custody at a bank free of any lien, or are in transit between offices of the broker-dealer. |
| Carrying Agreement Report | Notice of this report must be sent no later than July 1 of each year to the CEO and CCO. |
| Primary MPID | A member firm that is registered as a market maker in a specific security must have its own two-sided firm quote. This is known as its Primary MPID. |
| Supplemental MPID | A FINRA member firm may have additional displayable or non-displayable supplemental MPIDs used for 1) sponsored access programs 2) prime brokerage 3) proprietary business 4) statistical/ index arbitrage. |
| Short Securities Difference | Subject to a partial net capital deduction after seven business days. If not resolved after 28 business days, the full net capital charge must be taken. |
| Consolidated Tape - Network A | Disseminates securities listed on the NYSE |
| Consolidated Tape - Network B | Disseminates securities listed on the AMEX and other national exchanges. |
| Consolidated Tape - Network C | Disseminates securities listed on the Nasdaq. |
| Due Bill | If a security is purchased prior to the ex-date but delivered after the record date, the security will be delivered with a due bill attached. |
| Delivery vs. Payment (DVP) | When DVP accounts are established, the client provides the broker-dealer with information on the bankâclearing number, institutional ID, agent bank number, and internal (client) account number(s); usually settled electronically. |
| Series 16 | A supervisory analyst. |
| 5% Markup Policy | This policy is not applicable to the sale of securities where a prospectus or offering circular is required to be delivered and securities are sold at the public offering price. |
| Tender Offer | Must be open for a minimum of 20 business days; must remain open for an additional 10 business days from the date that notice of any change is given to security holders. |
| Anti-Internalization Feature | The Anti-Internalization feature is an exception to the automatic book processing system used by the Nasdaq Market Center, and if used by a market participant, the system will not execute any quotes or orders entered under the same MPID. |
| Qualified Independent Underwriter | A QIU must participate in the preparation of the offering documents, and must have served as a manager or comanager in at least three public offerings of a similar size and type during the three-year period preceding filing of the registration statement. |
| Audited Annual Report | A broker-dealer must furnish an audited annual report to its customers no more than 105 days after the date of the audit. The report contains a Statement of Financial Condition, not the income statement. |
| Interpositioning | The insertion of a third party between the customer and the best market, to the detriment of the customer. It is generally a prohibited practice. |
| Day Trading Buying Power | Equal to four times maintenance excess. |
| Rule 103 of Regulation M | A passive market maker's daily purchase limit is the greater of 30% of its ADTV in the stock (as determined by FINRA) or 200 shares. |
| Qualified Third-Market Maker | 1) registered broker-dealer subject to/in compliance with the SEC's minimum net capital rule 2) minimum net capital of $500K 3) reasonable average inventory 4) prepared to act as principal |
| Temporary subordination agreement | May not exceed 45 days and is limited to underwritings only. |
| Well Known Seasoned Issuer | Common equity of $700 million or the issuance of over $1 billion in bonds |
| Reserve Requirement calculation | Weekly unless aggregate indebtedness does not exceed 800% -> monthly |
| Eastern Account Agreement | Signed severally and jointly (undivided) |
| Western Account Agreement | Signed severally and NOT jointly (divided) |
| SEC Rule 504 | Provided as exemption for an aggregate offering of $5,000,000 or less in any 12-month period |
| SEC Rule 506 | Provides an exemption for an offering without regard to a dollar limit if the issue is sold to no more than 35 sophisticated investors plus an unlimited amount of accredited investors. |
| Funding Portal | Any person acting as an intermediary in a transaction involving the offer or sale of securities for the account of others solely pursuant to Crowdfunding transactions |
| Crowdfunding | The JOBs Act allows start-up companies to offer up to $1,000,000 worth of common shares without being required to register with the SEC; investor may invest up to $10,000 |
| Statutory Underwriter | Person who purchases unregistered shares and subsequently offers the shares for sale without registering them. |
| Form 10-C | Filed with the SEC and FINRA by companies quoted on the NASDAQ; must be filed no later than 10 days after a name change or 5% + increase in shares outstanding |
| Affirmative Determination (Locate) | Requires member firms to confirm and document that the short security is available to borrow and will be delivered by settlement date. |
| Covered Security | |
| Syndicate Settlement | Final settlement must be effected by the syndicate manager within 90 calendar days. |
| Market Maker (Tier 1 - actively traded) | ADTV of $1,000,000 and public float of $150,000,000 |
| Underwriting Agreement | Formal contract between the investment bankers and the issuers which is signed the evening before or the morning of the distribution. |
| Final Public Offering Price | Determined evening before or morning of the distribution of the new issue. |
| Regulation S-K | Regulates requirements of the content of non-financial portions of registration statements filed with the SEC. |
| Form 144 - Notice of Sale | Must be filed with the SEC and is effective for 90 days. |
| Hart Scott Rodino Act (2018 - threshold) | Filing requirement is required if the size of the transaction is at least $84.4 million |
| Exception Report | Created by firms as a key aspect in maintaining their supervisory procedures and complaints; must be provided annually, no later than July 31st, to the CEO, CCO, and DEA. |
| Suspicious Activity Report (SAR) | Must be filed within 30 days. |
| Assistant Order Processing Rep (Series 11) | Required for persons who ONLY accept unsolicited orders from customers. |
| Form U-4 | Must be amended for disciplinary events within 10 days , and for non-disciplinary events within 30 days. |
| Taping Rule (general note) | After becoming subject to the Taping Rule, a firm has 60 days to install a taping system and must keep the procedure in place for 3 years. |
| MSRB Political Contributions Limit | Contributions cannot exceed $250 per election; prohibited from negotiated municipal securities business for 2 years |
| Recordkeeping Requirement (new accounts) | SEC - 6 years; CIP - 5 years |
| SL/BS (above) | Entered ABOVE market price |
| BL/SS (below) | Entered BELOW market price |
| FINRA Suitability Requirements | Apply to all debt and equity securities EXCEPT for municipal securities. |
| Form U-5 | After an RR resigns or is terminated, the firm has 30 days to notify FINRA on Form U5. |
| Anti-Reciprocal Rule | Prohibits member firms from selling open-end investment company shares based on commissions. |
| Regulation ATS | Requires registration of any system that matches buyers and sellers (registered as a B/D) |
| Block Trade (reporting on ATS) | 10,000+ trade OR $200,00+ in value; if occurring on ATS - will be aggregated and reported monthly |
| Depository Trust Company (DTC - participation) | Required for ALL Exchange listed securities. |
| Secured Demand Note | Can be written for a maximum amount equal to the market value of the securities MINUS a 30% haircut. |
| General Ledgers | Must be posted by the B/D at least monthly. |
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