Chapter 2 section 2

Question 1

Chapter 2: BD Supervision> Sec 2: dispute procedures

Requirements for FINRA manual

Answer 1

• must keep a copy of the FINRA manual in each branch office
  OR
• Have internet access to the FINRA website where the manual can be found
• must be made available to customers upon request

Question 2

Chapter 2: BD Supervision> Sec 2: dispute procedures

Customer complaints received by FINRA

Answer 2

• customer can make a complaint to the FINRA dept of enforcement
• Dep of Enforcment will investigate the complaint
• if they find the comlaint has merit it goes to FINRA OHO - office of hearing officers.
• complaints are handled by the FINRA code of procedure

Question 3

Chapter 2: BD Supervision> Sec 2: dispute procedures

FINRA Dept of Enforcement

Answer 3

• receives complaints from clients
• receives reportts from FINRAs surveillance activities, other regulators, other member firms, tips and examination findings.

Question 4

Chapter 2: BD Supervision> Sec 2: dispute procedures

as part of an investigation FINRA has the right to

Answer 4

• require the member to report orally or in wirting on the matter
• investigate the books and records of the member
• members cannot refuse thes request - if they do they are subject to FINRA penalties

Question 5

Chapter 2: BD Supervision> Sec 2: dispute procedures

Electronic reponses to information requests

Answer 5

• must be enrcrypted
• only accessible with a confidential process or key
• confidential process or key must be sent seperately

Question 6

Chapter 2: BD Supervision> Sec 2: dispute procedures

FINRA penalties for violations

Answer 6

• censure
• impose a fine
• suspend
• expel
• impose any other fitting sanction

Question 7

Chapter 2: BD Supervision> Sec 2: dispute procedures

Consequence of suspension or expellution for a reg rep

Answer 7

if a person is suspended or expelled:
* they cannot remain with the associated firm in any way
* cannot be paid a salary, commission or any other remuneration resulting from any securities transaction occuring during the suspension or expulsion period.

note: remuneration earned before the suspenion period can be paid

Question 8

Chapter 2: BD Supervision> Sec 2: dispute procedures

Suspension from engaging in specific activities

Answer 8

• FINRA can modify the terms of the suspension
  ex: suspended for failure to supervise. where the person can remain in a clerical role and then be a supervisor again when the suspension period is over

Question 9

Chapter 2: BD Supervision> Sec 2: dispute procedures

FINRA notification of suspention and expultion

Answer 9

• if a FINRA suspends or expels a member or associated person, bars a person from association with a member, or imposes fines in excess of $10K it will notify:
  1. the FINRA membership through a notice to members mailing
  2. the news media thorugh a press release

Question 10

Chapter 2: BD Supervision> Sec 2: dispute procedures

FINRA Code of Procedure

Answer 10

• used when FINRA wants to pursue disciplinary action
• FINRA internal court hearing process

Question 11

Chapter 2: BD Supervision> Sec 2: dispute procedures

FINRA Code of Procedure
Process

Answer 11

• FINRA dep of enforcement opens an investigation
• DOE serves formal complaint
• Files the complain with the FINRA OHO (Office of hearing officers)
• The OHO appoints a Chief Hearing Officer (a finra employee) to manage the process
• if FINRA believes that the member firm or associated person is engaging in illegal activities it may issue a ‘cease and desist’ order before or after hearings

Question 12

Chapter 2: BD Supervision> Sec 2: dispute procedures

Response to complaints

Answer 12

• a response must be filed with the OHO, copy to dep to enforcement– within 25 calendar days
• responses are reveiwed by finra detmines if it should go to a hearing panel.
• The respondent can reqeust that it do to a hearing panel

Question 13

Chapter 2: BD Supervision> Sec 2: dispute procedures

lack of response to a complaint

Answer 13

• second notice is sent giving another 14 days
• if no response to second notice it is treated as a default and the CHO (cheif hearing officer) issues a default decision that he firm or individual committed the alleged violations and imposes sanctions
  *

Question 14

Chapter 2: BD Supervision> Sec 2: dispute procedures

Pre-hearing conference

Answer 14

• prior to scheduling the hearing panel a pre-hearing cnoference must be completed
• ojective: clarify the issues, exchange witness and exhibit lists, set the criteria for evidence, and other legal matters
• held wihtin 21 days of receipt of respondents answer the complaint

Question 15

Chapter 2: BD Supervision> Sec 2: dispute procedures

Hearing Panel

Answer 15

• 3 person hearing panel (chief hearing office and two other industry panelists)
• held at an agreed up on location
• respondent can present evidence of their defense
• decision generally wihtin 60 days, written decision based on the majortiy vote of the 3 person panel

Question 16

Chapter 2: BD Supervision> Sec 2: dispute procedures

Appeals Process

Answer 16

• either party can appeal the Hearing Panel decision
• first appeal is to NAC - FINRA National Adjudicaotry Council
• must be filed within 25 days of the decision
• 2nd appeal is to the SEC after NAC deicision is reached
• 3rd appeal is to teh federal appeals court after SEC decision

Question 17

Chapter 2: BD Supervision> Sec 2: dispute procedures

NAC reivew

Answer 17

• if there is no appeal NAC has 45 dyas to reivew and overturn a decision

Question 18

Chapter 2: BD Supervision> Sec 2: dispute procedures

Hearingn panel deciison is final when?

Answer 18

25 days after it is turned over

Question 19

Chapter 2: BD Supervision> Sec 2: dispute procedures

Settlment of complaint

Answer 19

• at any time the respondent can offer to settle the complaint

every settlment offer must:
* be in writing
* state the action or practice that caused the violation, state the proposed sanction
* waive all rights of appeal

• FINRA dept of enforcement decides if a settlement offer is accepted

Question 20

Chapter 2: BD Supervision> Sec 2: dispute procedures

Minor Complaints

Answer 20

• for minor complaints the dept of enforcement considers to be minor:
• they prepare and request that the respondent sign an MRVP (minor rule violation plan) letter accepting the finding of violation.
• respondent admits guilt to a minor offense
• subject to a maax $2500 fine

Question 21

Chapter 2: BD Supervision> Sec 2: dispute procedures

summary suspension

Answer 21

• suspension without hearing
  can be done if:
  1. the member was suspended or expelled from another SRO
  2. experiencing financial or operating difficulties

The firm may request a hearing within 7 calendar days of notification

hearing must be held within 7 days of written reqeust

Question 22

Chapter 2: BD Supervision> Sec 2: dispute procedures

FINRA code of arbitration

Answer 22

• used to settle disputes from emmber firm to member firm
• decisions are not appealable

Question 23

Chapter 2: BD Supervision> Sec 2: dispute procedures

Code of arbitration is used to settle disputes between:

Answer 23

• member firm vs another member firm
• member firm vs clearing corporation (or vice versa)
• member firm vs associated person or vice versa)
• associated person vs associated person
  member firm vs customer (or vice versa) with customer previously consenting in writing (signing an arbitration agreement)

Question 24

Chapter 2: BD Supervision> Sec 2: dispute procedures

customer vs firm

Answer 24

• cusotmer iniatied complaints against a member compels the member to resolve the dispute in arbitration
• a member cannot compel a customer to settle by arbitration unless the cusotmer agrees by signing a predispute arbitratino agreement

Question 25

# Chapter 2: BD Supervision> Sec 2: dispute procedures associated person vs associated person

Answer 25

must be settled by arbitration usually members in a team sharing a book

Question 26

# Chapter 2: BD Supervision> Sec 2: dispute procedures FINRA national arbitration committee

Answer 26

* oversees the appointment of arbitration panels for disputes in each district

Question 27

# Chapter 2: BD Supervision> Sec 2: dispute procedures FINRA vs members

Answer 27

addressed through code of procedure NOT the code of arbitration

Question 28

# Chapter 2: BD Supervision> Sec 2: dispute procedures If a customer did not sign a predispute arbitration agreement

Answer 28

* they can go through arbitration or file a complaint under the code of procedure or sue the firm

Question 29

# Chapter 2: BD Supervision> Sec 2: dispute procedures selection of arbitrators

Answer 29

* includes people from inside and outside the industry anyone that has relevant experience can act as an arbitrator arbitrators can either be: * non-public arbitrators * public arbitrators

Question 30

# Chapter 2: BD Supervision> Sec 2: dispute procedures Non public arbirtator

Answer 30

anyone who: * within the past 5 years was associated with a securities broker-dealer * is retired from engaging in any of the business activities in the previous definition is an attorney, accountant, or other professional that has devoted 20% or more of their professional work in the last two years to clients in the first definition * is an employee of a bank or toher financial institution and effects transactions in securities or montiors compliance of employees engaged in these activities

Question 31

# Chapter 2: BD Supervision> Sec 2: dispute procedures Public arbitrator

Answer 31

* someone not engaged in the activities of the non-public arbitrator * or has been out of the industry for at 5 years (who has not been in the industry for over 20 years)

Question 32

# Chapter 2: BD Supervision> Sec 2: dispute procedures Arbitration Panel Composition

Answer 32

* 3 individuals where the claim amount is $100K or more * Panel composition is dependent on who the despute is between

Question 33

# Chapter 2: BD Supervision> Sec 2: dispute procedures Arbitration Panel Composition Member to member dispute

Answer 33

* 3 non public arbitrators "intra-industry"

Question 34

# Chapter 2: BD Supervision> Sec 2: dispute procedures Arbitration Panel Composition associated person dispute

Answer 34

* one non public and two public arbitrators

Question 35

# Chapter 2: BD Supervision> Sec 2: dispute procedures Arbitration Panel Composition customer dispute

Answer 35

* one non-public and two public * customer can reqeust 3 public ("optional all public panel")

Question 36

# Chapter 2: BD Supervision> Sec 2: dispute procedures Arbitration Panel Composition claims less than $100K

Answer 36

* 1 non public arbitrator for member to member disputes * 1 public for customer or associated person disputes

Question 37

# Chapter 2: BD Supervision> Sec 2: dispute procedures Simplified arbitration

Answer 37

* available for disputes not exceeding $50K * claim statement is filed with diretor of arbitration * copy is sent to the firm that is the oject of the claim * Rerspondent has 45 days to respodn and can specify counterclaims

Question 38

# Chapter 2: BD Supervision> Sec 2: dispute procedures Counter claims for simplified arbitration

Answer 38

* must be answered within 10 calednar days, * after which a binding decision is rendered. * decisions are rendered 30 days from the date the record is closed

Question 39

# Chapter 2: BD Supervision> Sec 2: dispute procedures When can simplified arbitration be used?

Answer 39

disputes not exceedingn $50K

Question 40

# Chapter 2: BD Supervision> Sec 2: dispute procedures statute of limitations for filing a claim for settlement by arbitration

Answer 40

6 years

Question 41

# Chapter 2: BD Supervision> Sec 2: dispute procedures When must arbitration awards be paid

Answer 41

* within 30 days of decision date * failure to pay, FINRA gives 15 days notice to the firm * after 15 days FINRA may suspend or revoke the firms registration

Question 42

# Chapter 2: BD Supervision> Sec 2: dispute procedures FINRA CODE OF MEDIATION

Answer 42

* alternative to arbitration * Generally less expensive and faster than arbitration * Both parties must agree to mediate the dispute and neither party can be compelled to do so. * cannot be used to settle actions taken by FINRA dept of enforcement under the Code of Prodedure or actions taken by a court of law.

Question 43

# Chapter 2: BD Supervision> Sec 2: dispute procedures Mediation cannot be used to:

Answer 43

* settle actions taken by FINRA dept of enforcement under the Code of Procedure * settle actions taken by a court of law

Question 44

# Chapter 2: BD Supervision> Sec 2: dispute procedures Mediator

Answer 44

* Mediator can come from a FINRA supplied list or can be an outside person acceptable to both parties * acts as a neutral and impartial facilitator, attempting to get parties to reach a settlement * no decision making authority

Question 45

# Chapter 2: BD Supervision> Sec 2: dispute procedures Withdrawing from mediation

Answer 45

* either party can withdraw without consent of the other party or the mediator

Question 46

# Chapter 2: BD Supervision> Sec 2: dispute procedures If not settlement is reached through meidation

Answer 46

* arbitration will be used * the Mediator cannot serve ont he arbitration panel that will then hear the case.

Question 47

# Chapter 2: BD Supervision> Sec 2: dispute procedures Mediation disclosure

Answer 47

* private and confidential * parties and mediator agree not to disclose information unless all parties agree in writing. * disclosure to FINRA as a reqruirement of its regulatory role must be honored