Regulation Memory Sheet Flashcards by Delia Archer

SEC / Offering Regulations:
________:
• Regulates new issues
• Required disclosure through a prospectus.
• Paper Act
• Prospectus Act
• Requires Registration of securities

Securities Act of 1933

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SEC / Offering Regulations:
_________: Protects investors by ensuring best execution and fair, orderly markets through:
• Order Protection Rule: No trade-throughs; must execute at the best displayed price.
• Access Rule: Fair, non‑discriminatory access to quotes.
• Sub‑Penny Rule: Quotes ≥ $1.00 cannot be in sub‑penny increments.
• Market Data Rules: Fair distribution of market data.

Regulation NMS

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SEC / Offering Regulations:
________: Regulates secondary trading and reporting; created the SEC.

SEC / Offering Regulations:
________: Private placements; securities are restricted (6month holding period).
Regulation D

SEC / Offering Regulations:
________: Offshore offerings outside the U.S.; exempt from SEC registration.
Regulation S

SEC / Offering Regulations:
________: Resale of restricted (6 months) and control stock; volume limits for affiliates.
Rule 144

SEC / Offering Regulations:
________: Resale of restricted securities to QIBs (institutions).
Rule 144A

SEC / Offering Regulations:
________: Certain mergers and reclassifications treated as sales.
Rule 145

SEC / Offering Regulations:
________: MiniIPO up to $20M; no investor purchase limits.
Regulation A Tier 1

SEC / Offering Regulations:
________: MiniIPO up to $75M; nonaccredited investors limited to 10%.
Regulation A Tier 2

SEC / Offering Regulations:
________: Prohibits selective disclosure; material info must be public.
Regulation FD

SEC / Offering Regulations:
________: Requires brokerdealers to act in the customer’s best interest.
Regulation BI

SEC / Offering Regulations:
________: Federal Reserve margin rules for bank loans secured by securities.
Regulation U

SEC / Offering Regulations:
________: Intrastate offerings; SEC exempt but subject to state Blue Sky laws.
Regulation 147

SEC / Offering Regulations:
________: Regulation M: Deal with potential market manipulation during primary offering

Securities Exchange Act of 1934

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SEC / Offering Regulations:
________: Private placements; securities are restricted (6month holding period).

Regulation D

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SEC / Offering Regulations:
________: Offshore offerings outside the U.S.; exempt from SEC registration.

Regulation S

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SEC / Offering Regulations:
________: This governs the resale of restricted and control stock.

Restricted Stock:
• Must be held for 6 months (if issuer is a reporting company).
• After 6 months, non‑affiliates may sell freely.
• Affiliates must follow volume limits, manner‑of‑sale rules, and filing requirements.

Control Stock:
• No holding period.
• Affiliates must follow volume limits every time they sell.

Volume Limits for Affiliates:
Affiliates may sell the greater of:
• 1% of outstanding shares, or
• Average weekly trading volume over the past 4 weeks

Sales must be done:
• Through brokers (ordinary brokerage transactions)
• With Form 144 filed if the sale exceeds 5,000 shares or $50,000 in 90 days.

Rule 144

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SEC / Offering Regulations:
________: This allows the resale of restricted securities without SEC registration to Qualified Institutional Buyers (QIBs).

QIB Requirement:
• Must have at least $100 million in securities under management.
• Broker‑dealers qualify with $10 million in securities.

Purpose:
• Creates a liquid private market for restricted securities among institutions.
• Commonly used for private placements, high‑yield debt, PIPEs, and foreign issuers accessing U.S. capital.

Included (eligible for resale):
• Restricted corporate debt
• Restricted equity
• Private placements
• Foreign securities sold only to QIBs

Not included:
• Sales to retail investors
• Sales to institutions that do not meet QIB thresholds
• Public offerings
• Securities requiring registration for general distribution

Rule 144A

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SEC / Offering Regulations:
________: Certain mergers and reclassifications treated as sales.

Rule 145

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SEC / Offering Regulations:
________: MiniIPO up to $20M; no investor purchase limits.

Regulation A - Tier 1

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SEC / Offering Regulations:
________: MiniIPO up to $75M; nonaccredited investors limited to 10%.

Regulation A - Tier 2

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SEC / Offering Regulations:
________: This prohibits selective disclosure of material nonpublic information to analysts, institutions, or favored investors. If material info is disclosed to anyone, it must be released to the public at the same time (intentional) or promptly (unintentional).

Regulation FD (Fair Disclosure)

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SEC / Offering Regulations:
________: This requires broker‑dealers and reps to act in the retail customer’s best interest when making a recommendation. It imposes four obligations:

• Disclosure: Tell the customer the nature of the relationship, fees, conflicts.
• Care: Make recommendations that are in the customer’s best interest.
• Conflict of Interest: Identify and mitigate conflicts.
• Compliance: Maintain written policies to ensure Reg BI adherence.

Regulation BI (Best Interest)

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SEC / Offering Regulations:
________: Federal Reserve margin rules for bank loans secured by securities.

Regulation U

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SEC / Offering Regulations:
________: Intrastate offerings; SEC exempt but subject to state Blue Sky laws.

Regulation 147

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SEC / Offering Regulations:
________: Deal with potential market manipulation during primary offering.

Regulation M

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Regulatory Acts:
_________:
•Applicable to corporate bond offerings of greater than $50 million in 12 months.
• Establishes a contract between the issuer and the trustee for the bondholder’s benefit.

Trust Indenture Act of 1939

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Regulatory Acts:
_________:
•Classifies and regulates the three types of Investment Companies (IC):
A. Face Value Certificate
B. Open-End (Mutual Funds)
C. Closed-End (UITs)

Investment Company Act of 1940

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Regulatory Acts:
_________:
• Established to prevent abuse or misuse of pension funds.
• Applicable to private-sector retirement plans
• Mandates guidelines for plan:
A. Participation
B. Funding
C. Vesting
D. Communication
E. Non-Discrimination
F. Beneficiaries

Employee Retirement Income Security Act of 1974 (ERISA)

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Broker/Dealer & Market Rules:
_________: Standards for brokerdealer conduct and supervision.

FINRA Rules

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Broker/Dealer & Market Rules:
_________: Margin and payment rules for brokerdealers.
• 50% initial margin
• Set by the Federal Reserve

Regulation T

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Broker/Dealer & Market Rules:
_________:
• Mandates a locate requirement for securities to b sold short before the short sale.
• Short sale locates, delivery, and closeout requirements.

Regulation SHO

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Broker/Dealer & Market Rules:
_________:
• Use of information obtained in fiduciary capacity.
• Firms/reps cannot use or share nonpublic ownership info obtained in a fiduciary role (transfer agent, trustee, custodian, etc.) to solicit trades; it may be used only for the assigned fiduciary function or when legally required to disclose.

FINRA Rule 2060

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Broker/Dealer & Market Rules:
_________:
• Applies to recommended purchases and 1035 exchanges of deferred variable annuities (not immediate) and initial sub-account allocations.
• Disclosure of features, costs, and surrender charges.
• Must note if 1035 exchange of a variable annuity has occurred within the last 36 months.

FINRA Rule 2330

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Broker/Dealer & Market Rules:
_________: Customer cash and fully paid securities must be kept separate from the firm’s own assets and held in a Special Reserve Bank Account for the Exclusive Benefit of Customers and not used for firm business.

SEC Rule 15c33 (Customer Protection Rule)

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Broker/Dealer & Market Rules: _________: Firms must seek most favorable terms for customers.

Best Execution

Broker/Dealer & Market Rules: _________: Every order must be marked as long, short, or short‑exempt based on the customer’s actual position at the time the order is entered.

Order Marking Rules

Broker/Dealer & Market Rules: _________: Insiders and tippees cannot trade or share material, nonpublic information; firms must maintain information barriers, monitor employee trading, and report suspicious activity. Violations carry civil and criminal penalties, including treble damages.

Insider Trading Rules

Broker/Dealer & Market Rules: _________: Investment Company & Adviser Laws. Prohibits fraud, misstatements, omissions, and any deceptive device in connection with the purchase or sale of securities; forms the legal basis for insider trading violations.

SEC Rule 10b5 General antifraud rule

Broker/Dealer & Market Rules: _________: Regulates firms/registered representatives paid to give securities advice; requires registration with the SEC, imposes a fiduciary duty, and prohibits fraud, misleading statements, and undisclosed conflicts of interest.

Investment Advisers Act of 1940

Broker/Dealer & Market Rules: _________: Allows mutual funds to charge 12b‑1 fees (marketing/distribution fees) if the fund has a written 12b‑1 plan approved by the board and independent directors; fees are capped and must be disclosed in the prospectus. • Capped at 0.75% annually • Additional 0.25% allowed for service fees. • 1% maximum fee • Must be approved by BOD • Must be disclosed on prospectus • Can avoid fees by selecting no load fund.

12b-1 Rules

MSRB Municipal Securities: _________: Requires registration for municipal advisory services. Municipal advisors must register with BOTH the SEC/MSRB, owe a fiduciary duty to municipal entities, and cannot give or solicit municipal securities advice unless properly registered.

Municipal Advisor Rule

MSRB Municipal Securities: _________: For municipal securities, this is the primary disclosure document, prepared by the issuer, describing the issuer, the offering, and financial details; it is the equivalent but it’s not a prospectus.

Official Statement

MSRB Municipal Securities: _________: • For revenue bonds, this evaluates whether the project can generate enough revenue to support the bond issue (cover operating costs + debt service) and avoid default. It’s prepared by an independent consultant before issuance.

Feasibility Study

Options & Trading Rules: _________: Customers must receive the ODD at or before options account approval; a Registered Options Principal (ROP) must review and approve the account before any options trading. The ODD explains the risks, characteristics, and obligations of options trading and must be provided before the first options transaction is permitted.

Options Disclosure Document (ODD)

Options & Trading Rules: _________: Before approving an options account, a Registered Options Principal (ROP) must determine based on: • Investment objectives (income, speculation, hedging) • Financial situation & ability to bear risk • Investment experience, especially with options • Understanding of options risks • Time horizon & liquidity needs This must be documented, reviewed by the ROP, and re‑evaluated if customer circumstances change.

Options Suitability

Options & Trading Rules: _________: A customer becomes a Pattern Day Trader if they execute 4 or more day trades in 5 business days, and those trades make up more than 6% of their total trading activity. PDT accounts must maintain a minimum $25,000 equity in the margin account before day trading is permitted. If equity falls below $25,000, no day trading is allowed until the account is restored. Firms may also impose day‑trading buying power limits (up to 4× maintenance margin excess).

Pattern Day Trader Rule

Key Tax Codes: _________: Early withdrawals from qualified retirement accounts before age 59½ are subject to a 10% early‑withdrawal penalty, unless an IRS‑approved exception applies. One major exception is Substantially Equal Periodic Payments (SEPP), which allows penalty‑free withdrawals if taken as a series of substantially equal periodic payments for the required duration. The penalty is in addition to ordinary income tax. Penalty-free early IRA withdrawals using SEPPs.

IRC 72(t)

Key Tax Codes: _________: Allows a tax‑free exchange of certain insurance and annuity contracts when the owner replaces one contract with another of like kind. Permitted exchanges include life → life, life → annuity, and annuity → annuity; annuity → life is not allowed. No gain is recognized at the time of exchange, and the cost basis carries over to the new contract. Tax-free insurance and annuity exchanges.

IRC 1035

Key Tax Codes: _________: tax treatment for index options and futures. Governs contracts (regulated futures, foreign currency contracts, non‑equity options, broad‑based index options). These positions are marked‑to‑market at year‑end, and gains/losses receive: • 60% long‑term • 40% short‑term regardless of actual holding period.

IRC 1256

Key Tax Codes: _________: This occurs when an investor sells a security at a loss and buys a substantially identical security within 30 days before or after the sale (a 61‑day window). The loss is disallowed, and the disallowance amount is added to the cost basis of the newly purchased security. The rule applies to stocks, options, and convertibles that are substantially identical.

IRC 1091 Often called a wash sale.

Anti-Money Laundering (AML): _________: Primary anti–money laundering (AML) law requiring firms to detect, monitor, and report suspicious activity. The BSA mandates Currency Transaction Reports (CTRs) for cash over $10,000, Suspicious Activity Reports (SARs) for suspected money laundering, and requires firms to maintain a Customer Identification Program (CIP) and ongoing AML monitoring.

Bank Secrecy Act (BSA)

Anti-Money Laundering (AML): _________: This is the U.S. Treasury agency that enforces AML rules and receives and processes SARs and CTRs. This agency collects financial‑intelligence data to detect and prevent money laundering, terrorist financing, and other financial crimes.

Financial Crimes Enforcement Network (FinCEN)

Anti-Money Laundering (AML): _________: Firms must maintain a written Anti–Money Laundering (AML) program that includes: written procedures, ongoing employee training, independent testing, and designation of an AML compliance officer. The program must ensure monitoring, detection, and reporting of suspicious activity under the BSA and FinCEN rules.

AML Program Requirement

Anti-Money Laundering (AML): _________: This must be filed when a firm detects activity involving $5,000 or more where the firm knows, suspects, or has reason to suspect money laundering, structuring, or other illicit activity. are filed with FinCEN within 30 days of detecting the red flag and must be kept confidential from the customer (so you cannot tell them it’s being filed).

Suspicious Activity Report (SAR)

Anti-Money Laundering (AML): _________: This must be filed for cash transactions over $10,000 in a single business day. Firms report these to FinCEN to help detect money laundering and structuring. These are not confidential like SARs; customers may be told this is being filed.

Currency Transaction Report (CTR) Structuring is trying to avoid $10K so deposits 9,999K.

Anti-Money Laundering (AML): _________: This agency administers and enforces U.S. economic and trade sanctions and maintains the Specially Designated Nationals (SDN) list. Firms must block transactions and freeze assets involving SDN‑listed individuals or entities and must report blocked activity to this agency.

Office of Foreign Assets Control (OFAC)

Anti-Money Laundering (AML): _________: Firms must verify the identity of each customer at account opening using identifying information such as name, DOB, address, and government‑issued ID number. This is required under the USA PATRIOT Act and must be completed before the account is opened. Firms must also check customers against government watchlists and maintain records of verification.

Customer Identification Program (CIP)

Anti-Money Laundering (AML): _______: Firms must understand the nature and purpose of the customer relationship to develop a risk profile and conduct ongoing monitoring. This requires identifying beneficial owners of legal‑entity accounts (anyone with 25%+ ownership or control) and updating customer information when red flags or risk changes occur. This supports AML by ensuring firms know the customer’s normal activity and can detect suspicious deviations.

Customer Due Diligence (CDD)

Market Systems & Trading Venues: _________: This is an electronic order‑matching system that automatically pairs buy and sell orders from market participants. These provide after‑hours trading, increase market transparency, and must report executed trades to FINRA/SEC for regulatory oversight.

Electronic Communication Network (ECN)

Market Systems & Trading Venues: _________: This is a non‑exchange trading venue that matches buyers and sellers outside traditional exchanges. They must report trading activity to both the SEC and FINRA, maintain transparency, and operate under a specific Regulation. Many dark pools are classified as this.

Alternative Trading System (ATS)

Market Systems & Trading Venues: _________: This is a centralized auction market where buyers and sellers meet through a designated market maker (DMM) system. Executed trades are reported through the Securities Information Processor (SIP), which consolidates and disseminates real‑time quote and trade data to the public.

New York Stock Exchange (NYSE)

Market Systems & Trading Venues: _________: This is an electronic, quote‑driven dealer market where market makers post bids and offers. Trades are reported through the Securities Information Processor (SIP), which consolidates and distributes real‑time quote and trade data to the public.

NASDAQ

Market Systems & Trading Venues: _________: This is a decentralized dealer market for non‑listed securities. Trades are negotiated directly with market makers and must be reported to FINRA for transparency and regulatory oversight.

OTC Markets (Pink/Grey Market)

Market Systems & Trading Venues: _________: This is FINRA’s reporting system for corporate bond and agency bond trades. Dealers must report transactions within 15 minutes of execution to provide transparency in the fixed‑income markets.

Trade Reporting and Compliance Engine (TRACE)

Market Systems & Trading Venues: _________: This is the MSRB’s public disclosure and trade‑reporting system for municipal securities. It provides official statements, continuing disclosures, and real‑time trade data for transparency in the municipal market.

EMMA (Electronic Municipal Market Access)

Market Systems & Trading Venues: _______: This is the MSRB system where dealers must report all municipal bond trades within 15 minutes. This system sends this data directly to EMMA, which displays price, yield, time of trade, CUSIP, and volume for public transparency.

Real‑Time Transaction Reporting System (RTRS)

Market Systems & Trading Venues: _______: This is the MSRB’s system that’s integrated into EMMA, which reports interest‑rate and auction data for VRDOs and auction‑rate securities. It provides daily rate resets, liquidity info, and program details to the public.

Short‑Term Obligation Rate Transparency (SHORT)

Market Systems & Trading Venues: _________: This consolidates quotes and trades from all exchanges and produces the official NBBO (National Best Bid and Offer) used for market transparency.

Securities Information Processor (SIP)

Market Systems & Trading Venues: _________: The best displayed bid and best displayed offer across all exchanges, as calculated and published by the Securities Information Processor (SIP) .

National Best Bid and Offer (NBBO)

Market Systems & Trading Venues: _________: This is the regulatory audit system that tracks every order, quote, modification, and execution across U.S. equities and options. Firms must report to both the SEC and FINRA, allowing regulators to reconstruct market activity.

Consolidated Audit Trail (CAT)

Market Systems & Trading Venues: _________: This was FINRA’s system that tracked orders, routes, modifications, and executions in equities. Firms reported to FINRA so regulators could reconstruct order activity. Replaced by CAT, but still testable as a legacy system.

OATS (Order Audit Trail System)

FINRA / Offering Regulations: ________: This requires that any recommendation must be suitable based on the customer’s investment profile (age, goals, risk tolerance, time horizon, income, net worth, experience, liquidity needs, tax status). It has three suitability obligations: • Reasonable‑Basis: The product itself must make sense for someone. • Customer‑Specific: The product must make sense for this customer. • Quantitative: The number/frequency of trades must be suitable (no excessive trading).

FINRA Rule 2111 Exam Trap: Suitability = “appropriate.” Reg BI = “best interest.” Reg BI is the higher standard.

Market Systems & Trading Venues: This governs Alternative Trading Systems, which operate like exchanges but are registered as broker‑dealers. They must file Form ATS, report activity to regulators, and provide fair access once they hit certain volume thresholds.

Regulation Alternative Trading Systems (ATS) Many dark pools of liquidity are ATSs.

FINRA / Offering Regulations: ________: This governs communications with the public, requiring all content to be fair, balanced, and not misleading. It covers three communication categories: • Retail Communication: >25 retail investors in 30 days; principal approval required. • Correspondence: ≤25 retail investors; no pre‑approval unless it triggers supervision issues. • Institutional Communication: Only institutional clients; no pre‑approval, but supervision required. It also requires recordkeeping, risk disclosure when benefits are stated, and prohibits performance projections.

FINRA Rule 2210

FINRA / Offering Regulations: ________: This requires member firms to provide FINRA staff with access to their books and records upon request. This rule ensures FINRA can inspect, examine, and investigate firm activities for regulatory compliance.

FINRA Rule 8110

FINRA / Offering Regulations: ________: This gives FINRA the authority to request documents, data, testimony, and electronic records from member firms and associated persons. Firms and reps must provide information promptly; failure to comply is treated the same as violating the rule itself and often results in automatic bar or suspension.

FINRA Rule 8210

MSRB Rules: ___________: requires municipal securities dealers to furnish customers with information about MSRB rules and how to obtain them. Upon request, firms must provide customers with the MSRB’s investor brochure, which explains investor protections and how to file complaints.

MSRB Rule G‑29

SEC / Offering Regulations: This must be delivered by broker‑dealers and investment advisers before making a recommendation, placing an order, or opening an account. It must clearly disclose: • The relationship and services offered • Fees and costs • Conflicts of interest • Disciplinary history • How to get more information

Form CRS (Customer Relationship Summary)

SEC / Offering Regulations: _________: These are the supplemental sections of Form U4 and Form U5 used to report detailed information about events such as customer complaints, regulatory actions, criminal charges, terminations, liens, and financial compromises. Whenever a “Yes” is checked on a disclosure question, the appropriate form of this must be completed with full, accurate details. If yes, and related to securities it would be a Statutory Disqualification (SD).

Disclosure Reporting Pages (DRPs)

MSRB Rules: _________: This governs customer confirmations for municipal securities. Dealers must provide customers with a written confirmation at or before settlement showing: • Trade date & settlement date • Price & yield • Accrued interest • Capacity (principal or agent) • Markups/markdowns for principal trades with retail customers • Call features and whether the yield shown is yield to worst • Time‑of‑trade disclosures (material information known or reasonably accessible to the market) • Customer account transfers (ACATS) — firms must cooperate promptly with transfer requests and follow standardized timelines

MSRB Rule G‑15

MSRB Rules: MSRB Rule G‑15 — Key Requirement MSRB Rules: _________: governs customer confirmations for municipal securities. Dealers must provide customers with a written confirmation at or before settlement showing: • Trade date & settlement date • Price & yield • Accrued interest • Capacity (principal or agent) • Markups/markdowns for principal trades with retail customers • Call features and whether the yield shown is yield to worst • Time‑of‑trade disclosures (material information known or reasonably accessible to the market) • Customer account transfers (ACATS) firms must cooperate promptly with transfer requests and follow standardized timelines

MSRB Rule G‑15

FINRA / Offering Regulations: ________: This establishes the 5% markup policy, a guideline stating that markups, markdowns, and commissions on secondary‑market, non‑exempt securities must be fair and reasonable, generally around 5%. It applies to: • Secondary‑market trades • Agency or principal transactions • Stocks, corporate bonds, OTC trades It does NOT apply to: • New issues • Mutual funds • Municipal securities • Variable annuities • Anything sold with a prospectus The actual charge may be higher or lower depending on market conditions, security type, and trade size.

FINRA Rule 2121 — The 5% Markup Policy (Fair Prices and Commissions)

FINRA / Offering Regulations: _________: This requires firms to deliver a FINRA‑prepared educational communication (paper or electronic) to a rep’s former retail customers when the rep or firm contacts them about transferring assets, or when the customer initiates a transfer on their own. Delivery must occur at first individualized contact, or with transfer approval documents if the customer initiates the move on their own. Oral contact requires notice that the communication will be sent within 3 business days. The requirement lasts 3 months after the rep joins the new firm. No approval from principal is required. • Discloses non transferable assets. • Discloses changes in fee structure.

FINRA Rule 2273

FINRA / Offering Regulations: ________: This requires firms to make and preserve books and records as required under SEC Rule 17a‑3 and 17a‑4, and to keep them accurate, complete, and accessible. Records must be retained for at least 6 years unless a different retention period is specified elsewhere. Firms must maintain records in a format that prevents alteration, consistent with WORM‑style preservation requirements. Certain records must be stored in WORM format (Write Once, Read Many), meaning they can be written once and then cannot be altered or deleted, ensuring permanent, tamper‑proof retention.

FINRA Rule 4511 ENFORCES

Broker/Dealer & Market Rules: _________: This sets the retention, format, and accessibility requirements for broker‑dealer records. Certain records must be stored in WORM format (Write Once, Read Many), meaning they can be written once and then cannot be altered or deleted, ensuring permanent, tamper‑proof retention. Firms must keep records easily accessible for 2 years and in a promptly retrievable location. Retention Periods: • 3 years: Most records • 4 years: Customer complaints • 5 years: AML records • 6 years: Customer account records • Lifetime: Corporate/partnership foundational documents

SEC Rule 17a-4 RETAIN

Broker/Dealer & Market Rules: ________: This requires broker‑dealers to create core books and records at or near the time of the event. These include order tickets, blotters, ledgers, account forms, confirmations, and customer profile information. It is the record‑creation rule, establishing what must be made, when, and with what details.

SEC Rule 17a‑3 CREATE

Broker/Dealer & Market Rules: ________: This is the form used to initiate an ACATS transfer. It authorizes the customer’s new firm (receiving firm) to request the transfer of assets from the delivering firm (carrying firm). • Once this form is submitted by the client to the receiving firm it must be submitted to the to the delivering firm immediately. • The delivering firm (aka carrying firm) must validate or reject the request within 1 business day. The only reason for rejection is the account information not being recognized. • The validated transfers must be completed by the delivering firm (aka carrying firm) within 3 business days. • This form is the official trigger that starts the ACATS timeline.

Transfer Initiation Form (TIF)

Key Tax Codes: _________: reports the annual accretion of original issue discount (OID) that must be included as taxable interest income each year, even if no cash is received. Issuers or custodians must send this form when a customer holds a discounted debt security such as zero‑coupon bonds or deep‑discount notes. The form shows the amount to be reported as interest for that tax year.

Form 1099‑OID original issue discount (OID)

Key Tax Codes: ________: This regulation governs Regulated Investment Companies (RICs) such as mutual funds. To avoid corporate‑level taxation, a fund must distribute at least 90% of its Net Investment Income (NII) to shareholders. Meeting the 90% test allows the fund to be “pass‑through” for tax purposes, so income is taxed only to shareholders, not the fund. Capital gains distributions retain their character when passed through.

Subchapter M of the IRC

FINRA / Offering Regulations: ________: This rule governs Direct Participation Programs (DPPs). Firms must ensure recommendations are suitable by evaluating the customer’s income, net worth, liquidity, tax status, and risk tolerance. The rule does not set specific dollar minimums; those come from individual DPP sponsors. Compensation limits: underwriting is less than _____%, total organization & offering expenses less than _____%. Firms must perform due diligence and fully disclose risks, fees, and conflicts.

FINRA Rule 2310 10% 15%

SEC / Offering Regulations: ________: This requires broker‑dealers and registered reps to act in the retail customer’s best interest when making a recommendation. It imposes four obligations: • Disclosure: Material facts about the relationship, fees, conflicts. • Care: Understand risks, rewards, and costs; recommend only what’s in the customer’s best interest. • Conflict of Interest: Identify, mitigate, or eliminate conflicts (including banning sales contests). • Compliance: Maintain written policies and procedures to ensure Reg BI adherence.

Regulation BI (Best Interest)

FINRA / Offering Regulations: This rule governs investment company securities and includes the non‑cash compensation rules. After Reg BI, any sales contest or incentive program must give equal weighting to ___________ products in the category. Firms may not favor proprietary products. Applies to: A. ___________ B. ___________ C. ___________ Non‑cash comp is allowed only if it is not tied to ___________ product sales and meets strict disclosure and recordkeeping standards.

FINRA Rule 2341 all A. mutual funds B. variable contracts C. DPPs specific

FINRA / Offering Regulations: __________: This rule places limits on the overall expenses and amount of broker-dealer compensation considered fair and reasonable. That cannot exceed 10% of the gross proceeds.

FINRA Rule 2310

North American Securities Administrators Association (NASAA) Rules: This is a model law that governs the formation and operation of limited partnerships (LPs). It defines the roles of general partners (manage, unlimited liability) and limited partners (no management, limited liability), sets rules for formation, dissolution, and rights of partners, and protects limited partners from losing limited‑liability status as long as they do not participate in control of the business. Uniform Limited Partnership Act.

Uniform Limited Partnership Act (ULPA)

SEC / Offering Regulations: This is a filing required when an investor acquires more than 5% of a company’s voting equity securities with intent to influence or control the issuer. It must be filed within 10 days of crossing 5% and must disclose: • Identity of the purchaser • Source of funds • Purpose of the transaction (including any plans to influence control) • Number of shares owned • Any contracts or arrangements regarding the securities Often called the “beneficial ownership report” or the “activist investor filing.”

Schedule 13-D

FINRA / Offering Regulations: FINRA Rule 3310 for AML programs: ___________: The regulation requires broker‑dealers to maintain a full AML program and a ______. Firms must: • Collect identifying information: Name, DOB, address, and government‑issued ID number (SSN, TIN, _________, etc.). • Verify identity using documentary (e.g., driver’s license, passport) or non‑documentary methods (e.g., databases, credit bureaus). • Check customers against OFAC terrorist watch lists. • Provide notice to customers that identity verification is required. • Maintain records of the information used to verify identity. • File SARs for suspicious activity ≥ $5,000. • File CTRs for cash transactions > $10,000 in one business day. • Maintain AML training, independent testing, and a designated AML officer.

USA PATRIOT Act Customer Identification Program (CIP) passport

FDIC insures up to $250,000 per depositor, per insured bank, per ownership category: For individual (single) accounts, coverage includes: • Checking, savings, CDs, money market deposit accounts • All single accounts owned by the same person at the same bank are aggregated to one $250,000 limit Not included: • Securities (stocks, bonds, mutual funds) • Annuities • Money market mutual funds • Safe‑deposit box contents • Crypto • Insurance products • Balances at non‑FDIC‑insured institutions What type of account is this a requirement for?

Federal Deposit Insurance Corporation (FDIC) Individual Requirements: Individual Accounts (Single Ownership)

Securities Investors Protection Act of 1970 (SIPC) protects customers if a broker‑dealer fails, covering: • Up to $_________500,000 total, including • Up to $_________ in cash Coverage applies per separate customer, per failed broker‑dealer. Included: • Missing securities owed to the customer • Cash balances owed to the customer • Street‑name and customer‑name securities • Accounts held at a SIPC‑member broker‑dealer Not included: • Market losses • Fraud losses not tied to insolvency • Commodities or futures • Annuities • Insurance products • Crypto • Unregistered investment contracts • Safe‑deposit box contents • Accounts at non‑SIPC firms

$500,000 for each owner $250,000 Individual Accounts (Separate Customer)

Federal Telephone Consumer Protection Act

Do Not Call List

Continuing Education: Regulatory Element vs. Firm Element

Gifts & Business Entertainment _________: Gifts: Limited to $100 per person per year. Applies to anything of value given without the rep attending. _________: Business entertainment: No dollar limit if it is ordinary, appropriate, business‑related, and the rep attends. Included: • ___________: Merchandise, gift cards, tickets not attended with client Included: • ___________: Travel/lodging, meals, events, golf with the client Not included / Prohibited: • Tickets given without attending → counts as a gift • Cash or cash‑equivalent items • Lavish or extravagant events • Travel/lodging without the representative attending • Spouses, family, or guests on trips — strictly prohibited • Sales contests based on specific products

Gifts Business Entertainment

Federal Deposit Insurance Corporation (FDIC) insures $250,000 per co‑owner, per insured bank, for joint accounts. Requirements for full joint coverage: • Each co‑owner must be a natural person • Each must have equal withdrawal rights • Each must sign the account signature card (or electronic equivalent) Coverage example: Two co‑owners → $_________ total coverage Not included: • Joint accounts where one owner is not a natural person (e.g., LLC, trust, corporation) • Accounts where one owner does not have equal withdrawal rights • Accounts where a co‑owner did not sign the signature card • Any non‑deposit products (securities, mutual funds, annuities, etc.) What type of account is this a requirement for?

$500,000 ($250,000 for each owner) Joint Requirements: Joint Accounts (Dual Ownership)

A _________ is any written (email, letter, text, social media message) expression of dissatisfaction about a brokerage account or a registered representative. Firms must: • Forward complaints to a principal promptly • Maintain a complaint file for 4 years • Report certain complaints (involving theft, forgery, misappropriation, or securities law violations) to FINRA within 30 days • Include complaints in the firm’s quarterly statistical report to FINRA

Customer Complaints

Joint accounts receive their own separate SIPC coverage, distinct from each owner’s individual accounts. Coverage is: • $500,000 per joint account, including • $250,000 cash limit Ownership is based on the account, not the number of owners. Included: • Joint accounts with two or more natural persons • Securities and cash owed to the joint account • Treated as one separate customer for SIPC purposes Not included: • Joint accounts where an owner is not a natural person (LLC, corporation) • “Convenience” or “agency” accounts that are not true joint ownership • Any non‑securities products (annuities, commodities, futures, crypto) • Market losses • Fraud losses unrelated to broker‑dealer insolvency

Securities Investors Protection Act of 1970 (SIPC) Joint Accounts (Separate Customer Category)

Legal List

De Minimis

Customer Complaints ___________: • Emails • Text messages • Social media messages • Letters • Any written message expressing dissatisfaction ___________: • Verbal complaints (phone calls, in‑person statements) • General customer frustration without a written component • Comments that do not allege wrongdoing or dissatisfaction

Included (count as complaints) Not included: (not a complaint):

Soft Dollar Arrangements

Contacting Former Customers

Record Retention 3,4,5,6,lifetime.

Regulation U: Credit from Bank to Broker/Dealers (BD)

Regulation T: Credit from Federal Reserve to Banks (Member Firms)

Regulation Memory Sheet Flashcards

(104 cards)