FINRA Conduct Rules - Rules and By-Laws of FINRA

FINRA outlines its four purposes in its articles of incorporation.

  • FINRA seeks to promote the financial industry by encouraging its members to uphold the highest ethical standards.
  • FINRA seeks to develop lines of communication between the securities industry and governmental agencies that protect the public and encourage an exchange of information and ideas.
  • FINRA has the power to write and enforce rules for its members to promote fair practices and to reduce fraudulent dealings with the public.
  • FINRA seeks to police its members and assist in settling disputes with the public or between members.

FINRA By-Laws
FINRA Bylaws require that no member shall permit any person associated with the member to engage in the investment banking or securities business unless the member determines that such person satisfies the qualification requirements established in the Bylaws. Each member and associated person must file an application with the FINRA, pay required dues and agree to abide by all FINRA conduct rules. Each associated person must complete t and sign form U4 to begin their association with the member firm.

When terminating an associated person, the member must notify the FINRA via electronic process within 30 days, and must provide a written copy of that form known as form U5 to the terminated associated person within that time. Failure to do so results in a late filing penalty. If complaints are open against the associated person, the termination is not accepted until these complaints have been resolved.

Furthermore, even after termination of registration, the FINRA retains jurisdiction over the member or associated person for two years. This time frame allows the FINRA to file complaints against them for behavior that occurred prior to the termination.

Membership and Registration Rules
When registering with the FINRA, a person must register as either a principal or a representative. A principal is actively involved in the management of a broker-dealer's securities or investment banking business. A principal may also have supervisory or training responsibilities for registered representatives, and new representatives must go through a carefully planned training program.

A registered representative must be associated with a member (broker-dealer) and be supervised by a principal. Anyone who is associated with a member and who is engaged in the investment banking or securities business for the member, (including the functions of supervision, solicitation or conduct of business in securities), or who is engaged in the training of persons associated with a member for any of these functions, is designated as a representative and must be registered. This includes all assistant officers besides principals.

A General Securities Representative holds a Series 7 license, which permits transacting individual securities such as stocks and bonds, as well as mutual funds and other securities. However, a person who plans to sell only mutual funds and/or variable contracts registers as a Limited Securities Representative (Series 6).

To become registered, the individual must pass the appropriate qualification exam. Such exams are considered highly confidential. As such, the removal from an examination center, reproduction, disclosure, receipt from or passing to any person, or use for study purposes of any portion of such a qualification examination, is prohibited and is deemed a violation of Rule 2110. This rule includes all exams, whether of a present or past series, or any other use which would compromise the effectiveness of the examinations.

Not all employees of the member must register. Employees of a member who meet the following criteria do not have to register as a representative:

  • Those whose responsibilities are merely clerical or ministerial
  • Those not actively involved in either investment banking or securities business
  • Those whose functions are exclusively who affect transactions on the floor of a national securities exchange and who are registered as floor members with such an exchange
Standards of Commercial Honor and Principles of Trade
Related Articles
  1. FA

    The Basics of The Series 79 Exam

    Passing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
  2. Your Clients

    Events in 2016 That'll Alter Your Retirement Plans

    Retirement savers who are trying to see what lies ahead can expect these changes affecting their retirement plans in 2016.
  3. Term

    What is the Series 66?

    The Series 66 exam is one of two tests required to register as both a securities agent and an investment advisor.
  4. Your Practice

    How Likely is a New Fiduciary Rule in 2016?

    New fiduciary standards for advisors working with retirement accounts are on the horizon. Will they become reality in 2016?
  5. Professionals

    Breaking Down Financial Securities Licenses

    Find out which exam you need to begin your career as an investment professional.
  6. Brokers

    Duck These Illegal Sales Tactics Used By Brokers

    Many unscrupulous brokers employ illegal swindling tactics to sell bad securities. Here are sales strategies that should indicate red flags to investors.
  7. Professionals

    Private Banker: Career Path & Qualifications

    Discover what kind of work private bankers do, and learn more about how you can develop the experience and qualifications required to work in the field.
  8. Financial Advisors

    Top Compliance Headaches for Financial Advisors

    Advisors who do not devote sufficient attention to compliance issues can find themselves in hot water with both regulators and their clients.
  9. Investing Basics

    How To Handle A Serious Dispute With Your Broker

    Find out what to do if you have a dispute with your broker.
  10. Professionals

    Hedge Funds and the Law

    Learn how hedge funds have gotten in trouble for illegal insider trading. Read about questionable high-frequency trading (HFT) strategies.
RELATED TERMS
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Series 79

    A examination to ensure a candidate is qualified to become a ...
  6. Research Analyst

    A person who prepares investigative reports on equity securities. ...
RELATED FAQS
  1. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  2. How are variable annuities regulated?

    The sale of a variable annuity is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory ... Read Full Answer >>
  3. Do financial advisors need to pass the Series 7 exam?

    The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
  4. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  5. Do financial advisors need to be approved by FINRA?

    The term "financial advisor" can refer to a couple of different roles. It most often refers to a broker-dealer or an investment ... Read Full Answer >>
  6. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center