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 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