Chapter 1: Broker Office Procedures - A. Introduction: Daily Business
IntroductionGuidelines for the practices that a brokerage firm uses to conduct the operation of its daily business are regulated by industry, state, and federal regulators. These guidelines are the foundation for the way that the firm handles all business, from hiring a new agent to executing a customer’s order. All series 24 candidates must have a full understanding of a brokerage firm’s operations and procedures to successfully complete the exam.
Hiring New EmployeesA registered principal of a firm will be the individual who interviews and screens potential new employees. They will be required to make a thorough investigation into the candidate’s professional and personal backgrounds. With few exceptions, other than clerical personnel, all new employees will be required to become registered as an associated person with the firm. The new employee will begin their registration process by filling out and submitting a Uniform Application for Securities Industry Registration, also known as Form U4. The Form U4 is used to collect the applicant’s personal and professional history including:>
The principal of the firm is required to verify the employment information for the last three years and must attest to the character of the applicant by signing Form U4 prior to its submission to FINRA. All U4 forms will be sent to the Central Registration Depository (CRD) for processing and recording. Any applicant who has answered yes to any of the questions on the form regarding their background must give a detailed explanation in the DRP pages attached to the form. The applicant is not required to provide information regarding:
- 10-year employment history
- Five-year resident history
- Legal name and any aliases used
- Any legal or regulatory actions
- Marital status
- Educational background
- Income or net worth
Resignation of a Registered RepresentativeIf a registered representative voluntarily resigns or has their association with a member firm terminated for any reason, the member must fill out and submit a Uniform Termination Notice for Securities Industry Registration, known as Form U5. The member must submit the U5 to FINRA within 30 days of the termination. The member firm is also required to give a copy of the U5 to the representative upon termination. The member must also state the reason for the termination, either voluntary or for cause. An associated person’s registration is non-transferable. A representative may not simply move their registration from one firm to another. The employing firm that the representative is leaving must fill out and submit a U5 to FINRA, which terminates the representative’s registration. The new employing firm must fill out and submit a new U4 to begin a new registration for the associated person with the new employer.
The new employer is required to obtain a copy of the U5 form filed by the old employing member either from the employee or directly from FINRA within 60 days of submitting the new U4. The previous employer is not required to provide a copy to the new member firm. If the new employing member asks the associated person for a copy of the U5, they have two business days to provide it. If the member requests a copy of the U5 from the agent who has not received a copy of their U5 from their old employer, the agent must promptly request it from their old employer, and must provide it to their new employer within two business days of receipt. A representative who leaves the industry for more than 24 months is required to re-qualify by exam. During a period of absence from the industry of two years or less FINRA retains jurisdiction over the representative in cases involving customer complaints and violations.
A firm may not allow an inactive agent to “park” their license with the firm and may not maintain an inactive agent’s license on the books simply to ensure that the agent does not have to re qualify by exam. The one exception to the rule is for agents in the military who are called to active duty. While on active duty the agent’s registration will be “tolled” until they return.
Registration ExemptionsThe following individuals are exempt from registration:
- Non-supervising officers and managers not dealing with customers
- Non-U.S. citizens working abroad
- Floor personnel
Persons Ineligible to RegisterIndividuals applying for registration must meet the association’s requirements in the following areas:
- Expulsion, suspension, or disciplinary actions by the Securities Exchange Commission (SEC) or any foreign or domestic self-regulatory organization (SRO)
- The individual caused the expulsion or suspension of a broker dealer or principal
- The individual made false or misleading statements on the application for registration on Form U4 or Form B-D
- Felony conviction or misdemeanor involving securities, bribery, falsification of reports, perjury or any other felony within the last 10 years
- Court injunction or order barring the individual