Series 99

By Jeff Van Blarcom AAA

Chapter 2. Brokerage Office Procedures & Back Office Operations - B. Registration Exemptions and Rules

Registration Exemptions

The following individuals are exempt from registration:

  1. Clerical
  2. Non-supervising officers and managers not dealing with customers
  3. Non-U.S. citizens working abroad
  4. Floor personnel

Persons Ineligible to Register

Individuals applying for registration must meet the association’s requirements in the following areas:

  • Training
  • Competence
  • Experience
  • Character

Anyone who fails to meet the association’s requirements in any of the above listed areas may not become registered.  An individual may also be disqualified by statute or through rules for any of the following:

  • 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

Disciplinary Actions Against a Registered Representative

If another industry regulator takes disciplinary action against a representative, the employing member firm must notify FINRA. Actions by any of the following should be immediately disclosed to the association:

  • SEC
  • An exchange or association
  • State regulator
  • Clearing firm
  • Commodity regulatory body

All disclosures must include the type of action brought as well as the name of the party bringing the actions and the name of the representative involved. FINRA members are required to regulate the activities of its associated people and must disclose to the association any action that the member takes against a registered representative. 

Termination for Cause

A member may terminate a registered representative for cause if the representative has:

  • Violated firm policy
  • Violated the rules of the New York Stock Exchange (NYSE), FINRA, SEC, or any other industry regulator
  • Violated state or federal securities laws

A firm may not terminate a representative who is the subject of investigation by any securities industry regulator until the investigation is completed.

Outside Employment

If a registered representative wants to obtain employment outside of their position with a member firm, the registered representative must first provide written notification to the employing member firm. The member firm may reject or limit the representative’s outside employment. Exceptions to this rule are if the registered representative is a passive investor in a business or if the representative owns rental property.  All other outside business activities must be disclosed to the member firm. If the member is a NYSE member, they must provide the representative with prior written approval before the representative engages in any outside activity.

Private Securities Transactions

A registered representative may not engage in any private securities transactions without first obtaining the broker dealer’s prior written approval. The registered representative must provide the employing firm with all documentation regarding the investment and the proposed transaction. An example of a private securities transaction would be if a representative helped a start-up business raise money through a private placement.  If the representative is going to receive compensation, the employing member firm must supervise the transaction as if the firm itself executed the transaction. If a representative sells investment products that the employing member does not conduct business in without the member’s knowledge, then the representative has committed a violation known as selling away. An exception to this is if the representative is helping an immediate family member raise money and the representative receives no compensation for their role in the private transaction. In this case, the notification and permission of the member is not required.

Gift Rule

Broker dealers may not pay compensation to employees of other broker dealers. If a broker dealer wants to give a gift to an employee of another broker dealer, it must:

  • Be valued at less than $100 per person per year
  • Be given directly to the employing member firm for distribution to the employee
  • Have the employing member’s prior approval for the gift

The employing member must obtain a record of the gift, including the name of the giver, the name of the recipient, and the nature of the gift.  These rules have been established to ensure that broker dealers do not try to influence the employees of other broker dealers.  An exception to this rule would be in cases where an employee of one broker dealer performs services for another broker dealer under an employment contract. The following are also excluded from the $100 limit:

  • Occasional meals
  • Occasional tickets to sporting events
  • Business-related travel

Records of gifts and employment contracts must be retained for three years. Prior FINRA approval is not required for employment contracts between members. The gift rule also applies to gifts given to or received from customers of the firm or agent. In the case of a mutual fund holding a seminar, the mutual fund may pay for registered representative’s travel related expenses and the seminar must be held at a “reasonable” location. Spouses of agents are allowed to attend; however, the mutual fund may only pay for the travel expenses of the agent. The agent’s expenses may not be paid for by the fund in exchange for past sales or the promise of sales in the future.

Note: Firms and agents also may not give a gift to influence any report or dissemination of information designed to influence the price of a security.

Sharing in a Customer’s Account

It is permissible for a representative to maintain a joint account with a customer as long as the firm approves it in advance.  The representative may share in the profit and loss of the account only in direct relation to their contribution to the account. A registered representative is precluded from sharing in the profit and loss of an account without making any financial contribution to the account.

Borrowing and Lending Money

Borrowing and lending of money between registered persons and customers is strictly regulated. If the broker dealer allows borrowing and lending between representatives and customers the firm must have policies in place the will allow for the loans to be made. Loans may be made between an agent or a customer if the customer is a bank or other lending institution,  where there is a personal or outside business relationship and that relationship is the basis for the loan or between to agents registered with the same firm.  If an agent wishes to maintain a joint account with an adult  customer the firm may allow an agent to do so as long as the agent’s participation in the profits and losses of the account are in direct relation to their financial contribution to the account.

C. Order Tickets and Key Dates

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