Chapter 20 Resolving Disputes and Suitability

ERRORS

What is an execution error?

What should an RR do if one of these occurs?

• Sometimes the RR may book the wrong detail in a trade

• Escalate it to their manager

What is an Error Account?

Does each RR have their own account?

• All of an RR’s errors must be maintained in an error account

• No, the member firm has an account, not each RR

What is a cancel and rebill?

What is needed to do this?

How many confirmations would there be?

• If an RR executes a transaction in the wrong account, it can be transferred to the correct account

• Principal approval

• There would be a cancelation of the wrong trade and a cancellation for the new trade

What is a trade reporting error?

Is the trade then cancelled?

• When the trade was executed correctly but the confirm was printed wrong

• No, the trade will still stand, the confirm will just be corrected

What is a clearly erroneous transaction?

When might these happen?

• FINRA allows for the correction or void of transaction where there is a blatant mistake

• If there is a lot of volatile trading with a security

How long does a firm have to report an erroneous transaction?

What if it is an outlier transaction?

What is an outlier transaction?

• 30 minutes from trade execution

• 60 minutes from trade execution

• When the execution price is 3x the current numerical guidelines

How long does FINRA/Nasdaq have to void a transaction?

What kind of transactions can they void?

• Within 30 minutes of becoming aware of the transaction

• Exchange listed securities

How long does an officer have to void an OTC security?

• It should be done ASAP but in all cases by 3:00PM the next trading day

Can the decision of a FINRA or Nasdaq official be appealed?

• Yes, it can be appealed

When must an appeal be submitted?

How long does it take to get a decision for listed securities?

How long does it take to get a decision for OTC securites?

• Within 30 minutes of the notification

• ASAP but if done after 3:00PM, it may not come till the next trading day

• ASAP but no later than 2 trading days after the execution

RESOLVING PROBLEMS

What is considered a complaint?

How long are complaints held on file?

Does there need to be a complaint file if there are no complaints?

• A written statement hat is made by a customer about an RR

• Kept at the Office of Supervisory Jurisdiction for 4 years

• Yes, it can be maintained as empty

What must be done if a complaint is recieved?

• RR must report to their principal

• Firm must investigate the situation

• All actions/correspondences the firm took must be logged and filed

• The firm must eventually respond to the customer, but there is no timeline for this

What is the code of procedure for?

Who completes the initial review for a code of procedure?

• This is used by FINRA for disciplinary action when you do something wrong

• A hearing panel

If someone is found guilty by a hearing panel of violating FINRA rules, what may happen?

• They may be fined, expelled, or suspended

If someone is suspended, expelled, or revoked, can they be associated with a member firm in any way?

• No, they cannot even be in a clerical/administrative role

Can a respondent appeal a hearing decision?

What happens if the respondent files an appeal?

• Yes, they have 25 days

• Any results of the decision are put on hold (like a suspension)

What is the process of appeals for a hearing panel decision?

If the respondent wins the appeal, can the Department of Enforcement do anything?

• Yes, they can file their own appeal

What is arbitration?

Why might it be used?

Can it be used in a case involving FINRA?

• Seeks to find a settlement outside out courtroom litigation

• It is often faster and cheaper than going through the court system

• No, it cannot be used in instances that are like member firm vs FINRA

What is the statue of limitations for filing a complaint?

• Can be filed within 6 years of the occurrence

Is arbitration required to be used for cases involving discrimination or sexual harassment?

• No, it is not required in these instances, courtroom litigation can be used instead

What is a pre-dispute arbitration clase?

• Many new account forms typically require new customers to sign off on using arbitration to settle any disputes with the firm or RRs

When going through arbitration, how many arbitrators are assigned to resolve the dispute?

• 1-3 arbitrators will be assigned based on the dollar amount

What is the arbitrator composition if the case involves a customer?

What is the arbitrator composition if the case involves an RR?

What is the arbitrator composition if the case involves a company?

• A majority are public arbitrators if not all

• 2 public and 1 industry

• All industry as they will have good info on the matter

Can arbitration be appealed?

Is arbitration binding?

• No, the decision is final

• Yes

What is simplified arbitration?

What is simplified customer?

What is simplified industry?

• It is used for transactions under $50K

• One public arbitrator will make a decision based off of submitted arguments unless the customer calls for a hearing

• One public arbitrator will decide without a hearing unless either party requests

What is mediation?

What are caucuses?

How is a mediator selected?

• Mediation is an even simpler alternative to litigation or arbitration where both parties try to reach their own agreement with the help of a mediator

• Confidential meetings that each party will have with the mediator to present their case

• Both parties must agree to a mediator

What are the 3 ways that mediation can end?

• The parties resolve the dispute through a written settlement

• The mediator declares an impasse in the belief that continuing is futile

• Either party or the mediator withdraws from the process in writing (so not really appealable but you can walk out on it)

DISCLOSURES UNDER CODE OF ARBITATION – UPDATING FORM U4

Are arbitration outcomes listed on U4?

• Yes, if Convicted, charged, pled guilty, or no contest to a felony or misdemeanor involving investments or investment related fraud

What is form U5 used for?

When does it need to be sent to FINRA?

• It is used to notify FINRA when an RR resigns or is fired from a member firm

• Within 30 days

How long does an RR have to return to the industry before they have to take the exams again?

• 2 years

What is form U6?

• Used to report disciplinary actions against an RR or firm as well as any arbitration awards against them

What is the Central Registration Depository?

• Databases where forms U4,5, and 6 feed to regulators so they can maintain employment and disciplinary histories for registered persons

What disclosures are asked about on a U4?

How long does an RR have to make an amendment to their U4?

• Basically all sorts of disciplinary actions, terminations, and financial events like bankruptcy

• 30 days

What is BrokerCheck?

Who does this website have info on?

• Broker check is a website for the public that has a lot of info that the CRD does

• Any currently registered reps as well as anyone who has been registered in the last 10 years

If the info on BrokerCheck is wrong, what must a currently registered RR do?

What if they are no longer registered?

• File an amended U4

• They need to file a Broker Comment Request Form

What do member firms need to provide to their customer’s once a year?

• FINRA Regulation’s Public Disclosure Program (BrokerCheck) hotline number

• FINRA website address

• A statement regarding the availability of an investor brochure that includes information describing FINRA BrokerCheck

What is expungement?

Why might something get expunged?

If something is expunged can it still be seen in the CRD?

• Removal of customer related arbitration matters in the CRD

• Basically only if it was completely false

• No, it will be removed completely