SIE Prohibited Activities, AML, Communications & FINRA Rules

Insider Trading

Trading securities using material nonpublic information (MNPI), in violation of a duty of trust or confidence. | | • Illegal to trade or improperly tip others based on MNPI | • Material = Information likely important to an investor | • Nonpublic = Not broadly available to investors

Front-Running

Trading ahead of a customer's or other pending order using nonpublic information to benefit from the expected price movement. | | PROHIBITED. | | REMEMBER: Front-running = Trading ahead.

Churning

Excessive trading in a customer account primarily to generate commissions or other compensation. | | • Inconsistent with customer's objectives | • Often involves representative control of account | • Prohibited unethical sales practice

Market Manipulation

Actions intended to create artificial or misleading prices, demand or trading activity. | | Examples: | • Wash trades | • Matched orders | • Pump-and-dump schemes | | PROHIBITED.

Anti-Money Laundering (AML)

Broker-dealers must maintain AML programs to detect and report suspicious activity. | | • Customer identification procedures | • Monitoring for suspicious transactions | • Employee training and independent testing | • Reporting when legally required

Suspicious Activity Report (SAR)

Report of qualifying suspicious transactions filed with FinCEN. | | • Generally due within 30 calendar days of initial detection of reportable facts | • May extend to 60 days if no suspect is identified | • Generally applies to suspicious transactions involving at least $5,000 for broker-dealers | • Filing is confidential

Currency Transaction Report (CTR)

Report for cash transactions exceeding $10,000 in one business day, including aggregated related transactions, when applicable. | | • Filed with FinCEN | • Generally due within 15 calendar days | • Applies to covered financial institutions handling reportable currency transactions | | REMEMBER: CTR = Cash > $10,000.

Structuring

Breaking cash transactions into smaller amounts to evade reporting requirements. | | • Example: Repeated deposits just under $10,000 to avoid CTR reporting | • Illegal, even if underlying money is legitimate | • Can trigger a SAR

Correspondence vs. Retail Communication

CORRESPONDENCE: Written/electronic communication distributed to 25 or fewer retail investors within 30 calendar days. | | RETAIL COMMUNICATION: Distributed or made available to MORE than 25 retail investors within 30 calendar days. | | Institutional communications have separate rules.

Outside Business Activity (OBA)

Registered person participating in a business activity outside their member firm. | | • Must give prior written notice to firm under FINRA rules when required | • Firm evaluates and supervises as applicable | | REMEMBER: OBA = Prior written notice.

Private Securities Transactions (Selling Away)

Securities transactions outside the regular scope of employment with the member firm. | | • Prior written notice required | • If compensation is involved, prior written firm approval generally required | • Firm must record and supervise approved compensated transactions | | REMEMBER: Selling away = Outside securities transactions.

Gifts and Gratuities (FINRA Rule 3220)

FINRA's general gift limit is $100 per person per year when gifts relate to the recipient's employer's business. | | • Business entertainment has separate treatment when reasonable and attended | • Firms may have stricter policies | | REMEMBER: Gifts = $100 annual limit under Rule 3220.

Sharing in Customer Accounts

Associated persons generally need prior written firm authorization to share in customer account profits or losses. | | • Sharing generally must be proportionate to financial contributions | • Special rules apply to immediate family accounts | | REMEMBER: Firm authorization required.

Customer Complaints

Written customer complaints alleging misconduct must be handled and recorded under applicable firm and FINRA rules. | | • Certain complaints and events require regulatory reporting | • Representatives should promptly escalate complaints | • Never conceal or independently settle a complaint contrary to firm procedures

Regulation SHO

SEC regulation governing short sales. | | • Locate requirement generally applies before effecting short sales | • Addresses delivery failures and close-out requirements | • Includes short-sale marking requirements | | REMEMBER: Reg SHO = Short sales.