SIE Chapter 16

5 Percent Markup Policy

A FINRA guideline (rather than a strict rule) suggesting that commissions and markups for most trades should not exceed 5% to avoid being deemed excessive

Arbitration

A mandatory, binding, and non-appealable process used to resolve disputes between member firms and their associates; it is less formal and costly than the court system

Business Continuity Plan

A mandatory written plan identifying procedures to be followed in the event of a significant business disruption, including data backup and alternative communication methods

Confirmation

A written receipt provided to a customer after a trade that includes execution details such as the price, quantity, and whether the firm acted as an agent or principal

Continuing Education

Mandatory ongoing training for registered persons consisting of two parts: the firm element (annual) and the regulatory element

Federal Deposit Insurance Corporation

A government agency that protects bank depositors for up to $250,000 per individual in the event of a bank failure

Financial Industry Regulatory Authority

An industry-funded self-regulatory organization (SRO) responsible for regulating broker-dealers and their registered representatives

Insider Trading

The illegal practice of trading a security based on material nonpublic information; penalties include criminal fines up to $5 million and 20 years in prison

Regulation S P

A federal law requiring firms to have written policies and procedures in place to protect the private records and information of their customers

Securities Investor Protection Corporation

A non-profit organization that protects customers from broker-dealer bankruptcy for up to $500,000, of which no more than $250,000 can be cash

U4 Form

The uniform registration form that financial professionals must submit to FINRA to become registered; it includes personal history and an arbitration disclosure

U5 Form

The form filed with FINRA when a registered representative's association with a member firm is terminated for any reason

Backing Away

The illegal failure of a market maker to honor a firm quote they have displayed

Churning

A violation where a registered representative executes excessive trades in a customer's account primarily to generate commissions

Commingling Of Funds

The prohibited practice of mixing a customer's securities or funds with those of the brokerage firm

Form CRS

A mandatory disclosure document that broker-dealers must provide to retail clients to explain the nature of their relationship and services

Freeriding

A violation of Regulation T where a customer buys a security and then sells it at a profit before ever paying for the initial purchase

Frontrunning

An illegal practice where a representative executes a trade for their own account based on knowledge of an impending block trade (10,000 shares or more) before it is reporte

Interpositioning

The prohibited practice of unnecessarily inserting a third party between a customer and the best market to generate extra commissions

Marking The Open

Executing series of trades just before the market opens to manipulate the price of a security

Marking The Close

Executing series of trades just before the market closes to manipulate the price of a security

Placement Layering Integration

The three stages of money laundering; Placement is the initial deposit of illegal funds, Layering involves complex transactions to obscure the source, and Integration is commingling "clean" money into the legal economy

Statutory Disqualification

The barring of an individual from FINRA membership, often due to a felony conviction within the past 10 years

Trusted Contact Person

An optional individual (age 18+) named on an account form whom the firm can contact if there are concerns about the account holder's health or potential financial exploitation