SIE for Dummies: Rules and Regulations

2025-2026

Censure

Official reprimand

Disgorgement

Taking away (of ill-gotten gains)

Injunctive Relief

Cease-and-desist order from the court

The Securities Act of 1933

Requires the full and fair disclosure of all material information about a new issue

The Securities Exchange Act of 1934

Established the SEC, to protect investors by regulating over-the-counter markets and exchanges. Additionally regulates extension of credit in margin accounts, registration and regulation of brokers and dealers, registration of securities associations, transactions by insiders, customer accounts, trading activities.

The Trust Indenture Act (TIA)

Formerly called Trust Indenture Act of 1939, prohibits bond issues valued at more than $50M (originally $5M) from being offered to investors without an indenture. All companies must hire a trustee who’s responsible for protecting the rights of bondholders.

Trust Indenture

Written agreement that protects investors by disclosing particulars of the issue (coupon rate, maturity date, any collateral backing, etc.).

The Investment Company Act of 1940

Regulates registration requirements and activities of investment companies.

The Investment Advisers Act of 1940

Requires registration of certain investment advisers with the SEC - any with at least $25M of assets under management or anyone who advises an investment company. All other investment advisers have to register on state level. Also regulates record-keeping responsibilities, advisory contracts, advertising rules, custody of customers’ assets and funds.

Investment Adviser

Person who receives a fee for giving investment advice

Self-regulatory organizations (SROs)

FINRA, MSRB, NYSE, CBOE. Although independent, work together creating and enforcing rules. FINRA and NYSE can fine, suspend, censure/reprimand, and expel members; however, they can’t imprison members. The FINRA, SEC, NYSE do NOT approve/guarantee securities. A firm registered with/didn’t have registration revoked by an SRO does NOT mean the SRO approves of the firm. Member firms and associates may not claim that they’ve been approved by the SEC or any SRO.

Financial Industry Regulatory Authority (FINRA)

SRO responsible for operation and regulation of OTC market, investment banking (securities underwriting), NYSE trades, investment companies, limited partnerships, etc. Created in 2007 and is a consolidation of National Association of Securities Dealers (NASD) and the regulation and enforcement portions of NYSE. Responsible for making sure that its members follow not only FINRA rules, but also rules set forth by SEC. Responsible for handling complaints against member firms and may take disciplinary action if necessary. Responsible for administering securities exams. Strict rules regarding filing of misleading, incomplete, or inaccurate information concerning membership, the firm’s registration, and the registration of member associates.

Municipal Securities Rulemaking Board (MSRB)

Established to develop rules that banks and securities firms have to follow when underwriting, selling, buying, and recommending municipal securities. Subject to SEC oversight but does not enforce SEC rules. Makes rules for firms (and representatives) who sell municipal bonds but don’t enforce them; it leaves enforcement up to FINRA.

NYSE

Oldest and largest stock exchange in the US. Responsible for listing securities, setting exchange policies, and supervising the exchange and member firms. Has power to take disciplinary action against member firms.

Chicago Board Options Exchange (CBOE)

An exchange that makes and enforces options exchange rules.

North American Securities Administrators Association (NASAA)

State regulators. Voluntary association consisting of 67 regulators. Even predates SEC. Key roles - licensing stockbrokers, smaller investment adviser firms (managing less than $100M in assets), and securities firms conducting business in the state; registering securities on state level; investigating customer complaints and possible cases of investment fraud; enforcing state securities laws (may fine, penalize, provide restitution to investors, assist in prosecuting investment-related criminals, and impose new conduct laws to correct problems); examining investment adviser firms and broker-dealers to ensure compliance with securities laws and keeping accurate client records; reviewing offerings not exempt from state law; education to investors regarding rights and providing information so they make more informed decisions; advocating for passage of state securities laws.

US Department of the Treasure (USDT)

Established to manage US government revenue. Oversees printing of all paper currency and minting of all coins. Responsible for collecting taxes through the Internal Revenue Service (IRS), managing US government debt securities, licenses banks, helps advise US government branches regarding fiscal policy.

U4 Form

Persons wanting to register as financial professionals with FINRA must submit this. Includes 10-year employment history, 5-year residential history, (if registered with another firm) how you’re registering (Securities Trader, Financial and Operations Principal, General Securities Representative, etc.), states you want to be registered in, etc. Applicants must submit fingerprints. Must be thoroughly reviewed by a principal of the firm. Background checks must be performed, applicant’s employers for previous three years must be called to verify applicant’s employment history; calls must be made within 30 days of the firm receiving this. Special scrutiny is required if the applicant previously worked in the securities industry. Information must be complete and not misleading. Also contains an arbitration disclosure.

Arbitration Disclosure

States that disputes between the applicant and the member firm will be settled by arbitration (won’t take the firm to court).

Ten-year Disqualification Rule

Disqualification if an individual has been convicted (not charged or accused) of a felony/certain misdemeanors.

Nonregistered (Unregistered) Persons

May not solicit customers or take orders. Member firms are prohibited from paying commissions, fees, concessions, discounts, etc. to any such persons. Failure of a member firm to register someone who should be will likely end in disciplinary action by FINRA. May handle basic questions, send out literature, transfer calls, set up appointments, let customers know about upcoming seminars, etc. They can’t be directly involved in securities business (opening accounts, taking trade orders, soliciting trades, giving quotes, etc.). If they are to handle securities and/or money, they must be fingerprinted.

Statutorily Disqualified

If felony criminal conviction/certain misdemeanor convictions within last ten years, have had temporary/permanent injunction (no matter the age) issued by court involving unlawful investment activities, been expelled/barred/currently suspended from membership/participation in another SRO (true even if barred with right to reapply)…

SEC Rule 17f-2

All employees of a brokerage firm are required to be fingerprinted if they are involved in making sales, handling assets (cash and/or certificates), accessing original books and records, and supervising any of these activities. Fingerprints always required when applying for registration. If FINRA doesn’t receive fingerprints within 30 days of U4 being submitted, the applicant's registration will be deemed inactive.

Central Registration Depository’s (CRD’s) BrokerCheck

Allows investors access to vital information that they may need to help pick the right firm and the right professional. Disclose complaints, where you’re registered, exams passed, years in business, crime, expelled from SRO, etc. If a member maintains a website, the site must provide a link to this.

Firm Element Continuing Education

Member firms must have annual meetings covering services and strategies offered by the firm & any recent regulatory developments, if any. The meeting must be interactive and allow questions. All registered persons who have direct contact with the public must attend. All firms must have continuing and current education programs for covered employees.

Regulatory Element Continuing Education

All registered persons required to take computer-based training sessions covering FINRA regulations by December 31st of each year. If training wasn’t taken within the required period, a person's securities license(s) are deactivated until it’s completed. If deactivated for two years, individuals will be administratively terminated. If so, the person must reapply for registration.

U5 Form

If one leaves their firm, the firm has to file this with the CRD within 30 days of the date one resigned/was terminated. Oneself will also receive a copy. Requires member firm to provide explanation of why you left/were terminated. If moving to a new member firm, the new employer must file a new U4 Form and receive a copy of this filed by the former employer.

FINRA Registration Exempt

Certain individuals are (). Persons whose functions are solely clerical/ministerial, solely affecting transactions on the floor of a national securities exchange and who are registered with that exchange, function is solely and exclusively involved in transactions of municipal securities, function is solely and exclusively involved in transactions of commodities, function solely and exclusively involved in transactions in securities futures (as long as person is registered with a registered futures association).

FINRA Rule 4530 Reporting

Member firms must report specified regulatory, disciplinary, criminal, and customer-complaint events promptly, generally no later than 30 days after learning of them.

Rule 4530 Customer Complaints

Reportable complaints include written allegations of theft, misappropriation of funds or securities, or forgery.

Other Reportable Events

Include outside business activities, private securities transactions, certain political contributions, felonies, financial-related misdemeanors, liens, and bankruptcies.

Outside Business Activity

An associated person must notify the employing firm in writing before accepting outside work. Firm permission is not automatically required, but the firm may restrict or reject work that creates a conflict; unpaid volunteer activity does not require notice.

Account at Another Broker-Dealer

An associated person needs prior written permission from the employing firm, must notify the executing firm of the association, and must have duplicate confirmations and statements sent if requested.

Private Securities Transaction

A securities transaction outside the associated person’s regular business and away from the employing firm. Written notice and firm approval are required.

Private Securities Transaction Notice

Must explain the associated person’s role, provide complete transaction details, and disclose whether compensation will be received.

Immediate-Family Transaction Exception

A transaction for an immediate family member without compensation is not treated as a private securities transaction.

Order Ticket

Paper or electronic record containing the instructions and details needed to execute and supervise a customer trade.

Order Ticket Information

Includes representative and account IDs, security description, quantity, action, long or short status, order type, cash or margin, discretionary status, solicited or unsolicited status, time of order, and execution price.

Option Order Ticket

Also identifies whether the customer is buying or writing, opening or closing, and covered or uncovered.

Unsuitable Unsolicited Order

If a customer insists on an unsuitable trade, the representative warns the customer but may accept it and marks the ticket unsolicited.

Principal Approval

A principal approves new accounts, trades, advertising, and sales literature, handles complaints, supervises employees, and reviews red flags.

Order-Ticket Approval Timing

A principal may approve an order ticket later in the day, but it must be reviewed on the same day as the trade.

Proportionate Sharing

A registered person generally may not share in a customer account’s gains or losses unless the person contributed capital, the customer and principal authorize it in writing, and sharing is proportional to contributions.

Immediate-Family Sharing Exception

Proportional-sharing restrictions do not apply in the same way to an associated person’s immediate-family account.

Trade Date

The day a trade is executed. The purchaser becomes the owner when the trade occurs even if payment has not yet been made.

Settlement Date

The date the seller delivers the securities and the issuer or transfer records are updated for the purchaser.

Securities Payment Date

The date by which the buyer must pay for the securities under applicable Federal Reserve or industry rules.

Regular-Way Settlement

The standard settlement schedule for a security unless the parties agree to a special or delayed settlement.

When-Issued Transaction

Trading in an authorized security before certificates are available, commonly used for new municipal issues, Treasury securities, and reorganizations.

Regulation S-P

Requires broker-dealers, investment companies, and investment advisers to adopt written safeguards for customers’ nonpublic personal information.

Privacy Notice

Explains a firm’s information-sharing and security policies and gives customers an opportunity to opt out of certain sharing with unaffiliated third parties.

Trade Confirmation

Receipt sent at or before settlement showing the essential facts of a completed trade.

Trade Confirmation Information

Includes trade and settlement dates, security and quantity, price, capacity, commissions where required, net amount, special features, CUSIP when applicable, and other required disclosures.

Municipal Confirmation

Also includes information such as tax status, source and type of security, accrued interest, and yield-to-maturity or yield-to-call, whichever is lower where required.

Book-Entry Security

Ownership is recorded electronically on a financial institution’s books instead of through delivery of a physical certificate.

Regulation Best Interest (Reg BI)

Requires broker-dealers and representatives to act in a retail customer’s best interest when making a recommendation and not place their own interests ahead of the customer’s.

Reg BI Disclosure Obligation

Requires written disclosure of capacity, services, fees, relationships, and material conflicts of interest.

Form CRS

Customer relationship summary provided before or at the beginning of a retail relationship or initial recommendation, describing services, fees, conflicts, and disciplinary history.

Reg BI Care Obligation

Requires reasonable diligence, care, and skill in understanding and recommending securities or strategies appropriate for the customer.

Reg BI Conflict Obligation

Requires procedures to identify, disclose, mitigate, or eliminate material conflicts of interest.

Reg BI Compliance Obligation

Requires written policies and procedures reasonably designed to achieve compliance with Regulation BI.

Specified Adult

A person age 65 or older, or an adult age 18 or older with an impairment that makes the person unable to protect their own interests.

Trusted Contact Person

A person the firm may contact about unusual activity, suspected exploitation, or difficulty reaching a customer. The trusted contact does not automatically receive trading authority.

Financial Exploitation

Wrongful or unauthorized use of a specified adult’s funds or property, or obtaining control through deception, intimidation, undue influence, or abuse of authority.

FINRA Rule 2165 Temporary Hold

Permits a firm with a reasonable belief of financial exploitation to temporarily hold a specified adult’s disbursement and contact involved parties and the trusted contact.

Borrowing From or Lending to Customers

Permitted only if the firm has written procedures allowing it and an approved relationship or circumstance applies.

Permitted Customer Loan Relationships

Include immediate family, a financial institution in the lending business, persons registered with the same firm, or a personal or business relationship outside the broker-customer relationship.

Customer Loan Approval

The registered person generally must notify the firm and obtain written approval before the borrowing or lending arrangement unless the firm’s procedures provide otherwise.

Account Statement

Shows account activity, positions, money balances, and market values for the reporting period.

Account Statement Frequency

FINRA generally requires statements at least quarterly; mutual-fund accounts receive statements at least semiannually even without activity.

Firm Financial Condition Disclosure

Upon customer request, a member firm provides its most recent balance sheet, on paper or electronically with consent.

Declaration Date

Date the board announces a dividend, including its amount, record date, and payment date.

Ex-Dividend Date

First day a stock trades without the dividend. A purchaser on or after this date does not receive the dividend.

Record Date

Date the corporation checks its shareholder records to determine who is entitled to the dividend.

Dividend Payment Date

Date the corporation distributes the dividend to eligible shareholders.

Dividend-Date Sequence

Declaration, ex-dividend, record, payment—remembered as “Don’t Eat Rubber Pickles.”

Due Bill

Written evidence that a dividend or other ownership benefit belongs to the other party when securities or payment do not arrive in the normal sequence.

Customer Complaint

A written grievance relating to the firm or associated person. It must be retained with records of the action taken.

Code of Procedure

FINRA’s formal disciplinary process for securities-industry rule violations, including investigation, hearing, and appeal.

Department of Enforcement (DOE)

FINRA department that investigates suspected violations and may bring a disciplinary action under the Code of Procedure.

Mediation

Voluntary, informal, nonbinding dispute resolution conducted by an independent neutral party.

Code of Arbitration

Informal hearing before a neutral arbitrator or panel for securities disputes. Awards are binding and generally nonappealable.

Arbitration Compliance

A member or associated person that does not comply with an award within 15 days may face suspension or cancellation of membership.

Correspondence

Written or electronic communication sent or made available to 25 or fewer retail investors within a 30-calendar-day period.

Retail Communication

Written or electronic communication sent or made available to more than 25 retail investors within a 30-calendar-day period.

Institutional Communication

Written or electronic communication distributed only to institutional investors, excluding a member’s internal communications.

Retail Communication Approval

Generally requires approval by a qualified principal before use.

Research Report Approval

Requires approval by a supervisory analyst with expertise in the product or security.

Testimonial

Must be made by a person with enough knowledge and experience to form a valid opinion, with required disclosures.

FINRA Communication Filing

Certain retail communications must be filed with FINRA ten business days before first use.

Communication Record Retention

Member communications must generally be retained for at least three years.

Lifetime Records

Corporate or partnership documents and lists of officers, partners, or directors are kept for the life of the member firm; active employees’ U4 forms are kept while the firm operates.

Six-Year Records

Include blotters, customer and general ledgers, position records, account records, and records of closed accounts.

Blotter

Original-entry record of securities purchases and sales and receipts or deliveries of cash and securities.

Customer Ledger

Record of a customer’s account activity and settlement information.

General Ledger

Monthly updated record of the firm’s assets, liabilities, and net worth.

Position Record

Shows securities owned or controlled by the firm and where they are located.

Three-Year Records

Include order tickets, confirmations, advertising and sales literature, powers of attorney, fingerprints, compensation records, gift records, and compliance manuals.

MSRB Four-Year Records

MSRB rules generally require records such as subsidiary ledgers and confirmations to be maintained for four years.

Records Accessibility

Required books and records must be readily accessible for the first two years.