SIE Chapter 16.5 : Additional Violations

5% markup policy

A general guideline (not a hard rule) the markups/markdowns and commissions on securities shouldn’t exceed 5%

• small trades, illiquid securities, and difficult execution of trade can justify more than this

Commingling

Improperly mixing customer securities with the firms’ or other customers’

Interpositioning

Having two dealers act as agents for the same trade just to earn two commissions instead of one

Churning

Excessive trading in a customer’s account to generate additional commissions

Freeriding

Buying and selling a security before paying for purchase

backing away

failing to honor a firm quote

Frontrunning

Trading ahead of a block order (10,000+shares) using insider knowledge of it before it is reported

Trading ahead of research report

Trading on a security received from a research report prior to that research report being released publically

prearranged trade

an illegal agreement to buy back a security from a customer at a fixed price

Pump and dump

Hyping a security with false claims and then selling after the price rise

Market rumors

Spreading false rumors intended to prompt others to buy or sell a security

Marking the open/close or painting the tape/execessive trading

Ways of faking trading activity or volume to manipulate a securities apparent price or interest

Contemporaneous trader

Someone trading on the opposite side from an inside trader near the same time

• They may sue the inside trader within 5 years

Bank Secrecy Act

Requires banks to build AML (anti-money laundering) programs

Placement>layering>integration

3 stages of money laundering: introducing launder money, covering up its origin through a series of transactions, and then blending it with legitimate funds

CTR (currency transaction report) and SAR (suspicious activity report)

CTR: Filed for cash transactions greater than $10K

SAR: Filed for suspicious transactions of $5K or more

SIPC (securities investor protection corporation)

Protects each separate customer up to $500,000 against broker dealer failure (Up to $250,000 being cash)

BCP (Business continuity plan

A required firm plan that details how customers will be able to reach the firm adn their assets during a disruptive event