CSCP CSCP Regulatory Reporting & Disclosures 2 — Questions and Answers
Question 1: Under FINRA Rule 2210, what category of communication requires prior principal approval before use or filing?
- Institutional communications
- Correspondence
- Retail communications (Correct answer)
- Internal memos
Correct answer: Retail communications
Retail communications under FINRA Rule 2210 must be approved by a registered principal before first use, given the potential for broad public impact.
Question 2: A broker-dealer discovers it has a net capital deficiency. Under SEC Rule 15c3-1, what must the firm do immediately?
- Notify its clearing firm only
- Cease conducting business and notify the SEC and its designated examining authority (Correct answer)
- File a Form BD amendment
- Increase margin requirements for all accounts
Correct answer: Cease conducting business and notify the SEC and its designated examining authority
A net capital deficiency is a critical violation requiring immediate cessation of business and prompt notification to the SEC and the firm's designated examining authority.
Question 3: What is the purpose of SEC Form 8-K?
- Annual financial reporting
- Quarterly earnings disclosure
- Current reporting of material corporate events on a timely basis (Correct answer)
- Registration of new securities
Correct answer: Current reporting of material corporate events on a timely basis
Form 8-K is used by public companies to report material events or corporate changes to shareholders and the SEC on a current, timely basis.
Question 4: Under FINRA's reportable event rules, which of the following requires a firm to file a Disclosure Event on the CRD system via Form U4?
- A parking ticket received by the registered person
- A felony charge filed against the registered person (Correct answer)
- A customer complaint that was resolved in the firm's favor
- A change in the registered person's home address
Correct answer: A felony charge filed against the registered person
FINRA requires that criminal charges, including felony charges, be disclosed on Form U4 and reported on CRD regardless of final disposition.
Question 5: Which SEC regulation governs the disclosure of executive compensation in proxy statements for public companies?
- Regulation S-X
- Regulation S-K, Item 402 (Correct answer)
- Regulation D
- Regulation A+
Correct answer: Regulation S-K, Item 402
SEC Regulation S-K Item 402 sets detailed requirements for executive compensation disclosure in proxy statements, including salary, bonuses, equity awards, and other benefits.
Question 6: FINRA Rule 4511 requires member firms to preserve books and records. What is the minimum retention period for general ledger records?
- 2 years
- 3 years
- 6 years (Correct answer)
- 10 years
Correct answer: 6 years
FINRA Rule 4511 and SEC Rule 17a-4 require that general ledger records be maintained for at least 6 years.
CSCP CSCP Regulatory Reporting & Disclosures 2
Under FINRA Rule 2210, what category of communication requires prior principal approval before use or filing?