Regulatory Compliance & Ethics Flashcards

Under SEC Rule 10b-5, which element is NOT required to establish a securities fraud claim?

Answer: That the defendant profited from the fraudulent activity

Profit by the defendant is not a required element of a Rule 10b-5 claim; the key elements are materiality, scienter, reliance, and connection to a securities transaction.

FINRA's Office of Dispute Resolution (ODR) primarily handles disputes through:

Answer: Arbitration and mediation proceedings

FINRA's ODR administers arbitration and mediation proceedings to resolve disputes between investors and broker-dealers outside of court.

A financial professional is asked by a colleague to recommend a client's money to invest in a private deal in which the colleague has an undisclosed financial interest. Accepting this arrangement without disclosure would violate:

Answer: Anti-kickback and conflict of interest standards

Recommending an investment where a colleague has an undisclosed financial interest creates an undisclosed conflict that violates anti-kickback rules and conflict of interest ethical standards.

The Foreign Corrupt Practices Act (FCPA) prohibits US persons and companies from:

Answer: Bribing foreign government officials to obtain or retain business

The FCPA makes it unlawful for US persons and businesses to bribe foreign government officials for business advantages.

Under Regulation Best Interest (Reg BI), which of the following is a required component of a broker-dealer's obligation to retail customers?

Answer: Acting in the best interest of the customer without placing the firm's interests ahead

Reg BI requires broker-dealers to act in the best interest of retail customers at the time of a recommendation, without placing their own interests ahead of the customer's.

The practice of 'layering' in securities markets, which involves placing and rapidly canceling orders to create a false appearance of market activity, is a form of:

Answer: Market manipulation prohibited under securities law

Layering is a form of market manipulation that creates a misleading impression of supply or demand by placing orders with no intent to execute them, which is prohibited under securities law.

A registered investment adviser that manages assets above the threshold defined by the Investment Advisers Act must register with:

Answer: The SEC and file Form ADV

Investment advisers managing assets above the applicable threshold (generally $110 million in regulatory AUM) must register with the SEC by filing Form ADV.