Regulatory Framework and Oversight Flashcards

Under SEC Rule 15c3-1 (the Net Capital Rule), broker-dealers must maintain minimum net capital to protect:

Answer: Customer assets and the firm's financial obligations

The Net Capital Rule requires broker-dealers to maintain sufficient liquid assets to protect customer funds and meet financial obligations.

Which report must broker-dealers file annually with the SEC and FINRA to demonstrate financial responsibility?

Answer: FOCUS Report (Financial and Operational Combined Uniform Single Report)

The FOCUS Report is the primary financial report filed by broker-dealers to demonstrate compliance with net capital and other financial requirements.

Under the USA PATRIOT Act, broker-dealers must verify customer identity as part of their:

Answer: Customer Identification Program (CIP)

The USA PATRIOT Act requires broker-dealers to implement a CIP that verifies the identity of each customer opening a new account.

FINRA Rule 4370 requires broker-dealers to establish and maintain:

Answer: A business continuity plan (BCP)

FINRA Rule 4370 requires broker-dealers to create and maintain a written business continuity plan addressing significant business disruptions.

What is 'Regulation NMS' primarily designed to address?

Answer: National market system rules to promote fair and efficient equity markets

Regulation NMS (National Market System) establishes rules to modernize and strengthen the national market system for equity securities trading.

Under SEC Rule 10b-5, it is unlawful to:

Answer: Make any untrue statement of material fact or engage in any fraudulent scheme in connection with a security

SEC Rule 10b-5 prohibits fraud, misrepresentation, and deceit in connection with the purchase or sale of any security.