Series 99 Regulatory Compliance & Reporting 4 — Questions and Answers
Question 1: Under SEC Rule 17a-4(f), electronic records stored by broker-dealers must be stored in a format that is:
- Encrypted and password-protected
- Non-rewriteable and non-erasable (WORM) (Correct answer)
- Stored on-premises only
- Backed up daily to physical media
Correct answer: Non-rewriteable and non-erasable (WORM)
SEC Rule 17a-4(f) requires that electronic records be stored in a WORM (Write Once Read Many) format to prevent alteration or deletion.
Question 2: A broker-dealer discovers a potential violation of securities law by a customer. Under which regulation is the firm required to file a SAR?
- SEC Rule 10b-5
- FinCEN's SAR regulations under 31 CFR 1023 (Correct answer)
- FINRA Rule 3110
- Exchange Act Section 13
Correct answer: FinCEN's SAR regulations under 31 CFR 1023
FinCEN's SAR regulations at 31 CFR Part 1023 require broker-dealers to file SARs when they detect suspicious activity that may involve money laundering or other financial crimes.
Question 3: Which of the following is the correct sequence for processing a customer complaint under FINRA Rule 4513?
- Respond, log, escalate
- Log, investigate, respond, retain for 4 years (Correct answer)
- Escalate, respond, destroy after 1 year
- File with FINRA, then respond to customer
Correct answer: Log, investigate, respond, retain for 4 years
FINRA Rule 4513 requires firms to log customer complaints, investigate them, respond appropriately, and retain records for at least four years.
Question 4: The SEC's Large Trader Reporting Rule (Rule 13h-1) requires large traders to register with the SEC when their transactions equal or exceed:
- $1 million or 100,000 shares during any calendar day
- $2 million or 20 million shares during any calendar day (Correct answer)
- $10 million or 2 million shares during any calendar month
- $5 million or 500,000 shares during any calendar week
Correct answer: $2 million or 20 million shares during any calendar day
Rule 13h-1 defines a 'large trader' as one whose transactions equal or exceed $20 million in market value or 2 million shares during any calendar day, or $200 million or 20 million shares during any calendar month.
Question 5: Under Regulation SHO, a broker-dealer's failure-to-deliver position must be closed out within how many days for a threshold security?
- 5 consecutive settlement days
- 13 consecutive settlement days (Correct answer)
- 30 consecutive settlement days
- The position need not be closed if the broker has a locate
Correct answer: 13 consecutive settlement days
Regulation SHO Rule 203(b)(3) requires broker-dealers to close out fail-to-deliver positions in threshold securities within 13 consecutive settlement days.
Question 6: A firm's Written Supervisory Procedures (WSPs) under FINRA Rule 3110 must be reviewed at minimum:
- Monthly by compliance staff
- Quarterly by a registered principal
- Annually and updated as needed (Correct answer)
- Only when FINRA requests a review
Correct answer: Annually and updated as needed
FINRA Rule 3110 requires firms to review their WSPs at least annually and update them whenever there are changes in regulations, business activities, or personnel.
Question 7: Under FINRA Rule 4524, member firms must submit supplemental FOCUS schedule information for which of the following?
- All customer margin accounts
- Activities related to repurchase agreements and reverse repurchase agreements (Correct answer)
- All foreign securities transactions
- Proprietary trading accounts only
Correct answer: Activities related to repurchase agreements and reverse repurchase agreements
FINRA Rule 4524 requires firms to provide supplemental FOCUS data, including schedules related to repurchase and reverse repurchase agreement activities.
Series 99 Regulatory Compliance & Reporting 4
Under SEC Rule 17a-4(f), electronic records stored by broker-dealers must be stored in a format that is: