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					           BROKER DEALER REGULATION: CORE CONCEPTS--LECTURE TOPICS AND
                              READING ASSIGNMENTS
                                     Fall 2010

                                     Professors MacDonald/Caridi

I.          B-D Entity Registration, Agent Registration, Continuing Education
            Statutes & Rules:

        Section 15 of Securities Exchange Act of 1934
        Section 15a-6 (Foreign Broker Dealers)
        Bank Exemptions (Permitted Dealer and Broker activities) ( Reg. R)
        Exempt Securities (Govs, Munis)
        States’ Uniform Securities Acts
         FINRA Rules 311, 312, 1021, 1031, 1120 (Member Formation, Approval)
        FINRA Rule 345A (Continuing Education For Registered Persons)

            Rosenberg v. Metlife Inc.
            453 F. 3d. 122, 2007 U.S. App. LEXIS 16195
            (2nd Cir. June 28, 2007)

            Hiring/Firing (Forms U-4 and U-5)
            Statutory Disqualifications (Section 3(a) (39)

II.         Net Capital Requirements/Margin/Credit Issues
            Statutes & Rules:

            ’34 Act: Section 7(a), Section 11 (d), Rule 10b-16
            FINRA Rule 431
            Reg. X, Reg. U
            FINRA NTM 01-26; Information Memo 01-09 (Day Trading Margin Requirements)
            FINRA Rule 2520
            SEC 34 Act Release 34 44009 (February 27, 2001)

            Handouts:

            Sample Customer Agreement
            Sample Credit Statement 10b-16

            FINRA Investor Alert: Investing With Borrowed Funds: No “Margin” For Error (Sept.
            2003)

III.        Clearing Brokers/Prime Brokers
            Statutes, Rules and Interpretations:

            FINRA Rules 382, 3230 (Carrying Agreements)
            FINRA NTM 99-57
            FINRA Information Memo 99-33 (Carrying Agreements)
          SEC Releases No. 34-41468 and 41469 (June 1999)

          Clearing Agreement (Handout)
          Prime Brokerage Agreement (Handout)

          In re A.R. Baron Co. 1998 Bankr. LEXIS 1447 (U.S. Bankruptcy Court
          for the SDNY October 16, 1998)
          A.R. Baron/Bear Stearns Release:
          SEC 1933 Release No. 7719
          SEC 1934 Release No. 41708 (August 5, 1999)

          Goldman Sachs Execution & Clearing vs. The Official Unsecured Creditors Committee
          of Bayou Group LLC, 10 Civ. 5622 (JSR) SIFMA Amicus Curiae (8/5/10)

IV.       Supervision/Internal Controls/Compliance and Legal Functions
          Statutes, Rules and Interpretations:

       34 Act (15 USCA § 78)
           o Section 15 (b)(4)(E) (Affirmative Defense)
           o Section 20 (a) (Control Person Liability)
           o Section 15(f) (Mandatory Internal Controls/Information Barriers)
           o Rule 10b-5 (Fraud)

       Sarbanes Oxley Act of 2002, Section 307

         FINRA Rule 342, 351, 354, 405, 722
         FINRA Rule 3010 et seq.
         FINRA RN 08-57 (Consolidated Rules)
         FINRA NTM 99-45 (Supervision)
         FINRA NTM 04-71 and 05-08 (Supervisory Controls)
         FINRA NTM 04-79 (Annual Compliance Certification and Designation of CCO
         FINRA JOINT MEMO 05-07 ( “Internal Controls”)
         FINRA Guidance on Complying with NASD Rule 3012 and FINRA Rule 3130

          SIA White Paper on the Role of Compliance, July 2005,
          www.sia.com/2005_comment_letters/pdf/SIACLwhitePaper7-13-05.pdf

          In the Matter of Louis R. Trujillo 1987 SEC Lexis 1978 (SEC Adm. Procedure No 3-
          6555, April 23, 1987), reversed, 1989 SEC Lexis 480 (Exchange Act Rel.)No 34-
          26635, March 16, 1989)

          In the Matter of John H. Gutfreund et al.
          1992 SEC Lexis 2939
          Exchange Act Rel. No. 34-3155 (SEC Administrative Proceeding December 3, 1992)

          Morgan Stanley & Co Incorporated
          Exchange Act Ref. No. 54047 (Administrative Proceeding, June 27, 2006)
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         In the Matter of Theodore W. Urban (10/19/09)
         Sec.gov/litigation/admin/2009/34-60837.pdf


V.       Know Your Customer “KYC”/Suitability/Anti-Money Laundering
         (“AML”)
         Statutes, Rules and Interpretations:

        FINRA Rule 405 (Know Your Customer)
        FINRA Rule 2310 (Suitability)
        FINRA Proposed Rule 2111(Suitability) and Rule 2090 (Know Your Customer) 7/30/10
        SEC Release No. 34-62477 Study Regarding Obligations of Broker/Dealers and
         Investment Advisors (July 27, 2010)
     
      Product Specific Suitability Rules:
      FINRA Rules 2115 (Recommendations to Customers in OTC Low Priced Equity
       Securities); Rules 721 and 723, 2860 (Options); Rule 2865 (security futures);
      FINRA NTM 01-23 (Online Suitability)
      FINRA IM2310-3 (Suitability with respect to Institutions)
      FINRA NTM 03-71 (Non-Conventional Investments)
      FINRA NTM 94-16 (Mutual Funds)
      FINRA NTM 00-44 (Variable Life Insurance)
      FINRA NTM 96-60 (Speculative and Low Priced Securities)
      FINRA NTM 93-73 (Collateralized Mortgaged Obligations)
      FINRA NTM 03-07 (Hedge Funds and Fund of Hedge Funds)

         AML
         FINRA Rule 445 (AML Compliance Program); NASD IM 3011-1
         Uniting and Strengthening America by Providing Appropriate Tools Required to
         Intercept and Obstruct Terrorism Act of 2001 (PATRIOT Act), 31 U.S.C. Parts 103
         U.S. Treasury Department Office of Foreign Assets Control (OFAC)
         FINRA Notice to Members 02-21, (Guidance on AML Programs)
         31 U.S.C. §5318(g) (1), SARs
         31 U.S.C. §5313, CTRs
         FinCen Guidance: Obtaining and Retaining Beneficial Ownership Information (3/5/10)

         Sample New Account Form (Handout)

         Cases:

         Banca Cremi v. Alex. Brown
         1997 U.S. Dist. LEXIS 1211
         (D.C. Md. February 5, 1997) affirmed, 1997 U.S. App. LEXIS 36404
         (3rd Cir., December 30, 1997)


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       DeKwiatkowski v. Bear Stearns Co. et. al
       306 F.3d 1293 (2d Cir. 2003)

       In the Matter of Park Financial Group and
       Gordon C. Cantley, Administrative Proceeding
       File No. 12614, Release No. 34-55614, April 11, 2007 (Failure to File SARS)

VI.    Fraudulent Practices

       Insider Trading
        Classical Theory
        Misappropriation Theory

       Selective Disclosure: Regulation FD
       SEC Compliance and Disclosure Interpretations: Regulation FD (6/4/10)

       Sales Related Frauds

           Churning/Negative Churning
           Unauthorized Trading
           Micro-cap Fraud
           Mutual Fund Breakpoint Sales
           Wrong Number Voicemails/Phishing/Nigerian Letters/Phantom Regulators/Phoney
            Government Regulator Websites

       Trading Related Frauds

           Marking the Close
           Adjusted Trading
           Frontrunning
           Parking
           Trading Long
           Wash Trades
           Squeezes & Corners
           Mutual Fund Market-Timing and Late Trading

       Other Trading Issues

           Best Execution
           Short Sales
           Soft Dollars
           Payment for Order Flow
           Penny Stocks
           Mark-Ups
           Trade Reporting



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       Statutes, Rules and Interpretations:

       Rules 15g1-5, 15c-11 (‘34 Act)
       FINRA Notice to Members 98-69 (Supervision Responsibilities for Trade Reporting)
       FINRA Notices to Member 01-22 (Best Execution)
       SEC Release 34-43084, Disclosure of Order Routing and Execution Practices
          (July 28, 2000)
       FINRA IM 2440
       Section 9 (b) (34 Act)
       Sections 11(a) (34 Act)
       SEC Regulation SHO/FINRA Rule 203(b) (3)
       NASAA-CSA Investment Fraud Awareness Quiz (handout)

       Cases:

       F.B. Horner & Associates and Fred Horner, Exchange Act Rel. No 34-30884
       (July 2, 1992)

       In Re Morgan Stanley, Inc
       Exchange Release No. 55726 (May 9, 2007)

       UBS Settlement on July 16, 2007 or State of New York v. UBS Financial Services,
       Inc. (Filed in NYS Supreme Court, County of NY on December 12, 2006) (Handout)




   VII. Communications with the Public
           Correspondence
           Confirmations
           Account Statements
           Advertisements and Sales Literature
           Telemarketing

       Statutes & Rules:

       ’33 Act, Section 5(b) (1) and (2), Rule 460;
       ’34 Act, Rule 15c2-8(c)-(e), Rule 434
       ‘34 Act, Rule 10b-10, FINRA 725(Confirmations)

       FINRA Rule 409, 2340 and 2860 (b) (15) (Account Statements)
       FINRA RULE 2210, 2211 (Advertisements, Sales Literature and Correspondence)
       FINRA RULE 2212; SEC Release No. 34-38480 (Telemarketing)
       FINRA Notice to Members 9-29 (Origination and Circulation of Rumors)
       FINRA Rule 342.17 (Review of Communications with the Public)
       FINRA Rule 3010(d) (2), and Rule 2211 (Review of Corresponence)
       FINRA Information Memo 98-3 (Electronic Delivery of Information Between Members and Their
       Customers)
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       FINRA NTM 98-11(SEC Approves Rules Regarding Supervision, Review, and Record Retention of
       Correspondence)
       FINRA NTM 01-23 (Online Suitability)
       FINRA NTM 03-33 (Instant Messaging)
       FINRA RN 09-55 (Proposed New Rules Governing Communications with the Public)
       FINRA RN 10-06 (Social Networking Sites)

       FTC, Dot Com Disclosures; FTC Advertising and Marketing on the Internet (4/98)
       FINRA RN 10-06 Guidance on Blogs and Social Networking Web Sites

       Guide to the Internet for Registered Representatives,
       www.FINRA.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=FINRAW_006118




       Research
       Rules and Interpretations:

    FINRA Rules 344, 472, 2210, 2711
    SEC Regulation AC
    SEC Division of Market Regulation Responses to Frequently Asked Question
     Concerning Regulation Analyst Certification, April 26, 2005
       www.sec.gov/divisions/marketreg/mregacfaq0803.htm
    FINRA NTM 04-18 Joint Guidance: Research Analysts and Research Reports
    SEC Interpretation Re: Use of Internet Web Sites to Offer Securities or Advertise
     Investment Services Offshore, www.sec.gov/rules/interp/33-7516.htm (Nov. 2006)
    FINRA Notice to Members 06-35 (FINRA and NYSE Joint Guidance on Fixed Income
     Research)

       Enforcement Actions:

       Dirks v. SEC
       463 U.S. 646 (1983)

       Private Actions:

       Barclays Capital Inc, et al vs. Theflyonthewall.com, inc. ,10-1372-CV 2d Cir. Brief for
       Amicus Curiae SIFMA (7/22/10)

       Recommended Reading:
       Securities Industry Association publication: “How to Read a Research Report” 2002
       SEC Alert “Analyzing Analyst Recommendations”
       www.sec.gov/investor/pubs/analysts.htm

       Joint Report by FINRA on the Operation and Effectiveness of the Research Analyst
       Conflict of Interest Rules, December 2005


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IX.       Restricted Persons, Spinning, Laddering, Allocations and
          Relationship between Research and Investment Banking

          FINRA Rule 2711, 5130 (Restrictions on the Purchase and Sale of Initial Equity Public
          Offerings)

          SEC Staff Legal Bulletin No. 10 (August 25, 2000) (Prohibited Solicitations and “Tie-In”
          Agreements for After Market Purchase
          www.sec.gov/interps/legal/slbmr10.htm

          In re Merrill Lynch & Co Inc. Research Reports Securities Litigation 02MDL 1484 (MP)
          2003 WL 215100293 (SDNY June 30, 2003) and 2003 WL 21518833 (SDNY July 2,
          2003)

X.        Market Structure, Alternative Trading Systems, Dark Pools, High
          Frequency Trading/Co-Location, Algorithmic Trading, Sponsored
          Access

          Statutes, Rules and Interpretations:

          SEC Regulation ATS
          SEC Regulation NMS
          SEC Regulation SHO
          Exchange Art Rule 11Ac1-1

          Brief Chronology
         Reg ATS
         Decimalization
         2005 Reg SHO and tick test pilot
         2006 NYSE becomes a for profit exchange
         2006 NASDAQ splits form NASD as an exchange
         2007 Reg NMS ; short sale tick test eliminated
         2008 Rapid consolidation; financial crisis
         2010 Flash Crash

XI.       Products
             Public Offerings
             Private Offerings
             Mutual Funds
             Non-Conventional Investments
             IPOs
             Wrap Accounts/Fee-Based Services
             Derivatives

          Statutes & Rules:

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       SEC Release No. 33-8591 (July 19, 2005) (Adopting Release: Securities Offering
             Reform); 17 CFR Parts 200, 228, 229 et al (August 3, 2005)
       Regulations M, D and S (‘34 Act)
       Rules 144 and 144A (‘33 Act)
       FINRA RN 10-22 (Due Diligence in Regulation D Offerings)
       Dodd –Frank: Change to Net Worth Test for Accredited Investors under Regulation D
       FINRA Notice to Members 03-79 (Initial Public Offerings)
       FINRA Notice to Members 03-71 (Obligations When Selling Non-Conventional
             Investments)
       FINRA Notice to Members 05-26 (Best Practices for Reviewing New Products)
       NYSE Information Memo 05-51 (Non-Managed Fee Based Account Programs)
       FINRA Notice to Members 03-68 (Fee Based Compensation)

XII.   Securities Enforcement
        SEC (Injunctive & Administrative Proceedings; 21(a) Reports)
        SROs (Disciplinary Proceedings)
        States (New York State Martin Act)

       NY Attorney General and SEC Settlements Regarding Auction Rate Securities
       SEC v. Tambone , No. 07-1384 (1st Cir. 3/10/10)
       SEC v. Goldman, Sachs and Fabrice Tourre, 10 CV 3229 (BSJ)
       SEC Enforcement Manual (January 2010)


XIII. Investor Remedies
           Private Rights of Action
           Class Actions
           Arbitration
           Mediation

       FINRA Notice to Members 99-90

       Cases:

       DeKwiatkowski v. Bear Stearns & Co., 2002 WL 31086924 (2d Cir. September 19,
       2002)

       Central Bank of Denver, N.A. v. First Interstate Bank of Denver
       511 U.S. 164 (1994)

       Stoneridge Investment Partners LLC v. Scientific- Atlantic, Inc. et. al., 128 S. Ct. 761
       (2008)

       Starr Foundation v. AIG Inc. 2010 NY Slip Op 04526 (5/27/10)


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         Morrison v. National Australia Bank Ltd , 2010 WL 2518523 (US 6/24/10), affirming,
         547 F. 3rd 167




310333




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