Regulations and Professional Conduct

About 15% of the Series 7.

1933 and 1934

The Securities Act of 1933 is the new-issue law: register the offering and deliver a prospectus (with exemptions). The Securities Exchange Act of 1934 is the trading-market law: exchanges, broker-dealers, reporting companies, and anti-fraud Rule 10b-5.

Insider trading

Material nonpublic information is a fact a reasonable investor would want and that is not yet public. Trading on it, or tipping someone who trades, is illegal. The firm must have information barriers.

FINRA conduct

Be honest with customers. Do not churn. Do not sell away (do securities business off the firm's books). Do not park stock in a customer's account. Private securities transactions and outside business activity need written notice.

AML and books

Know your customer for anti-money-laundering. Suspicious activity gets escalated. Firms keep blotters and other records for the periods FINRA and the SEC set (many "life of the firm plus" items; advertisements often three years).

Best interest

Reg BI (best interest) applies when a broker-dealer makes a recommendation to a retail customer. It is a higher bar than old suitability language: the recommendation must be in that customer's best interest, not just "not unsuitable," and conflicts must be disclosed.