Mastering Recordkeeping Requirements On The Series 10 Exam

Mastering Hiring And Qualification Requirements On The Series 10

One of the keys to passing the Series 10 exam is to make sure that you have a complete understanding of how hiring and qualification standards will be tested on the Series 10 Exam. This article which was produced from material contained in our Series 10 textbook and will help you master the material so that you pass the Series 10 exam.

Introduction

Guidelines for the practices that a brokerage firm uses to conduct the operation of its daily business are regulated by industry, state, and federal regulators. These guidelines are the foundation for the way that the firm handles all business, from hiring a new agent to executing a customer’s order. All Series 10 candidates must have a full understanding of a brokerage firm’s operations and procedures to successfully complete the exam.

Hiring New Employees

A registered principal of a firm will be the individual who interviews and screens potential new employees. They will be required to make a thorough investigation into the candidate’s professional and personal backgrounds. With few exceptions, other than clerical personnel, all new employees will be required to become registered as an associated person with the firm. Additionally, all employees of the broker dealer, who are involved in securities sales, have access to cash and securities, or who supervise employees, must be fingerprinted. New employees of NYSE member firms who are going to function as a registered representative who have not previously been engaged in the securities business must go through a four month training period prior to becoming registered. The exchange may waive the training or apprenticeship requirement for new employees who have been registered with other SROs or who demonstrate significant industry experience. The new employee will begin their registration process by filling out and submitting a Uniform Application for Securities Industry Registration, also known as Form U4. The Form U4 is used to collect the applicant’s personal and professional history including:

• 10-year employment history
• Five-year resident history
• Legal name and any aliases used
• Any legal or regulatory actions

The principal of the firm is required to verify the employment information for the last three years and must attest to the character of the applicant by signing Form U4 prior to its submission to FINRA. All U4 forms will be sent to the Central Registration Depository (CRD) for processing and recording. Any applicant who has answered yes to any of the questions on the form regarding their background must give a detailed explanation in the DRP pages attached to the form.

The applicant is not required to provide information regarding:

• Marital status
• Educational background
• Income or net worth

The only information regarding the employee’s finances that is disclosed on the U4 form is if the associated person has ever declared bankruptcy. Any development that would cause an answer on the associated person’s U4 to change requires that the member update the U4 within 30 days of when the member becomes informed of the event. In the case of an event that could cause the individual to become statutorily disqualified, such as a felony conviction or misdemeanor involving cash or securities, the member must update the associated person’s U4 within 10 business days of learning of the event.

Resignation of a Registered Representative

If a registered representative voluntarily resigns or has their association with a member firm terminated for any reason, the member must fill out and submit a Uniform Termination Notice for Securities Industry Registration, known as Form U5. The member must submit the U5 to FINRA within 30 days of the termination. The member firm is also required to give a copy of the U5 to the representative upon termination. The member must also state the reason for the termination, either voluntary or for cause. An associated person’s registration is non-transferable. A representative may not simply move their registration from one firm to another. The employing firm that the representative is leaving must fill out and submit a U5 to FINRA, which terminates the representative’s registration. The new employing firm must fill out and submit a new U4 to begin a new registration for the associated person with the new employer. The new employer is required to obtain a copy of the U5 form filed by the old employing member either from the employee or directly from FINRA within 60 days of submitting the new U4. The previous employer is not required to provide a copy to the new member firm. If the new employing member asks the associated person for a copy of the U5, they have two business days to provide it. If the member requests a copy of the U5 from the agent who has not received a copy of their U5 from their old employer, the agent must promptly request it from their old employer, and must provide it to their new employer within two business days of receipt. A representative who leaves the industry for more than 24 months is required to re-qualify by exam. During a period of absence from the industry of two years or less FINRA retains jurisdiction over the representative in cases involving customer complaints and violations.

TAKE NOTE! 
A firm may not allow an inactive agent to “park” their license with the firm and may not maintain an inactive agent’s license on the books simply to ensure that the agent does not have to re qualify by exam.

Registration Exemptions 

The following individuals are exempt from registration:

• Clerical
• Non-supervising officers and managers not dealing with customers
• Non-U.S. citizens working abroad
• Floor personnel

Non-registered personnel may:

• Offer to send literature to prospective customers
• Invite current or prospective customers to attend firm sponsored events
• Invite prospective customers to speak with a registered representative
• Discuss account information with existing customers

Non-registered personnel may not:

• Receive compensation other than salary or hourly wage
• Solicit orders or new accounts
• Discuss investment products or services offered by the firm
• Qualify prospective customers by discussing the individuals financial information

All NYSE member firms that allow non-registered personnel to have contact with existing or potential customers must train the personnel as to the limits on what may be discussed with the existing or potential customers.

Retiring Representatives / Continuing Commissions

A retiring representative may continue to receive commission on the business that they have built over their career, if a contract is in place before the representative’s retirement. A retiring representative may continue to receive commissions on old business only and may not receive commissions on any new business and may not receive finder’s fees. If the retired representative dies, their beneficiary may continue to receive the commissions that were due the representative.