60 Series 23 Exam Concepts You Need to Know Before Test Day

Think of these three forms as a family with distinct jobs. Form BD is the application to register a broker-dealer with the SEC, SROs, and states through CRD; it is also how a firm applies for FINRA membership. Form BR registers or withdraws branch office locations, and it must be filed for each office where business is conducted, amended when the office moves or changes resident manager. Form BDW is the full withdrawal request when a firm wants to terminate its registration entirely. The decision rule a principal applies: new firm means Form BD, new or changed office means Form BR, and going out of business means Form BDW. Amendments to Form BD must be filed promptly when material information changes, so a principal must know which form carries which update.

Memory hook:BD begins, BR branches, BDW bows out.

The Exchange Act draws the line with effect on the customer. A broker under Section 3(a)(4) effects transactions in securities for the account of others; a dealer under Section 3(a)(5) buys and sells securities for its own account as part of a regular business. An investment adviser under the Advisers Act Section 202(a)(11) receives compensation for advice about securities, not for executing trades. The overlap that trips people up: a firm can be all three, and dual registrants owe both sets of obligations, with the stricter standard effectively governing. The decision rule for the exam: whose account is the trade in, and what is the firm being paid for? Execution for others points to broker; own-account trading as a business points to dealer; fees for advice point to RIA.

Memory hook:Broker trades for you, dealer trades for itself, adviser talks for a fee.

A statutory disqualification arises when a person or firm has been subject to specified disciplinary events, such as certain bars, expulsions, or criminal convictions defined in the Exchange Act and FINRA By-Laws. The mechanism matters: a statutorily disqualified person cannot simply be hired or kept on. The member must seek relief from FINRA, which is where the MC-400 application comes in. The firm files the MC-400 to request permission to associate the disqualified person, and FINRA weighs factors like the nature of the misconduct, time elapsed, and evidence of rehabilitation. Under Rule 19h-1, the SRO must also notify the SEC, and the Commission can review or grant relief directly. Until relief is granted, the association cannot proceed.

Memory hook:Disqualified means ask first: MC-400 is the permission slip.

Some hires carry baggage: a registered person with certain disclosed disciplinary history triggers a heightened supervision obligation before that person can conduct business. The mechanism is a written, documented plan that is more intensive than ordinary supervision, and the firm must have it in place at the outset, not improvised later. Typical elements include designating a qualified supervisor, restricting the person's activities where warranted, increased review of correspondence and transactions, required meetings between the supervisor and the person, and documented follow-up on any red flags. The plan must be tailored to the underlying misconduct, so a principal should be able to explain why each control addresses the specific risk. Failure to have the plan in place is itself a supervisory violation.

Memory hook:Risky hire, written plan, stricter eyes, before day one.

Form U4 is the living registration document for an associated person; Form U5 is the termination notice filed when that person leaves. Neither is filed once and forgotten. The firm must amend the U4 when material changes occur, including disciplinary events, customer complaints naming the person, and changes in outside business activities. The U5 must be amended after termination if the firm later learns information that would have been required to be disclosed at termination. The 30-day rule is the clock: amendments prompted by significant events, such as criminal charges or regulatory actions, generally must be filed within 30 days of the firm learning of the event. The decision rule for a principal: learn it, verify it, file it, and do not sit on it.

Memory hook:U4 updates the living, U5 updates the departed, 30 days from learning.

Continuing education runs on two tracks. The Regulatory Element is prescribed by FINRA: registered persons must complete it on a schedule FINRA establishes, and the firm must enforce completion, restricting the activities of anyone who fails to do it on time. The Firm Element is the firm's own needs-based training program: the firm must analyze its business, products, and registered persons each year, then design training that addresses identified gaps, covering things like new products, suitability, and sales practice risks. The mechanism a principal should internalize: the Firm Element is not a generic curriculum but a documented, risk-based plan reviewed annually. Principals themselves are subject to the Regulatory Element like any registered person, and supervising CE compliance is a supervisory duty.

Memory hook:Regulatory Element: FINRA's homework. Firm Element: your firm's homework, every year.

Before filing a U4, the firm must investigate the applicant's good character, business reputation, qualifications, and disciplinary history under Rule 3110(e). The mechanism is practical: check CRD and BrokerCheck, question the applicant about prior disciplinary events, and, where the person was previously in the industry, seek information from prior employers. In parallel, SEC Rule 17f-2 requires fingerprinting of specified personnel, and those prints are submitted for processing so that criminal history information surfaces through the system. Certain persons are exempt from fingerprinting, such as those whose duties are solely clerical or ministerial and who do not handle securities or funds. The decision rule: investigation and fingerprinting come before registration, not after.

Memory hook:Investigate and print before the U4, not after.

Rule 3110 requires every member to maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with applicable rules. The system must designate each registered principal responsible for supervising specific activities, and the designations must be in writing. Delegation is permitted, but the rule requires the delegating principal to be qualified and the delegation to be documented, with the ultimate responsibility structure clear. The annual review under Rule 3120 is the test of whether the system works: the firm must test and verify its supervisory procedures, amend them where problems appear, and document the review. A principal should be able to trace any firm activity to a named supervisor and a written procedure.

Memory hook:Every activity has a named supervisor on paper, tested once a year.

Inspection frequency scales with risk. Offices of Supervisory Jurisdiction, which supervise other offices or carry custody or order execution authority, are inspected at least annually. Non-OSJ branch offices are generally inspected on a periodic cycle, with the interval set by the firm's risk assessment, subject to FINRA's outer limit. The exceptions compress the cycle: a branch with a history of disciplinary issues, a lone supervisory structure, or higher-risk business may need more frequent attention, and a firm's own risk assessment can shorten intervals for any office. The mechanism a principal uses: classify the office, apply the baseline cycle, then adjust upward for risk factors. The firm must document the basis for the cycle it chooses.

Memory hook:OSJ every year; other branches on the cycle risk sets.

Rule 3120 makes the firm prove its own supervision works. The firm must conduct an annual testing and verification of its supervisory procedures, amend them where the testing shows gaps, and prepare a report that senior management reviews. The testing should be tailored to the firm's actual business, so a firm with heavy retail sales tests different controls than a trading firm. Rule 3130 then closes the loop: the CEO certifies annually that the firm has processes to establish, maintain, review, test, and modify written compliance policies and reasonable design to achieve compliance, and that the CEO has executed at least one report on the firm's compliance and supervisory processes. The certification is personal, signed, and filed with FINRA.

Memory hook:3120 tests the system; 3130 is the CEO putting a signature on it.

Rule 4370 requires a written business continuity plan addressing significant business disruptions, and the plan must be reasonably designed so the member can meet its existing obligations to customers. The required elements include data backup and recovery, mission critical systems, communications with customers, employees, and regulators, alternate physical locations, and regulatory reporting continuity. The firm must also disclose how it will contact customers and give them access to their funds and securities in a disruption. The plan must be reviewed annually and updated where the firm's business changes, and emergency contact information must be kept current with FINRA. A principal should be able to connect each plan element to a customer-protection purpose.

Memory hook:4370: keep the firm running, keep customers informed, review every year.

These two rules get confused constantly, so anchor them on compensation and securities. Rule 3270 covers outside business activities: the person must give written notice to the firm, and the firm may object or restrict after evaluating the activity, but the activity itself is generally outside the firm's books unless it involves securities. Rule 3280 covers private securities transactions: any securities transaction outside the scope of the firm's regular business, whether compensated or not. If the person receives selling compensation, the firm must supervise and record the transaction as if it were its own; if uncompensated, the person must still notify the firm and the firm must provide written acknowledgment, with the option to disallow. The decision rule: securities trigger 3280 even without pay.

Memory hook:3270 is the side job; 3280 is the side trade, paid or not.

Rule 3210 governs where associated persons keep their own investment accounts: they must notify their employer in writing before opening an account at another member firm or financial institution, and the employer must be allowed to review the account, with duplicate statements and confirmations sent on request. The notice is generally required even if the person had the account before associating with the firm. Rule 3240 governs money flowing between the person and a customer: borrowing from or lending to a customer is prohibited unless the arrangement fits a narrow exception, such as a close family relationship, and the firm has specific written procedures permitting it. The mechanism: 3210 is about transparency of accounts, 3240 is about restricting the loan itself.

Memory hook:3210: tell the firm where you trade. 3240: no customer loans except family, in writing.

Rule 3220 limits what associated persons may give to or receive from employees of other firms in relation to the member's business: the limit is 100 dollars per person per year, and the mechanism is the averaging of gifts given and received to test compliance. Business entertainment is treated differently: expenses that are genuine business entertainment, where the associated person attends a business meeting with the other firm's employee, are not counted against the limit, provided the entertainment is not so frequent or lavish as to raise questions. The distinction does the work on the exam: a dinner both parties attend for a legitimate business purpose is entertainment; a gift basket or tickets the recipient uses alone is a gift against the limit. Firms must keep records of gifts and entertainment.

Memory hook:100 dollars a year per person; shared business meals do not count.

Rule 3160 lets a member place a registered person on the premises of a financial institution, like a bank, to sell securities to that institution's customers, but only within strict boundaries. The arrangement must be in writing, and the member must supervise the person and the securities business as if it were a branch office of the member. The bank's unregistered employees may make referrals to the registered person, but they may not effect or be compensated for securities transactions; they can receive a one-time, flat-fee referral fee that is not dependent on the sale. The customer must receive disclosures that securities products are not deposits, are not FDIC insured, and involve investment risk. The decision rule: the broker-dealer owns the supervision; the bank owns the referrals, not the sales.

Memory hook:Bank refers for a flat fee; the broker-dealer supervises everything on site.

Rule 10b5-1 defines trading on the basis of material nonpublic information: a person trades on the basis of MNPI when aware of the information, subject to an affirmative defense for trading plans adopted in good faith before awareness. Rule 10b5-2 identifies when a duty of trust or confidence exists for misappropriation cases, covering family relationships, confidentiality agreements, and understandings of confidentiality. For supervision, Exchange Act Rule 17a-3(a)(17) requires broker-dealers to create and preserve a record of each person primarily responsible for reviewing the firm's insider trading compliance program, and the firm must have procedures to identify and restrict trading around MNPI, including watch lists and restricted lists. The principal's job is connecting detection to documented review.

Memory hook:10b5-1 trades while aware, 10b5-2 owes the duty, 17a-3(a)(17) names the reviewer.

Before a firm offers a new product or service, it must conduct and document due diligence: understand how the product works, its risk and reward profile, its liquidity and pricing complexity, the target customer, and the compensation it generates. The mechanism is a formal new product approval process where compliance, supervision, and operations each sign off, and the analysis feeds into suitability and training obligations for the sales force. The duty does not end at launch: the firm must conduct ongoing risk assessment of existing products, because market conditions, volatility, or issuer developments can change the risk profile of something the firm already sells. A principal should be able to point to the file that justifies each product the firm offers.

Memory hook:Approve with a documented file, then keep re-underwriting what you sell.

Rule 2330 governs recommendations to exchange or replace a deferred variable annuity, and the mechanism is a documented suitability comparison. The associated person must have a reasonable basis to believe the exchange is suitable, considering the customer's age, financial situation, tax bracket, investment objectives, and whether the customer will incur surrender charges, fees, or lose benefits from the existing contract. The firm must obtain and compare the existing contract and the proposed contract, and the customer must receive a written comparison highlighting the costs and consequences of the exchange. There is also a waiting period before the exchange can be completed, and the principal must review and approve the transaction. The exam logic: exchanges are suspect because costs are front-loaded.

Memory hook:Exchange means compare in writing, wait, and get principal sign-off.

Rule 4513 requires the firm to keep a record of each written customer complaint, including its own actions in response, and to preserve those records for the required period. Rule 4530 is the reporting side: the firm must report specified events to FINRA on set clocks. Complaints alleging forgery, misappropriation or theft, or fraud get reported within 30 calendar days of the firm learning of them, while other written complaints that involve the firm's business get reported within the same 30-day window on a quarterly cycle for less severe categories. The firm must also report regulatory actions, criminal charges, and specified internal terminations. The principal's mechanism: log the complaint under 4513, then classify it under 4530 and start the right clock.

Memory hook:4513 keeps the complaint file; 4530 tells FINRA within 30 days of learning.

Expungement is the only way customer dispute information comes off a registered person's CRD record, and Rule 2080 requires a court order to do it. The typical path runs through arbitration: the arbitrator must make affirmative findings that the claim is false or erroneous, that the person was not involved, or that the claim is impossible given the person's role, and the arbitrator must review the expungement request and state on the record the reasons. The award is then confirmed by a court before CRD acts. Mediation is entirely different: it is voluntary, the mediator facilitates a negotiated resolution but issues no binding award, and mediation cannot result in expungement. A principal must know which forum can actually clear a record.

Memory hook:Arbitration awards can expunge with a judge's confirmation; mediation just settles.

Rule 17a-4 tells you how long records live and in what form. Most books and records must be kept three years, with the first two years in an easily accessible place. Core records, such as blotters, ledgers, order tickets, and memoranda of purchases and sales, must be kept six years, again with the first two years easily accessible. Electronic storage is permitted under 17a-4(f), but only if the system preserves records in a non-rewriteable, non-erasable manner, automatically indexes and downloads stored records, and provides an audit trail showing any alterations. The firm must also promptly produce records to examiners and maintain a duplicate copy. Format failures count as retention failures.

Memory hook:Three for most, six for core; first two years easily accessible for every record.

Rule 15c3-3 protects customer assets two ways. First, possession or control: the firm must hold fully paid and excess margin customer securities and cannot use them for its own business. Second, the reserve computation: the firm calculates what it owes customers (credits in customer accounts), subtracts allowable deductions, and deposits the excess in a Special Reserve Bank Account, never the firm's own operating account; if the required deposit exceeds the amount on deposit, the shortfall must be deposited by the required settlement date. The 15-minute clock belongs to possession-or-control deficiencies: a firm that determines it has a deficiency in required possession or control must notify the SEC and its examining authority in writing within 15 minutes. Customer money and securities never fund firm operations.

Memory hook:Fully paid and excess margin stay in control; the 15-minute call is for possession-or-control fails.

Rule 15c3-1 sets the net capital floor, and Rule 17a-11 sets the early warning: a firm must promptly notify the SEC, FINRA, and other regulators when net capital falls below 120 percent of the required minimum or when aggregate indebtedness exceeds 1,800 percent of net capital. FINRA Rule 4120 parallels the notification and adds business curtailment. If capital deteriorates, the firm may have to stop expanding: no new customers, no new lines of business, no increased commitments until capital is restored. The decision rule for a supervisor is straightforward: crossing the early warning line triggers notice; falling below the minimum triggers notice plus shrinking the business.

Memory hook:120 percent is the tripwire; below the minimum, the business shrinks.

FINRA Rule 3310 requires a written AML program reasonably designed to detect and report suspicious activity. The pillars: internal policies, procedures, and controls; a designated AML compliance officer; ongoing employee training; and independent testing, which Supplementary Material .01 requires at least annually by a qualified independent party. Customer due diligence, including beneficial ownership, rounds out the program. OFAC is a separate sanctions regime: at account opening, the firm screens names against OFAC's list, and a match means blocking or rejecting, with no minimum dollar amount and no discretion. The common trap is treating OFAC as an AML pillar; it is not, even though firms integrate the screening into the same workflow.

Memory hook:Four pillars plus due diligence; OFAC stands outside the AML door.

Rule 4512 requires each customer account record to contain the essential facts, including identity, tax status, investment objectives, and financial profile, and to be updated within 30 days after the firm learns of a material change. If an account has had no activity, the firm must send the customer a statement of the account information at least once every 36 months so the customer can verify and correct it. Rule 3250 covers control accounts: accounts of associated persons of other members, control persons, and other specified persons must be approved by the employer before execution, and duplicate confirmations and statements must go to the employer. The mechanism is visibility, firms watching firms.

Memory hook:Thirty days to fix facts, thirty-six months to re-verify, duplicates for control accounts.

Regulation S-P governs privacy: firms must deliver an initial notice about sharing practices at the start of the relationship and annually thereafter, and customers must receive an opt-out before nonpublic personal information goes to nonaffiliated third parties, subject to exceptions like servicing and joint marketing under confidentiality agreements. Regulation S-ID governs identity theft: firms offering covered accounts must maintain a written program to identify relevant red flags, detect them at account opening and during maintenance, respond appropriately, and update the program periodically, with board-level approval and a designated administrator. The exam hinge is matching the fact pattern to the right regulation: S-P asks about sharing; S-ID asks about red flags.

Memory hook:S-P guards privacy and sharing; S-ID hunts identity thieves through red flags.

Rule 2210 sorts communications into three buckets. Retail communications go to more than 25 retail investors within any 30 calendar days; correspondence goes to 25 or fewer; institutional communications go to qualified institutional buyers and institutions reasonably believed capable of evaluating risk. Retail communications need pre-use approval by a registered principal and generally must be filed with FINRA within 10 business days of first use, with shorter or pre-use windows for certain products and new members. Correspondence requires supervisory review, before or after use depending on the representative. Institutional communications need supervision but no filing. The count and the audience determine the treatment.

Memory hook:Twenty-five retail investors in thirty days turns correspondence into retail communication.

Regulation Best Interest applies when a firm recommends a securities transaction, investment strategy, or account type to a retail customer. Four obligations: Disclosure, covering capacity, fees, and conflicts at or before the recommendation; Care, covering reasonable basis, customer-specific care, and cost-efficiency; Conflict of Interest, requiring the firm to identify, mitigate, and where possible eliminate conflicts; and Compliance, requiring written policies and procedures reviewed at least annually. Form CRS supports Reg BI: deliver at or before the earliest of a recommendation, account opening, or order entry; within 30 days after opening if not delivered earlier; and when information becomes materially inaccurate, update within 30 days and re-deliver within 60 days.

Memory hook:Disclosure, Care, Conflicts, Compliance; Form CRS arrives at or before the trigger.

Rule 2111 suitability has three components: reasonable basis (the security or strategy is suitable for someone), customer-specific (suitable for this customer's profile), and quantitative (the representative is not trading to generate commissions without benefit to the customer). Rule 2114 adds a diligence layer for OTC equity recommendations: the firm must reasonably ascertain facts about the issuer, including financials, management, and market activity, before recommending; recommendations to institutional customers are exempt. Rule 2342 targets breakpoint sales: selling mutual fund shares just below a breakpoint to earn a higher sales charge, without telling the customer the breakpoint was within reach, is prohibited. The firm must disclose breakpoint schedules.

Memory hook:Reasonable basis, customer-specific, quantitative; never sell just under the breakpoint.

Rule 10b-10 and FINRA Rule 2232 govern confirmations, which must be sent at or before completion of the transaction and disclose the date, price, commission, and capacity, agency or principal. Rules 2121 and 2122 govern charges: they must be fair, and markups are measured from the prevailing market price, not the firm's cost. For riskless principal trades, the combined markup on both sides of the transaction is the test, with 5 percent serving as a guideline, not a hard cap. Required risk disclosures include the margin statement, extended hours risk, SIPC information, and the day-trading risk disclosure, each tied to its trigger event.

Memory hook:Confirm at or before completion; markups measure from the prevailing market price.

Day trading gets three layers of supervision. Rule 2130 requires the member to approve an account before day trading, based on the customer's financial situation, objectives, and acknowledgment of the risks. Rule 2270 requires delivery of the day-trading risk disclosure statement. Rule 4210(f)(8)(B) supplies the margin teeth: a pattern day trader is a customer who executes four or more day trades within five business days, unless those day trades represent six percent or less of the customer's total trades in that period; such a customer must maintain at least 25,000 dollars in equity and may receive day-trading buying power up to four times maintenance excess. The sequence matters: approval and disclosure first, then the elevated margin requirements once the pattern exists.

Memory hook:Four day trades in five days means twenty-five thousand, unless day trades are six percent or less.

Rule 5310 requires reasonable diligence to ascertain the best market and execute the customer's order so the resulting price is as favorable as possible under prevailing market conditions. Interpositioning, inserting a third party between the customer and the best available market, is permitted only when necessary to execute the order and only when it adds no cost to the customer. Firms must also conduct regular, rigorous reviews of execution quality and order routing, drawing on Rule 605 data, which grades venue execution quality, and Rule 606 reports, which disclose where customer orders were routed. Best execution is judged when the order is handled, not by hindsight.

Memory hook:605 grades the venue; 606 shows the route.

Rule 5320 bars a member from trading for its own account at the same price or better while holding a customer marketable order, unless an exception applies. The main exceptions: the customer order exceeds the size displayed in the member's quote; the trade occurs in a separately identifiable business unit with information barriers and supervisory controls; the customer is an institutional account; or the order falls in an exempt category such as foreign securities or options. The mechanism is priority, the customer's marketable order comes first. A principal trade that improves the firm's position while the customer waits is a violation, even if the customer is eventually filled.

Memory hook:Customer's marketable order first; only the listed exceptions let the firm trade ahead.

Rule 5270 prohibits front running block transactions: a member with knowledge of a customer's pending block order cannot trade that security for its own account, other customers' accounts, or an affiliated account, except with the customer's consent or under approved procedures such as hedging. Rule 5280 protects research: a member cannot trade contrary to a research report it will publish, buying before a positive report or selling before a negative one, until recipients have had a reasonable opportunity to act, with exceptions for unsolicited customer orders and other permitted activity. The trigger in both rules is knowledge, of the pending order or the imminent report.

Memory hook:Block orders first; research readers get their chance to act.

Regulation SHO has three moving parts. Rule 200 requires every sell order to be marked long, short, or short exempt based on whether the seller owns the security at the time of order entry. Rule 203 requires a locate before a short sale in an equity security; an easy-to-borrow list satisfies it, and the locate cannot be documented after the fact. Rule 204 requires a participant with a fail to deliver to close out no later than the beginning of regular trading hours on the settlement date following the day the fail is incurred; persistent fails in threshold securities, generally 13 consecutive settlement days, or 35 for bona fide market making, restrict further short selling.

Memory hook:Mark it, locate it, close the fail by the next settlement date's open.

Rule 15c3-5 covers any broker that provides or sponsors market access, whether for itself or for customers. The core requirement is pre-trade risk management controls: credit and capital thresholds, erroneous order and fat-finger checks, and duplicate order prevention, all applied before an order reaches the market. The rule also requires restricted access to the trading technology so only authorized persons can enter orders. Finally, the firm must review the risk controls at least annually, and the CEO must certify that the review occurred and that the firm's systems comply. Supervisors should treat the certification as evidence the controls were actually tested, not just written down.

Memory hook:Pre-trade brakes on every order; the CEO signs the annual review.

Before quoting an OTC equity security, Rule 15c2-11 requires the member to have specified issuer information, including current financial statements and facts about officers, directors, and control persons, unless an exemption applies; the rule also governs resumption of quotations after a lapse. Rule 5220 makes quotations firm: an offer at a stated price must be honored for the stated quantity, and members cannot publish offers they do not intend to honor. Rule 6433 sets the minimum quotation size for OTC equity securities at 100 shares. Together the three rules create a gate: know the issuer, honor your quote, and quote a meaningful size.

Memory hook:Know the issuer, honor your quote, quote at least one hundred shares.

Nasdaq Rule 4613 imposes market maker obligations: register in the securities assigned, enter and maintain continuous two-sided quotations during normal market hours, honor displayed quotes, and meet minimum quotation sizes. Reg M Rule 103 then relaxes things during a distribution: a market maker may continue to buy the security on a passive basis, but only by displaying a bid at or below the highest current independent bid, never increasing the bid above that level, and staying within a net purchase limit. The distinction matters: passive market making is a limited exception during a distribution, not a general license; ordinary market making obligations apply the rest of the time.

Memory hook:Two-sided quotes all day; passive means never above the independent bid.

Rule 5260 is the prohibition: once a trading halt is in effect, members cannot transact, publish quotations, or publish indications of interest in the halted security until the halt is lifted or the security is halted on all markets. Rules 6120 and 6121 address halts in NMS stocks, including halts due to extraordinary market volatility, the circuit breaker mechanism that pauses trading when index declines cross specified levels. Nasdaq Rule 4121 mirrors the volatility halt provisions on the Nasdaq side. The supervisor's job is enforcement: systems and personnel must respect the halt immediately, and any order handling around the halt must be reviewed.

Memory hook:Halt means stop: no trades, no quotes, no indications.

Rule 6181 requires trades in NMS stocks to be reported as close to the time of execution as possible and no later than 10 seconds after execution. Rule 6182 requires trade reports for short sales to be marked as short sales so regulators can monitor short activity accurately. The Alternative Display Facility (ADF) provides quotation display and trade reporting for NMS stocks as an alternative facility for members. Late or mis-marked reports undermine market transparency and are supervisory failures, not just clerical ones. The two facts to hold onto: the 10-second clock runs from execution, and the short-sale flag belongs on the report.

Memory hook:Ten seconds from execution; short sales wear the label.

TRACE Rule 6730 requires a member to report a covered transaction within one minute of its execution time, not one minute from when the firm gets around to it. When a report is late, the firm files an as-of report as soon as it discovers the error, marked with the actual execution date so the public record reflects when the trade really happened. For errors in price or yield discovered after dissemination, the Corrected As-Of Process (CAPS) lets the firm submit a corrected as-of report instead of canceling and re-reporting, preserving the original trade date. Supervisors should watch for patterns of late reports and corrections, which invite regulatory attention.

Memory hook:One minute to report; as-of keeps the real date; CAPS corrects price without canceling.

Rule 5210 attacks fake market activity: entering quotations you have no intention of honoring, reporting fictitious transactions, or mischaracterizing trades as opening or closing when they are not. Rule 5240 attacks pressure on people: coercing, intimidating, or coordinating with another member or person to influence their quotations or trading. Rule 5250 attacks bought liquidity: a member may not pay another member or person for quoting or market making in a security, with a narrow exception for payments to an affiliated member. When a supervisor sees a suspicious quote, ask which of the three behaviors is present: fabricated activity, intimidation, or payment.

Memory hook:5210 fakes the market, 5240 shakes the trader, 5250 pays for quotes.

The Uniform Practice Code polices failed contracts. Under 11810, if the seller fails to deliver, the buyer sends a buy-in notice identifying the securities and the buy-in date; the failing party must deliver by then or the buyer purchases in the market and charges the cost, plus expenses, to the fail. Under 11820, if the buyer fails to pay, the seller may sell out the securities and charge any loss to the nonpaying buyer. Rule 11200 governs comparisons: when a trade does not match, the member sends a DK (don't know) notice promptly so the discrepancy is investigated and corrected before it festers into a fail.

Memory hook:Seller fails, buy in; buyer fails, sell out; mismatched trade, DK it.

SEC Rule 15c6-1 makes the standard settlement cycle mandatory: a trade may not be settled later than the prescribed cycle, which moved from T+2 to T+1 in May 2024, so regular way trades settle the next business day. FINRA Rule 11740 handles fails: when securities are not delivered on settlement date, the receiving party may mark the contract to the market, repricing the trade to the market price on the day delivery was due; the failing party pays the difference. Delivery standards under the 11300 series define good delivery: transferable securities in proper denominations and units, such as round lots for stocks, or the buyer can reject and reclaim.

Memory hook:T+1 is the law; on a fail, the market price on settlement day wins.

A penny stock is priced under five dollars and not listed on a national exchange. The 15g series layers disclosures: 15g-2 requires delivery of the risk disclosure document (Schedule 15G) before the first transaction, with the customer's signed acknowledgment; 15g-3 requires current quote and dealer information; 15g-4 and 15g-5 require disclosure of firm and associated person compensation; 15g-6 mandates monthly account statements; and 15g-9 imposes sales practice rules, including a reasonable basis for the recommendation and a signed, dated customer agreement before the first purchase. Rule 15g-1 exempts categories such as transactions with institutional accounts, so the supervisor's job is checking which protections apply to which customer.

Memory hook:Under five and unlisted means paperwork: disclose, acknowledge, then get the signed agreement.

The Consolidated Audit Trail rules require members to synchronize their business clocks to the official time standard (NIST) and keep them synchronized, so every order event carries a trustworthy timestamp. Rule 6820 sets that synchronization standard; Rule 6830 requires reporting the order lifecycle for NMS stocks and OTC equity securities: receipt, routing, modification, cancellation, and execution, reported within the timeframes set by the CAT plan. Rule 6890 adds recordkeeping. The supervisory point is that a clock drifting out of tolerance corrupts the entire audit trail, so firms need monitoring, testing, and documented procedures for clock maintenance and reporting exceptions.

Memory hook:No trustworthy timestamp, no audit trail: sync the clocks, report the order's life.

Regulation NMS Rule 611, the order protection rule, prohibits trading through a protected quotation on another venue; a protected quote is one that is automated, immediately accessible, and priced better. Exceptions exist, notably intermarket sweep orders, which let a trader sweep protected quotes while working a larger order. Rule 612, the sub-penny rule, bars quoting or displaying prices in increments finer than a penny for stocks priced at one dollar or more, and one hundredth of a cent for lower-priced stocks. FINRA Rule 6240 separately bars members from locking or crossing protected quotations in NMS stocks, pushing them to route or reprice rather than freeze the market.

Memory hook:611 protects better prices, 612 bans sub-pennies, 6240 forbids locked or crossed quotes.

Section 5 is the gatekeeper. Before a registration statement is filed, Section 5(c) bars any offer to sell; after filing but before effectiveness, offers may continue but Section 5(a) bars sales and Section 5(b) requires a prospectus with confirmations. Effectiveness comes under Section 8: the statement becomes effective twenty days after filing unless the SEC extends review to thirty days or issues a deficiency letter. A stop order under Section 8(b) suspends effectiveness when the statement contains material misstatements or omissions, issued only after notice and a hearing; the issuer can cure by amendment and the statement can then become effective.

Memory hook:File before you offer, effective before you sell; twenty days unless the SEC says wait.

A free writing prospectus is any written communication that offers securities other than the statutory prospectus. Rule 433 sets the conditions for using FWPs after a registration statement is filed: required legends and filing with the SEC. Rule 163 goes further for well-known seasoned issuers, exempting them from Section 5(c) so they can communicate about an offering even before filing. Rules 134 and 135 cover pre-effective announcements: Rule 134 permits limited offering communications that are not deemed a prospectus (tombstone-style facts, no hype), and Rule 135 permits a notice of a proposed registered offering before the registration statement is filed. The supervisor's checklist is legend, filing, and whether the issuer qualifies for the exemption used.

Memory hook:134 announces, 135 notices, 163 is the WKSI fast pass, 433 polices post-filing writings.

Regulation D has two main doors. Rule 506(b) forbids general solicitation, permits unlimited dollar amounts, and allows up to thirty-five non-accredited purchasers who are sophisticated, plus unlimited accredited investors. Rule 506(c) permits general solicitation and advertising, but every purchaser must be an accredited investor and the issuer must take reasonable steps to verify that status, not just accept a checkmark. Rule 504 exempts offerings up to five million dollars in a twelve-month period, with state law and investor limits still applying. Accredited status comes from Rule 501, such as two hundred thousand dollars in individual income or one million dollars in net worth excluding a primary residence. Form D must be filed with the SEC within fifteen days of the first sale.

Memory hook:506(b) stays quiet, 506(c) shouts but verifies; Form D within fifteen days of first sale.

FINRA's private placement rules split on who the issuer is. Rule 5122 covers securities issued by a member itself, an affiliate, or an issuer the member controls; the member must file the offering documents with FINRA unless an exemption applies, such as sales to qualified purchasers or institutional accounts. Rule 5123 covers private placements of securities issued by any other party; the participating member files the documents with FINRA no later than fifteen calendar days after the first sale, again with exemptions for institutional-type purchasers. The filings are notice filings, not approvals, but failing to file or claiming a bogus exemption is a supervisory problem.

Memory hook:5122 is member paper, 5123 is someone else's; both file, third-party within fifteen days after first sale.

Rule 5110 makes FINRA the reviewer of underwriting economics in public offerings. The lead underwriter files the underwriting agreement and related documents, and FINRA tests whether total underwriting compensation is fair and reasonable, using safe harbors and presumptions for common arrangements. Compensation includes far more than the discount: consulting fees, expense reimbursements, and non-cash items count toward the review and must be disclosed. The rule also imposes lock-up restrictions on securities acquired by underwriters and their affiliates, limiting immediate resale. A supervisor reviewing a deal should total every form of compensation from all sources before the filing goes in, because undisclosed side payments are the classic violation.

Memory hook:5110 counts every dollar and every perk; undisclosed side payments sink the filing.

Rule 5130 keeps IPO shares away from people with inside influence. Restricted persons include broker-dealer personnel, owners of member firms, finders and fiduciaries acting for the issuer, and portfolio and industrial managers, plus immediate family sharing their household; they cannot buy new issues in which their firm participates, subject to listed exemptions such as certain investment companies. Rule 5131 targets spinning: a member may not allocate hot IPO shares to directors and executive officers of current or prospective investment banking clients to reward or win business. It also restricts laddering and tie-in arrangements that condition allocations on aftermarket purchases. The supervisory test is motive and identity: who got shares, and why.

Memory hook:5130 blocks insiders from buying; 5131 blocks spinning shares to banking clients' executives.

Rule 5121 applies when a member has a conflict of interest in a public offering: the member or an affiliate is the issuer, or the member controls, is controlled by, or is under common control with the issuer. The conflict must be disclosed in the offering documents, and the deal must be reviewed by a qualified independent underwriter, who performs the due diligence and pricing functions a conflicted member cannot be trusted to perform. If no qualified independent underwriter participates, the conflicted member may not receive any compensation from the offering. The supervisor's job is spotting the control relationship early, because the QIU requirement shapes the deal timeline.

Memory hook:Conflict means disclosure plus a QIU; no QIU, no compensation for the conflicted member.

Regulation M protects the market around a distribution. Rules 101 and 102 bar bidding for or purchasing the security being distributed during the restricted period, by distribution participants (101) and by the issuer and selling security holders (102); for actively traded securities the restricted period generally begins one business day before pricing. Rule 104 permits stabilization, but only to prevent or retard a price decline, never above the offering price, with disclosure and required reporting. Rule 105 bars purchasing to cover a short sale effected within five business days before pricing, closing the loophole of shorting into the deal and covering with cheap offering shares.

Memory hook:101 and 102 stop the buying, 104 props but never above the offer, 105 blocks covering shorts within five days.

Rules 10b-9 and 15c2-4 protect subscribers in conditional offerings, where the deal closes only if a minimum amount is raised. Rule 10b-9 makes it fraudulent to represent that an offering is all-or-none or part-or-nothing unless there is a real depositary arrangement; vague assurances that the issuer will refund money are not enough. Rule 15c2-4 supplies the mechanics: payments from subscribers must go into a special bank account with an independent depositary, and funds may be transmitted to the issuer only when the stated minimum is reached; otherwise the money is returned promptly. A supervisor reviewing a conditional offering should verify the escrow arrangement exists before any funds move.

Memory hook:All-or-none needs a real escrow; no minimum met, money goes back.

Rule 144 is the safe harbor for reselling restricted and control securities. For affiliates of a reporting issuer, sales after a six-month holding period must satisfy current public information, volume limits, manner of sale, and Form 144; volume is the greater of one percent of shares outstanding or the average weekly trading volume over the prior four weeks, applied over three months. Non-affiliates who have held for six months can sell with far fewer conditions, and after one year their securities trade freely. Rule 144A creates a parallel market for institutional resales to qualified institutional buyers, generally institutions holding or managing at least one hundred million dollars in securities, without the holding-period machinery of Rule 144.

Memory hook:Affiliates always file; non-affiliates free after a year; 144A sells only to big-money QIBs.

Tender offer rules close insider and manipulation gaps. Rule 14e-3 is unusual: anyone in possession of material nonpublic information about a tender offer must disclose or abstain, even without any fiduciary duty, extending insider law beyond its usual boundary. Rule 14e-5 bars the bidder and its affiliates from purchasing the target's securities outside the offer while it is pending. Rule 14e-4 governs partial offers, prohibiting purchases that help a customer obtain more than its prorated share. Rule 13e-3 covers going-private transactions by an issuer or affiliate, requiring Schedule 13E-3 disclosures including fairness and purposes of the transaction. Rule 145 treats securities exchanged in mergers and reclassifications as sales requiring registration.

Memory hook:14e-3 needs no duty, just knowledge; 13e-3 discloses going private; 145 registers the swap.

Underwriters face two liability regimes. Section 11 imposes liability on underwriters for material misstatements in the registration statement, with damages capped at the proceeds they received; the escape hatch is the due diligence defense, a reasonable investigation showing no grounds to believe the statement was false, and non-experts can rely on experts for expertised portions. Section 12(a)(2) covers false or misleading statements in a prospectus or oral solicitation, but only against the seller, so privity matters, and the remedy is rescission or rescission damages. Rule 15c2-8 handles delivery: a prospectus must accompany or precede confirmations for the period the rule prescribes, which varies with whether the issuer files ongoing reports.

Memory hook:Section 11 sues the underwriter with a diligence defense; 12(a)(2) sues only the seller; 15c2-8 delivers.

Rule 2241 separates the analyst from the deal. Quiet periods bar research on an issuer around its offering, with the length depending on the member's role and the offering type, such as IPOs versus follow-ons. Blackout periods bar analyst trading: an analyst cannot trade contrary to a current recommendation, and cannot trade in an IPO security around roadshow participation within the rule's timeframes. Analysts may not participate in solicitation for investment banking, and compensation cannot be tied to specific recommendations. Regulation AC adds the personal certification: the analyst certifies in each report that the views expressed are genuinely held and that no compensation was tied to the recommendation. Supervisors verify both the structural separation and the certification.

Memory hook:Quiet silences the report, blackout silences the analyst's trades, Reg AC certifies the views are real.