FINRA Series 22 Certification Exam Syllabus

• Standards and required approvals of public communications
• Types of communications (e.g., retail, institutional, correspondence)

- FINRA Rule

• 2210 – Communications with the Public

• Types of securities offerings (e.g., publicly registered, Regulation D, Regulation A, intrastate, other unregistered offerings)
• Prospectus requirements
• Methods of distribution (e.g., best efforts, firm commitment)
• Syndication practices
  - Dealer or manager functions (e.g., due diligence, solicits and allocates retail participation by other broker-dealers, maintains books and records, enters into dealer/manager agreement with the program sponsor)
  - Sponsor or issuer-managed offerings
  - Dealer agreement with sponsor or issuer
  - Functions of wholesalers
  - Role of finders and prohibited practices
• Due diligence
  - Purpose and requirement to perform
  - Typical reviews
  1. Material statements and risk factors in the offering documents
  2. Compliance with registration or exemption rules
  3. Financial data and assets
  4. Management background and prior performance
  5. Assumptions in offering forecasts or projections
  6. Fees and use of proceeds
  7. Opinion of tax counsel

- FINRA Rules

• 2310(b)(3) – Direct Participation Programs (Disclosure)
• 5110 – Corporate Financing Rule — Underwriting Terms and Arrangements

- SEC Rules and Regulations

• Securities Act of 1933
  - Section 2(a) – Definitions
  - Section 3(a)(11) – Any Security Which Is Part of an Issue Offered and Sold Only to Persons Resident Within a Single State or Territory
  - Section 4(a)(5) – Transactions Involving Offers or Sales by an Issuer Solely to One or More Accredited Investors Up to the Section 3(b) Maximum
  - Section 5 – Prohibitions Relating to Interstate Commerce and the Mails
  - Section 6 – Registration of Securities and Signing of Registration Statement
  - Section 10 – Information Required in Prospectus
  - Section 11 – Civil Liabilities on Account of False Registration Statement
  - Section 12 – Civil Liabilities Arising in Connection with Prospectus and Communications
• Securities Exchange Act of 1934
  - 15c2-8 – Delivery of Prospectus
• Regulation A-R – Special Exemptions
  - 134 – Communications Not Deemed a Prospectus
  - 135 – Notice of Proposed Registered Offerings
  - 135a – Generic Advertising
  - 147 – Interstate Offers and Sales
  - 174 – Delivery of Prospectus by Dealers; Exemptions Under Section 4(3) of the Act
• Regulation C – Registration
  - 425 – Filing of Certain Prospectuses and Communications Under §230.135 in Connection with Business Combination Transactions
• Regulation D – Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933
  - 500 – Use of Regulation D
  - 501 – Definitions and Terms Used in Regulation D
  - 502 – General Conditions to be Met
  - 503 – Filing of Notice of Sale
  - 504 – Exemption for Limited Offerings and Sales of Securities Not Exceeding $5,000,000
  - 506 – Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering
  - 507 – Disqualifying Provision Relating to Exemptions under Rules 504 and 506
  - 508 – Insignificant Deviations from a Term, Condition or Requirement of Regulation D
• Securities Act Industry Guides
  - Guide 2 – Disclosure of Oil and Gas Operations
  - Guide 4 – Prospectus Relating to interests in Oil and Gas Programs
  - Guide 5 – Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships

Opens Accounts After Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives - 8%

• Types of accounts
• Requirements for opening customer accounts
• Retirement plans and other tax advantaged accounts
  - Permissible investments, transfers, rollovers, eligibility, allowable contributions, distribution requirements, strategies and taxation
  - Employer-sponsored plans and ERISA (e.g., defined benefit, defined contribution)
• Account registration changes and internal transfers

- FINRA Rules

• 2268 – Requirements When Using Predispute Arbitration Agreements for Customer Accounts
• 4512 – Customer Account Information

- Employee Retirement Income Security Act of 1974 (ERISA)

• Customer screening (e.g., customer identification program (CIP), know your customer (KYC), domestic or foreign residency and/or citizenship, corporate insiders, employees of broker-dealers or self-regulatory organizations (SROs))
• Information security and privacy regulations (e.g., initial privacy disclosures to customers, opt-out notices, disclosure limitations, exceptions)
• Account authorizations (e.g., power of attorney (POA), trust documents, corporate resolutions)

- FINRA Rule

• 2090 – Know Your Customer

- SEC Rules and Regulations

• Regulation S-P – Privacy of Consumer Financial Information and Safeguarding Personal Information

• Essential facts regarding customers and customer relationships
• Financial factors relevant to assessing a customer’s investment profile
  - Security holdings, other assets and liabilities, annual income, net worth, tax considerations
  - Other considerations (e.g., age, marital status, dependents, employment, investment experience, home ownership and financing, employee stock options, insurance, liquidity needs)
  - Investment objectives (e.g., preservation of capital, income, growth, speculation)
  - Verification of investor accreditation and sophistication

- FINRA Rule

• 2111 – Suitability

- SEC Rules and Regulations

• Securities Act of 1934
  - 15l-1 – Regulation Best Interest
  - 17a-14 – Form CRS, for Preparation, Filing and Delivery of Form CRS

• Required review, approvals and documentation for account opening and maintenance
• Physical receipt, delivery and safeguarding of cash or cash equivalents, checks and securities
• Circumstances for refusing or closing accounts

- FINRA Rules

• 3110 – Supervision
• 3120 – Supervisory Control System

Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records - 54%

• Types of direct participation programs (DPPs)
  - Investment or asset focus
  - Investment entities
  - Registered vs. unregistered (e.g., private placements)
• Real estate programs
  - Potential benefits and typical risks of:
  1. Affordable housing (e.g., tax credits, passive losses government policy changes, limited cash distributions, loss of subsidies or credits, uncertain residual value)
  2. Development properties (e.g., appreciation potential, partially tax deferred cash flow, passive losses, excess development costs, realizable occupancy and rental rates, availability of long-term mortgage financing)
  3. Operating properties (e.g., in-place leases and net operating income, partially tax-deferred cash flow, appreciation, declines in occupancy or rental rates, increased maintenance and replacement costs, inability to cover debt service)
  4. Land development (e.g., appreciation, delay or failure to develop, carrying costs with no cash flow)
  5. Mortgage programs (e.g., predictable income, participation in appreciation, default by the borrower)
• Oil and gas programs
  - Potential benefits and typical risks of:
  1. Exploratory (e.g., up-front tax benefit, high return potential from reserve discoveries, "dry holes," joint and several liability, environmental hazard, changing government regulation, commodity pricing)
  2. Development (e.g., up-front tax benefit, return potential from reserve discoveries, fewer “dry holes” versus exploratory, joint and several liability, environmental hazard, changing government regulation, commodity pricing)
  3. Income (e.g., predictable cash flow from reserves, partial tax benefits, overestimation of reserves, commodity pricing)
  4 Overriding royalty interest (e.g., owner does not share program costs, owner shares in revenues through cost free interest in production revenues, payable under an oil and gas lease out of total production of well or deposit)
  5. Working interest (e.g., interest in production revenues, partners share program costs)
  6. Reversionary working interest (e.g., owner does not share program costs, owner shares in revenues after investors recover their costs)
  7. Disproportional sharing arrangement (e.g., sponsor pays a lower percentage of all costs in return for a higher percentage of program revenues, sponsor may share in costs of “dry holes,” normally investors pay deductible costs and sponsor pays non-deductible costs)
• Equipment leasing programs
  - Potential benefits and typical risk(s) (e.g., partially sheltered cash flow, lease defaults, uncertain residual value, phantom income on equipment sales)
• Business development companies (BDCs) and other debt investment programs
  - Potential benefits and typical risks (e.g., income, modest capital gains, borrower defaults and declining income, declining asset values from rising interest rates)
• Other programs
  - Agricultural
  - Livestock
  - Entertainment
  - Research and development or venture capital
  - Commodity pools
  - Like-kind exchanges (e.g., tenants in common (TIC), Delaware statutory trust, Section 1031)
• Types of investment entities
  - Limited partnerships
  1. Limited liability
  2. Consequences of the pass through tax provision
  3. Agreement of limited partnership (i.e., types of partners, capital contribution obligations, allocation of income, loss, capital gain, and cash distributions, general partner compensation)
  - Roles of partners (e.g., general, limited)
  - General partner(s): rights and obligations (e.g., exclusive power to manage the partnership, fiduciary responsibility to limited partners, unlimited liability)
  1. Limited partners rights and obligations (e.g., limited voting rights (e.g., to change to general partner, to approve sale of all or substantially all the assets of the partnership, to amend partnership agreement), liability limited to capital contribution)
  2. Limited ability to transfer of interest in limited partnership
  3. Dissolution and liquidation of a limited partnership (e.g., withdrawal of last general partner, vote of partners, sale of all the assets of the partnership, expiration of partnership)
  - Limited liability corporations (LLC)
  1. Same characteristics as limited partnerships except
  2. Manager has limited liability, may elect to receive same pass-through tax advantages as a limited partnership, may elect members to manage the LLC
  - S corporations
  1. Limited number of shareholders, domestic corporation, ownership by individuals, certain estates, trusts, or tax-exempt organizations
  2. A tax pass-through entity, no disproportionate allocation
  - General partnerships
  1. Unlimited liability of general partners
  2. Passive general partner interests are treated as securities
  - Other investment entities
  1. Joint ventures
  2. Grantor trusts
• Evaluation of DPPs
  - Economic soundness of program
  - Basic objectives of program
  - Valuation of specified assets
  - Characteristics of assets (e.g., risk factors, conflicts of interest)
  - Sponsor's track record
  - Sources of capital (e.g., offering proceeds, installment or staged payments, loans, assessments)
  - Use of offering proceeds including organizational and offering costs
  - Types of organizational and offering costs (e.g., underwriting compensation, due diligence fees, advisory fees, direct costs) and regulatory limits
  - Use of amount available for investment (e.g., acquisition of assets, fees, working capital reserve)
  - Anticipated returns on investments (composition of returns (e.g., current income versus capital gains), pre- and post-tax return))
  - Liquidity provisions (e.g., anticipated holding period, share redemption programs)
  - Dividend reinvestment plans
• Tax treatment of DPPs
  - General characteristics
  1. Conduit nature of entity
  2. Requirements to file informational tax returns (IRS Form 1065)
  3. Requirements to allocate profits, losses, deductions and credits to partners
  4. Tax concepts ((e.g., ordinary income and loss, capital gain and loss, adjusted tax basis used to determine gain or loss on the sale of an asset, investment interest income and interest expense (e.g., expense deductible only to extent of income))
  5. Passive income offset by passive losses (e.g., losses deductible only to extent of income, losses can be carried forward but not back)
  6. Tax credits versus deductions (e.g., credit offset against tax liability, deduction offset against income)
  7. Depreciation, depletion and amortization (e.g., allows noncash deduction based on entity’s cost of asset, deduction varies by type of asset (e.g., term, straight-line, accelerated), partially shelters cash flow)
  8. Phantom income (i.e., taxable income without associated cash distributions)
  9 . Tax-free exchanges of real estate (Section 1031) (e.g., gain or loss is deferred and tax basis is transferred)
  - “At risk" limitations on deduction of losses
  1. Limited to partner’s or member’s capital contribution plus a portion of limited partnership or LLC liabilities for which the partner or member is liable
  2. Qualified non-recourse financing in real estate is exempt from “at risk" limitations
  - Alternative minimum tax (AMT)
  1. DPP preference items can trigger AMT

- FINRA Rules

• 2310(b) – Direct Participation Programs (Requirements)
• 5122 – Private Placements of Securities Issued by Members
• 5123 – Private Placements of Securities

- SEC Rules and Regulations

• Securities Act of 1933
  - Section 4(a)(2) – Transactions by an Issuer Not Involving Any Public Offering

• Best interest obligations and suitability requirements
  - Ability to understand risks of the underlying investment
  - Investment objective of program versus investor
  - Composition and diversification of investor’s current portfolio
  - Investor’s liquidity needs
  - Investor’s net worth and income

- FINRA Rules

• 2090 – Know Your Customer
• 2111 – Suitability
• 2122 – Charges for Services Performed
• 2214 – Requirements for the Use of Investment Analysis Tools

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - 15l-1 – Regulation Best Interest
  - 17a-14 – Form CRS, for Preparation, Filing and Delivery of Form CRS

• Required disclosures on specific transactions
• Costs and fees associated with investments
• Types of underwriting compensation
  - Cash and non-cash
  - Indeterminate (e.g., carried interest, continuing compensation, other securities)
  - Limitations on sales compensation in public offerings

- FINRA Rules

• 2165 – Financial Exploitation of Specified Adults
• 2212 – Use of Investment Companies Rankings in Retail Communications
• 2310(b)(4) – Direct Participation Programs (Organization and Offering Expenses)

• Sources and timing of investment tax and financial information
• Tax information provided to investors (Schedule K-1)
• Current financial performance (e.g., distribution rates and valuation)
  - Method of account statement reporting (e.g., public versus private)
  - Disclosures of sources of cash distributions
• Reinvestment plan options
• Liquidity options
• Books and records

- FINRA Rules

• 2273 – Educational Communication Related to Recruitment Practices and Account Transfers
• 2310 – Direct Participation Programs
• 2231 – Customer Account Statements
• 4510 – Books and Records Requirements

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - Section 17 – Accounts and Records, Examinations of Exchanges, Members and Others Regulation FD – Disclosure Requirements

Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions - 4%

• Installment procedures
  - Restrictions on installment sales for SEC registered public offerings
• Share or unit class pricing and volume discounts

- FINRA Rules

• 2310(b)(4)(c)(ii) – Direct Participation Programs (Organization and Offering Expenses)
• 5110 – Corporate Financing Rule - Underwriting Terms and Arrangements
• 5141 – Sale of Securities in a Fixed Price Offering

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - 3a12-9 – Exemption of certain direct participation program securities from the arranging provisions of sections 7(c) and 11(d)(1)
  - 10b-9 – Prohibited representations in connection with certain offerings
  - 15c2-4 – Transmission or maintenance of payments received in connection with underwritings

• Subscription practices
  - Order forms
  - Escrow procedures
  - Supervisory review of order by broker-dealer
  - Sales conditioned upon issuer’s acceptance of subscribers
• Transaction disclosure requirements

- FINRA Rule

• 2232 – Customer Confirmations

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - 10b-10 – Confirmation of Transactions
  - 15c2-4 – Transmission or maintenance of payments received in connection with underwritings.
  - 17a-3 – Records To Be Made by Certain Exchange Members, Brokers and Dealers
  - 17a-4 – Records To Be Preserved by Certain Exchange Members, Brokers and Dealers
  - 17a-8 – Financial Recordkeeping and Reporting of Currency and Foreign Transactions

• Requirements for addressing customer complaints and consequences of improper handling of complaints
• Methods of formal resolution (e.g., arbitration, mediation, litigation)
• Form U4 reporting requirements

- FINRA Rules

• 4513 – Records of Written Customer Complaints
• 4530 – Reporting Requirements
• 8000 Series – Investigations and Sanctions
• 12000 Series – Code of Arbitration Procedure for Customer Disputes
• 13000 Series – Code of Arbitration Procedure for Industry Disputes
• 14000 Series – Code of Mediation Procedure