FINRA Series 57 Certification Exam Syllabus

• The role of the floor broker
• The use of market participant identifiers (MPIDs)
• Responsibilities of a qualified block positioner
• Registration as a market maker
• Net capital requirements

- FINRA Rules

• 6276 – Voluntary Termination of Registration
• 5250 – Payments for Market Making
• 6271 – Registration as an ADF Market Maker or ADF ECN
• 6275 – Withdrawal of Quotations
• 6480 – Multiple MPIDs for Quoting and Trading in OTC Equity Securities

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - Section 3(a)(38) – Definition of a Market Maker
  - 3b-8 – Definitions of “Qualified OTC Market Maker,” “Qualified Third Market Maker” and “Qualified Block Positioner”

• Different order types and their use in the marketplace including:
  - Market
  - Limit
  - Stop
  - Stop limit
  - Market-on-open (MOO), Market-on-close (MOC)
  - Contingent/stipulation (e.g., day, good-til-canceled (GTC))
  - Reserve
  - Peg

- NYSE American Rules

• 900.3NY – Orders Defined

- NYSE Arca Rules

• 6.62-O – Certain Types of Orders Defined
• 7.31-E – Orders and Modifiers

• Requirements for direct market access (DMA)/sponsored access
• The purpose of credit and capital limits
• Identifying pre-trade risk controls

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - 15c3-5 – Risk Management Controls for Brokers or Dealers with Market Access

• Identifying minimum critieria necessary for a transaction to qualify as clearly erroneous
• Nullification and adjustment of transactions including obvious errors

- FINRA Rule

• 11890 Series – Clearly Erroneous Transactions

• Understanding order entry parameters
• Trading rotations
• The use of the Alternative Display Facility (ADF)
• The role of alternative trading systems (ATS)

- FINRA Rules

• 6200 Series – Alternative Display Facility (ADF)
• 6210 – General
• 6220 – Definitions
• 6230 – Use of Alternative Display Facility Data Systems
• 6240 – Prohibition from Locking or Crossing Quotations in NMS Stocks
• 6250 – Quote and Order Access Requirements
• 6260 – Review of Direct or Indirect Access Complaints
• 6273 – Normal Business Hours

- SEC Rules and Regulations

• Regulation ATS
  - 300 – Definitions
  - 301 – Requirements for Alternative Trading Systems
  - 302 – Recordkeeping Requirements for Alternative Trading Systems
  - 303 – Record Preservation Requirements for Alternative Trading Systems

• Prohibitied activities
• Trading ahead of research reports
• Use of material nonpublic information for insider trading
• Use of trading schemes (e.g., prearranged trading, spoofing, pump and dump)
• Engaging in conduct that influences or intimidates other market participants

- FINRA Rules

• 5200 Series - Quotation and Trading Obligations and Practices
• 5230 – Payments Involving Publications that Influence the Market Price of a Security
• 5270 – Front Running of Block Transactions
• 5280 – Trading Ahead of Research Reports
• 5240 – Anti-Intimidation/Coordination
• 5290 – Order Entry and Execution Practices

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - Section 9 – Prohibition Against Manipulation of Security Prices
  - Section 15(g) – Registration and Regulation of Brokers and Dealers (policies and procedures to be developed by broker-dealers to prevent misuse of material nonpublic information)
  - 10b-5 – Employment of Manipulative and Deceptive Devices
  - 10b5-2 – Duties of Trust or Confidence in Misappropriation Insider Trading Cases

• Quotations and trading halts
• Halt and imbalance crosses
• Trade volume advertising
• Publishing indications of interest (IOI)
• Volatility trading pauses (VTPs)
• Offers at stated prices

- FINRA Rules

• 5200 Series - Quotation and Trading Obligations and Practices
  - 5210 – Publication of Transactions and Quotations
  - 5220 – Offers at Stated Prices
  - 5260 – Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts
• 6000 Series – Quotation, Order, and Transaction Reporting Facilities
  - 6120 – Trading Halts
  - 6121 – Trading Halts Due to Extraordinary Market Volatility
  - 6190 – Compliance with Regulation NMS Plan to Address Extraordinary Market Volatility
  - 6272 – Character of Quotations
  - 6277/6360A/6360B – Suspension and Termination of Quotations by FINRA Action
  - 6440 – Trading and Quotation Halt in OTC Equity Securities

- SEC Rules and Regulations

• Regulation NMS
  - 602 – Dissemination of Quotations in NMS Securities
  - 610 – Access to Quotations

• Permitted and prohibited trading activities related to IPOs and secondary offerings
• Penalty bids
• Stabilizing bids
• Passive market making
• Required notification related to IPOs and secondary offerings
• Trading within safe harbors

- FINRA Rules

• 5131 – New Issue Allocations and Distributions
• 5190(e) – Notice of Penalty Bids and Syndicate Covering Transactions in OTC Equity Securities
• 6130 – Transactions Related to Initial Public Offerings
• 6435 – Withdrawal of Quotations in an OTC Equity Security in Compliance with SEC Regulation M

- SEC Rules and Regulations

• Securities Act of 1933
• Regulation D – Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933
• Securities Exchange Act of 1934
  - Section 5 – Transactions on Unregistered Exchanges
  - 10b5-1 – Trading “On The Basis Of” Material Nonpublic Information in Insider Trading Cases
  - 10b-18 – Purchases of Certain Equity Securities By the Issuer and Others Regulation M
  - 101 – Activities By Distribution Participants
  - 102 – Activities By Issuers and Selling Security Holders During a Distribution
  - 103 – Nasdaq Passive Market Making
  - 104 – Stabilizing and Other Activities in Connection with an Offering
  - 105 – Short Sales in Connection with a Public Offering

• Characteristics of penny stocks
• Disclosure requirements
• Over-the-counter (OTC) quoting and trading
• Initiating or resuming market making (Form 211)

- FINRA Rules

• 6140 – Other Trading Practices
• 6400 Series – Quoting and Trading in OTC Equity Securities
  - 6410 – General
  - 6420 – Definitions
  - 6432 – Compliance with the Information Requirements of SEA Rule 15c2-11
  - 6433 – Minimum Quotation Size Requirements for OTC Equity Securities
  - 6434 – Minimum Pricing Increment for OTC Equity Securities
  - 6437 – Prohibition from Locking or Crossing Quotations in OTC Equity Securities
  - 6438 – Displaying Priced Quotations in Multiple Quotation Mediums
  - 6460 – Display of Customer Limit Orders

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - Section 3(a)(51) – Definition of Penny Stock
  - 15c2-11 – Initiation or Resumption of Quotations Without Specified Information
  - 15g-1 – Exemptions for Certain Transactions
  - 15g-3 – Broker or Dealer Disclosure of Quotations and Other Information Relating to the Penny Stock Market
  - 15g-4 – Disclosure of Compensation to Brokers or Dealers
  - 15g-5 – Disclosure of Compensation to Associated Persons in Connection with Penny Stock Transactions
  - 15g-8 – Sales of Escrowed Securities of Blank Check Companies

• Option orders and types including spreads, straddles and combinations
• Index options (e.g., Cboe Volatility Index (VIX))
• Exercise and assignment
• Tender of exercise notices
• Position and exercise limits

- Cboe Rules

• 5.6 – Order Types, Order Instructions, and Time-in-Force
• 6.20 – Exercise of Option Contracts
• 6.21 – Allocation of Exercise Notices
• 8.30 – Position Limits
• 8.31 – Position Limits for Broad-Based Index Options
• 8.32 – Position Limits for Industry Index Options
• 8.33 – Position Limits for Options on Micro Narrow-Based Indexes as Defined Under Rule 24.2(d)
• 8.34 – Position Limits for Individual Stock or ETF Volatility Index Options
• 8.35 – Position Limits for FLEX Options8.42 – Exercise Limits
• 8.42 – Exercise Limits
• 8.43 – Reports Related to Position Limits

• Short sale regulations
• Locates and borrows
• Price test
• Close-out requirements
• Order marking requirements
• Short sale exemptions

- FINRA Rules

• 6182 – Trade Reporting of Short Sales
• 6624 – Trade Reporting of Short Sales

- SEC Rules and Regulations

• Regulation SHO
  - 200 – Definition of “Short Sale” and Marking Requirements
  - 201 – Circuit Breaker
  - 203 – Borrowing and Delivery Requirements
  - 204 – Close-out Requirement

• Market hours vs. pre- and post-market trading
• Best execution requirements
• Adjustment of orders for stock splits, dividends
• Fair prices and commissions
• Net transactions
• Order marking

- FINRA Rules

• 2010 – Standards of Commercial Honor and Principles of Trade
• 2121 – Fair Prices and Commissions
• 2124 – Net Transactions with Customers
• 2265 – Extended Hours Trading Risk Disclosure
• 5300 Series – Handling of Customer Orders
  - 5310 – Best Execution and Interpositioning
  - 5330 – Adjustment of Orders
  - 5350 – Stop Orders
• 6140 – Other Trading Practices

• Trading ahead of customer orders
• Use of manipulative or deceptive devices
• Prohibited transactions of investment advisers

- FINRA Rules

• 2020 – Use of Manipulative, Deceptive or Other Fraudulent Devices
• 5320 – Prohibition Against Trading Ahead of Customer Orders

- Investment Advisers Act of 1940

• Section 206 – Prohibited Transactions by Investment Advisers

• Order protection
• Customer limit order display requirements
• Trade through protection
• Sub-Penny Rule

- SEC Rules and Regulations

• Regulation NMS – Regulation of the National Market System
  - 600 – NMS Security Designation and Definitions
  - 604 – Display of Customer Limit Orders
  - 611 – Order Protection Rule
  - 612 – Minimum Price Increments

Maintaining Books and Records, Trade Reporting and Clearance and Settlement - 18%

• Distinctions among reporting facilities
• Trade reporting requirements (e.g., modifiers, timing, trade acceptance)

- FINRA Rules

• 6100 Series – Quoting and Trading in NMS Stock
  - 6110 – Trading Otherwise than on an Exchange
  - 6160 – Multiple MPIDs for Trade Reporting Facility Participants
  - 6170 – Multiple MPIDs for Alternative Display Facility Participants
  - 6181 – Timely Transaction Reporting
  - 6183 – Exemption from Trade Reporting Obligation for Certain Alternative Trading Systems
• 6280 Series – Transaction Reporting
  - 6281 – Reporting Transactions in ADF-Eligible Securities
  - 6282 – Transactions Reported by Members to the ADF
• 7100 Series – Alternative Display Facility
  - 7110 – Definitions
  - 7120 – Trade Reporting Participation Requirements
  - 7130 – Trade Report Input
  - 7140 – Trade Report Processing
  - 7150 – Obligation to Honor Trades
  - 7160 – Audit Trail Requirements
• 6300A/7200A Series – FINRA/Nasdaq Trade Reporting Facility
• 6300B/7200B Series – FINRA/NYSE Trade Reporting Facility
  - 6310A/6300B – General
  - 6320A/6320B – Definitions
  - 6380A/6380B – Transaction Reporting
  - 7210A/7210B – Definitions
  - 7220A/7220B – Trade Reporting Participation Requirements
  - 7230A/7230B – Trade Report Input
  - 7240A/7240B – Trade Report Processing
  - 7250A/7250B – Obligation to Honor Trades
  - 7260A/7260B – Audit Trail Requirements
  - 7270A/7270B – Violation of Reporting Rules
• 6550 – Transaction Reporting (OTCBB)
• 6600 Series – OTC Reporting Facility
  - 6610 – General
  - 6621 – Definitions
  - 6622 – Transaction Reporting
  - 6623 – Timely Transaction Reporting
  - 6625 – Exemption from Trade Reporting Obligation for Certain Alternative Trading Systems
• 7300 Series – OTC Reporting Facility
  - 7310 – Definitions
  - 7320 – Trade Reporting Participation Requirements
  - 7330 – Trade Report Input
  - 7340 – Trade Report Processing
  - 7350 – Obligation to Honor Trades
  - 7360 – Audit Trail Requirements
  - 7370 – Violation of Reporting Rules

• Large Trade ID and related reporting and monitoring requirements
• Order execution/routing information
• Consolidated Audit Trail (CAT) reporting obligations, including timing and required fields
• Consolidated Options Audit Trail System (COATS)
• Books and records requirements and pre-time stamping
• ATS transparency

- FINRA Rules

• 4511 – General Requirements
• 4515 – Approval and Documentation of Changes in Account Name or Designation
• 4590 – Synchronization of Member Business Clocks
• 5340 – Pre-Time Stamping
• 6800 Series – Consolidated Audit Trail Compliance Rule
• 6810 – Definitions
• 6820 – Clock Synchronization
• 6830 – Industry Member Data Reporting
• 6890 – Recordkeeping

- SEC Rules and Regulations

• Securities Exchange Act of 1934 Rules
  - 13h-1 – Large Trader Reporting
  - 17a-3 – Records To Be Made By Certain Exchange Members, Brokers and Dealers
• Regulation NMS
  - 605 – Disclosure of Order Execution Information
  - 606 – Disclosure of Order Routing Information
  - 613 – Consolidated Audit Trail

- Cboe Rules

• 6.1 – Report Transactions to the Exchange
• 7.1 – Maintenance, Retention and Furnishing of Books, Records and Other Information
• 7.5 – AutomatedSubmission of Trading Data

• Confirmations
• Standard settlement time frames for various products
• Options Clearing Corporation (OCC) assignment procedure
• Close-out requirements for various products

- FINRA Rules

• 2232 – Customer Confirmations
• 6274/6350A/6350B – Clearance and Settlement
• 11000 Series – Uniform Practice Code
  - 11130 – When, As and If Issued/Distributed Contracts
  - 11140 – Transactions in Securities “Ex-Dividend,” “Ex-Rights” or “Ex-Warrants”
  - 11320 – Dates of Delivery

- SEC Rules and Regulations

• Securities Exchange Act of 1934
  - 10b-10 – Confirmation of Transactions
  - 15c6-1 – Settlement Cycle

- Cboe Rules

• 6.2 – Exercise of Option Contracts
• 6.4 – Reporting of Trades to OCC
• 6.21 – Allocation of Exercise Notices
• 6.22 – Delivery and Payment