Introduction

Welcome to Conduct of Associated Persons: the requirements that govern how registered persons must behave when interacting with customers, the firm, and the markets. This unit covers the substantive ethics and trading rules that supervisors enforce under the supervisory system you studied in the prior unit.

Exam Weight: Part of 30% (~45 questions across Function 2)

What You'll Learn

In this unit, you'll cover:

• Anti-Fraud Provisions: The FINRA standards of commercial honor and the prohibition on manipulative, deceptive devices; the Securities Exchange Act of 1934 (SEA) antifraud provision and the general antifraud rule; the broker-dealer antifraud provision (including the fraud-definitions rule and the use-of-fraudulent-device prohibition); and the Exchange Act's criminal penalties (5/5/3: $5 million / $25 million / 20 years)
• Misuse of Customer Securities or Funds: The improper-use prohibition, the no-guarantees-against-loss rule, and the sharing-in-customer-accounts requirements (dual written authorization plus proportionate contribution)
• Information Obtained in a Fiduciary Capacity: The prohibition on using paying-agent or transfer-agent data for solicitation, except on behalf of the issuer
• Insider Trading and Material Nonpublic Information (MNPI): The prearranged trading plan rule (trading "on the basis of" MNPI, with the 2022 cooling-off and good-faith amendments) and the misappropriation theory extension to non-business relationships, the information-barrier requirement, and the contemporaneous-trader and SEC treble-damage penalty provisions
• Market Manipulation: The Exchange Act's market-manipulation prohibition (wash trades, matched orders, fictitious quotes), the exchange-traded-options manipulation rule (manipulation of exempted securities), the broker-dealer manipulative-practices prohibition, the corporate-action notification requirement (10-day record-date notices), and the issuer buyback safe harbor (the four-condition issuer-repurchase safe harbor)
• Personal Trading and Outside Accounts: The personal-account-disclosure framework (employee accounts at other broker-dealers and financial institutions, plus the 30-day grandfather window) and the supervisory transaction-review with the 5-business-day and 10-business-day reporting deadlines
• Outside Business Activities (OBAs) and Private Securities Transactions (PSTs): Prior written notice for OBAs and prior written notice for PSTs, with stricter approval and books-and-records requirements when selling compensation is involved
• Borrowing From or Lending to Customers: The general prohibition, the five exception categories, and the April 28, 2025 modernized definition of "immediate family"

Why This Matters

The Series 24 exam tests three principal-level themes from this material:

• Whether a registered person's conduct violates a specific requirement (misuse of customer assets, personal-trading disclosure, borrowing/lending) and which catch-all (the FINRA standards of commercial honor or the SEC general antifraud rule) usually pairs with it as a stacked charge
• Whether the firm's supervisory and information-barrier procedures are reasonably designed to prevent the misconduct, or whether the firm's failure to supervise creates controlling-person liability under the SEC's insider-trading treble-damage authority (up to 3x the violator's gain)
• The specific notice, approval, and reporting deadlines that turn an OBA, PST, or outside-account disclosure from compliant into a violation (and the exact dollar and time thresholds that the exam tests literally)

A registered rep who sells investments outside the firm without prior PST notice is a "selling-away" case study; a firm that fails to investigate red flags from supervisory transaction review enables an insider-trading case. The exam draws supervisory questions from both ends.

Let's start with the foundational requirements that everything in this unit ultimately enforces: the anti-fraud provisions.