Welcome to Discrepancies, Complaints, and Arbitration: the back-end of the trade lifecycle that handles errors, customer grievances, and formal dispute resolution. Unit 11 covered how trades get priced (quotes and best execution). Unit 12 covered how they clear and settle. Unit 13 covers what happens when something goes wrong.
Exam Weight: Part of 10% (5 questions across Chapter 4)
What You'll Learn
In this unit, you'll cover:
- Trade Errors and As-Of Pricing: the difference between firm-caused and customer-caused errors; cancel-and-rebill supervisory approval under the customer account records rule; as-of pricing for mutual-fund corrections (firm-caused errors use the originally-intended Net Asset Value (NAV) date; customer-caused errors use the next NAV)
- Customer Complaint Records: the definition of a "complaint" (written grievances only); the Office of Supervisory Jurisdiction (OSJ) file and 4-year retention; proper escalation through a principal; why private settlements are prohibited
- Firm Event-Reporting Obligations: the 30-calendar-day reporting clock for specified events; theft and misappropriation allegations; internal-investigation conclusions; the dollar thresholds ($15,000 associated person / $25,000 firm) for settlements and awards; the quarterly statistical complaint report due by the 15th calendar day after quarter-end
- Dispute Resolution Methods: the FINRA Customer Code, the FINRA Industry Code, and the FINRA Mediation Code; the customer's right to compel arbitration; the 6-year eligibility limit; why arbitration awards are generally final and non-appealable
- Form U4 and U5 Disclosure: the $5,000 threshold for customer-complaint disclosure on Form U4; 30-day amendment obligations; Form U5 filing on termination; BrokerCheck as the public-facing window into Central Registration Depository (CRD) disclosures
- Investigations and Sanctions: FINRA's information-and-testimony rule (non-cooperation is a bar-level offense); the FINRA sanction menu; statutory disqualification under the Exchange Act and the MC-400 eligibility pathway
Why This Matters
Function 4.3 tests the back-office machinery that protects customers and enforces sales-practice standards. A Series 6 rep does not personally run arbitration panels or file disclosure reports, but the exam expects the rep to recognize:
- When a customer grievance is a "complaint" under the customer complaint records rule (written) versus a verbal frustration (not reportable under that rule)
- When a firm must file a 30-day event report and when it must amend Form U4 (30 days) and how disclosure on one can satisfy the other
- What an arbitration award looks like (final, binding, very limited appeal) versus a mediated settlement (voluntary, non-binding until signed)
- Why failing to respond to a FINRA information-and-testimony request typically produces a bar that is more severe than the underlying allegation
- Which events on a rep's record become publicly searchable on BrokerCheck and which stay internal to the firm
The sections below walk the operational chain from the moment of error through the enforcement endgame:
- First the trade error that must be corrected before anything else matters
- Then the customer complaint that memorializes a grievance the rep did not fix quietly
- Then the firm's reporting obligations to FINRA under the firm event-reporting rule
- Then the formal dispute-resolution forums (arbitration, mediation, and litigation)
- Then the rep-level disclosures on Forms U4 and U5 and their public display on BrokerCheck
- Finally the FINRA enforcement machinery of investigations, sanctions, and statutory disqualification
Let's start with trade errors, which are the earliest point in the chain where things can go wrong.