Estado y mercado

Requirement. FINRA Rules regulate compensation paid to registered persons with respect to

particular securities. In addition, the FINRA has taken the position that no person can be paid transaction-based compensation unless registered and unless qualified to engage in the underlying securities transactions. The FINRA and the SEC also take the position that a registered person cannot assign or share securities compensation to or with a person that is not also registered as a broker-dealer or registered person associated with a broker/dealer. FINRA Rules 2800 address special products and generally prohibit anyone other than the member firm from paying cash or noncash compensation for the sale of special products to a RR associated with a member firm. Noncash compensation is permitted only if certain conditions are met. Record keeping requirements apply.

Policy. The Firm prohibits Registered Persons from sharing compensation with unregistered

persons. This prohibition is set forth in agreements and in the Compliance Manual. The Legal Department is responsible for review of compensation arrangements for compliance with FINRA rules, and is responsible for periodically monitoring compensation arrangements for variable products to ensure compliance with the Firm’s policy and FINRA’s Rules.

1. Legal Review of Arrangements. The Legal Department is directed to review all

forms of RR agreements and compensation programs for compliance with applicable compensation rules.

COMPLIANCE PROCEDURES

Who Law Specialist or designated associate of Legal Operations

What

• Review forms of agreements and compensation schedules

• Review any proposed amendments or modifications to agreements or

schedules

When As Form Agreements and Compensation Schedules or programs are

developed or requests for modifications arise

How Evidenced Contracting Dept. Files

Where Maintained Contracting Dept. File

Retention Period Life of Contract

If Irregularities Are Found Report to the Chief Compliance Officer

Review Procedure Periodically

2. Maintenance of Agreements. The Contracting and Compensation Depts. are

responsible for retaining signed RR or Credit Union/Credit Union Service Organization agreements where applicable.

COMPLIANCE PROCEDURES

Who Contracting and Compensation associates

What Maintain signed agreements and compensation schedules

When As contracts are executed

How Evidenced Copy of contract

Where Maintained Contracting Files (RR), Compensation Files, (CU/CUSO)

Retention Period Six years after termination of agreement

If Irregularities Are Found Report to Chief Compliance Officer

Review Procedure Periodically

I. Outside Activities

Updated January 2013

Requirement. There are rules that apply to other activities, business interests and investments a

registered person may have “outside” the Firm’s business. Depending on the nature of the activity, interest, or investment, notification or approval requirements may be triggered. FINRA Rule 3270 states that a registered person is prohibited from being an employee, independent contractor, sole proprietor, officer, director or partner of another person, or being compensated, or having the reasonable expectation of compensation, from any other person as a result of any

business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.

NASD Rule 3040 prohibits an associated person from participating in any manner in a private securities transaction except with the approval or acknowledgment of the member. In the case of an “approved transaction”, the member is required to supervise the participation and record the transaction on its books and records. A private securities transaction is defined as any securities transaction outside the regular course or scope of the associated person’s employment with a member. Excluded from the definition are transactions among immediate family members for which no associated person receives any selling compensation, personal transactions in

investment company and variable annuity securities, and transactions subject to the notification requirements of Rule 3050 (that is, transactions effected through an account with another member firm). If a transaction is a “private securities transaction,” the associated person must obtain member approval if selling compensation will be received and member acknowledgment if no selling compensation will be received.

“Selling compensation” is defined as “any compensation paid directly or indirectly from

whatever source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions, finders’ fees, securities or rights to acquire securities, rights of participation in profits, tax benefits or dissolution proceeds as a general partner or otherwise or expense reimbursements.” Private securities transactions include offering variable products or effecting transactions in other securities (including limited partnership interests) through another broker/dealer firm or on behalf of an issuer or sponsor of the security. Private securities

transactions may also include certain investment advisory activities.

Finally, NASD Rule 3050 requires that registered persons report to their firm all personal brokerage accounts and accounts in which they have a beneficial interest or discretionary authority to their firm. This requirement is not applicable to accounts solely for variable products, open-end mutual funds, and unit investment trusts.

Policy. The Firm has adopted policies prohibiting any Registered Person from engaging in any

outside business activity or private securities transactions in any capacity without prior approval from the Firm.

• FINRA 3270 - a Registered Person may not participate in any business activity outside the scope of the relationship with the Firm unless he or she has provided prior written notice to the Firm.

• NASD 3040 – the firm prohibits any Registered Person from engaging in private securities transactions in any capacity other than for personal investment purposes and then only with prior written approval of the Firm.

• NASD 3050 – if a Registered Person has established brokerage accounts with other firms prior to associating with the Firm, they must notify the Compliance Department of such account. If a Registered Person elects to establish an account with another firm after joining the Firm, notification should be directed to the Compliance Department upon establishment of the account.

REVIEW PROCEDURES

Who Designated Compliance Department Associate

What

• Review pertinent submitted correspondence or form and determine

applicable FINRA or NASD Rules and next steps

• If correspondence pertains to Outside Business Activities:

• Determine whether outside business activities are consistent with Registered Person’s duties and Firm policies (i.e. no conflict of interest). Follow-up action for untimely notices will be addressed case by case.

• Communicate reasons for rejection or restrictions/limitations placed on a proposed activity to the Registered Person.

• If correspondence pertains to private securities transactions:

• Decide whether to approve or disapprove private securities transaction • Communicate approval or disapproval to Registered Person

• Instruct appropriate persons to supervise and record transactions on the Firm’s books and records if approved

• Maintain file of all correspondence submitted re: private securities transactions noting the submitting person, the Registered Person requesting permission to take certain action, findings and disposition

• If correspondence pertains to an outside brokerage account:

• Request duplicate statements from the executing member per Firm’s procedures

• Review account statements to ascertain that trading does not appear to violate securities regulations

• If acceptable, initialize account statements or other reports

• If not acceptable, communicate to registered person stating that trading must end, noting the reasons why the trading violates applicable law or Firm policy

• Maintain record of all Registered Personnel for whom account statements are being reviewed

When

• As Registered Person submits pertinent correspondence

• Upon becoming aware that a Registered Person is engaging in

triggering activities

How Evidenced • Correspondence, account statements, or reports

• Communications to Registered Personnel

Where Maintained Compliance Department files

Rep Personnel File

Retention Period Outside Business Activity: Three years

Outside Account Reviews: Prior quarter’s statements

If Irregularities Are Found Report to Chief Compliance Officer if any “red flags” arise from review