Chapter 19: Business Conduct Rules - Multiple Choice

An individual is LEAST likely to owe a duty of trust with regard to material information in which of the following situations? A) Corporate information is communicated to him by a friend with whom the individual regularly gossips regarding sensitive information B) He has assured the communicating party that the information will be kept confidential C) The information was learned while he was meeting with a client of his employer D) The information was shared by a neighbor who is CEO of a corporation, who regularly shares confidential information with him

A) Corporate information is communicated to him by a friend with whom the individual regularly gossips regarding sensitive information

Which TWO of the following are TRUE of a Customer Information Program? I. It requires verification of identity of U.S. and Non-U.S. citizens II. It requires verification of identity for Non-U.S. customers only III. It is a required part of Anti-Money laundering programs for all financial institutions IV. It is a required part of Anti-Money Laundering programs only for firms that accept cash A) I & III B) I & IV C) II & III D) II & IV

A) I & III

A Customer Information Program I. Requires verification of identity of U.S. and non-U.S. citizens II. Requires verification of identity for non-U.S. customers only III. Is a required part of an Anti-Money Laundering programs for all financial institutions IV. Is a required part of an Anti-Money Laundering program only for firms that accept cash A) I and III B) I and IV C) II and III D) II and IV

A) I and III

A registered representative that has been fined by FINRA due to a disciplinary action I. Must pay the fine promptly II. Must pay the fine within 60 days III. Is liable for the costs of the proceeding in addition to the fine IV. Is not liable for the costs of the proceeding in addition to the fine A) I and III B) I and IV C) II and III D) II and IV

A) I and III

All of the following statements are true about mediation EXCEPT A) It is available for disputes of $100,000 or less only B) When a memorandum of understanding is signed, it is final and binding on all parties C) Mediation can be used only if all parties agree D) Mediation generally saves time and cost in settling disputes

A) It is available for disputes of $100,000 or less only

Which of the organizations below is responsible for the administration of dispute resolution proceedings? A) National Arbitration and Mediation Committee B) National Enforcement Council C) National Adjudicatory Council D) National Dispute Resolution Authority

A) National Arbitration and Mediation Committee

All of the following statements regarding penalties for insider trading are correct EXCEPT A) violators may be imprisoned for 30 years if proven guilty B) violators may be subject to penalties equal to three times the profits made or losses avoided C) both the tipper and tippee can be liable and subject to penalty D) a bounty is payable to persons who inform the SEC of insider trading activities

A) violators may be imprisoned for 30 years if proven guilty

The regulation that first authorized the Secretary of the Treasury to issue regulations requiring broker-dealers, and other financial institutions, to keep records and file reports on financial transactions that may be used in the investigation of money laundering and other financial crimes is the A) USA PATRIOT Act B) Bank Secrecy Act C) Securities Exchange Act of 1934 D) Financial Crimes Enforcement Act

B) Bank Secrecy Act

An individual has made a trade based on material non-public information she learned from her neighbor. Which TWO of the following statements are TRUE? I. The neighbor who shared the information has violated insider trading rules, and the individual who made the trade has violated insider trading rules II. The neighbor who shared the information has violated insider trading rules, but the individual who made the trade has not violated insider trading rules III. Violators of insider trading rules may be asked to pay criminal penalties of up to 3 times the profits made or losses avoided, or $10 million, whichever is greater IV. Violators of insider trading rules may be asked to pay civil penalties of up to 3 times the profits made or losses avoided A) I & III B) I & IV C) II & III D) II & IV

B) I & IV

Which TWO of the following are TRUE of a registered representative who has been asked to serve on the board of a local corporation? I. he must provide written notice to his employer II. he is not required to give notice to his employer if the position is unrelated to securities or finance III. he must receive permission from his employer before accepting the position IV. he is not required to receive permission from his employer before accepting the position A) I & III B) I & IV C) II & III D) II & IV

B) I & IV

When a representative accepts a second job, FINRA rules require I. Written notice to his or her employer II. Amendment to Form U-4 III. Written permission from his or her employer A) I only B) I and II only C) II and III only D) I, II and III

B) I and II only

A General Securities Principal is qualified to supervise which of the following activities? I. Advertising review II. Options transactions III. Municipal securities transactions IV. Investment banking business for corporate securities A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

FINRA Broker Check supplies information I. Regarding firms and representatives II. Regarding only representatives III. That is accessible only to other firms and associated persons IV. That is accessible to the public by telephone, written request, or electronically A) I and III B) I and IV C) II and III D) II and IV

B) I and IV

Trade confirmations are required by the Securities Exchange of 1934 for transactions in which of the following securities? I. Municipal securities II. Pink sheet securities III. U.S. government savings bonds A) I and II only B) II only C) II and III only D) I, II and III

B) II only

A firm's anti-money laundering program is required to include all of the following provisions EXCEPT A) Training for appropriate personnel B) Independent quarterly compliance testing C) A designated Anti-Money Laundering compliance officer D) Written procedures for conducting the program

B) Independent quarterly compliance testing

A representative is required to notify the firm of all of the following activities EXCEPT A) Accepting compensation for preparing several tax returns B) Investing money in wind energy as a silent partner C) Receiving consulting fees for helping a start-up business engaged in manufacturing create a business plan D) Receiving a finder's fee for introductions between a business and investors

B) Investing money in wind energy as a silent partner

Joe Schmo, a registered rep with Broker-Dealer A, would like to get a part-time job on the weekend as a shoe salesman, both to supplement his income and get a discount on the latest Air Jordan sneakers. Which of the following is true regarding Joe's regulatory obligation? A) Joe must notify FINRA of the nature of the activity B) Joe must notify his employer of the nature of the activity C) Joe must notify his employer of the nature of the activity and must await permission from the firm D) Joe is not permitted to engage in this activity under any circumstances

B) Joe must notify his employer of the nature of the activity

The organization that maintains a list of suspicious persons and checks customer identification information against known terrorist lists to identify potential money launderers is A) FinCEN B) OFAC C) BSA D) FBI

B) OFAC The Office of Foreign Assets Control

All of the following statements are true about FINRA arbitrations EXCEPT A) The chairperson of an arbitration is always designated by FINRA B) Regardless of the disputed amount, there will be one arbitrator unless the parties request additional arbitrators in writing C) If there is a single arbitrator in a case involving a customer, the arbitrator is always a public arbitrator D) Simplified arbitration rules apply to cases of $50,000 or less

B) Regardless of the disputed amount, there will be one arbitrator unless the parties request additional arbitrators in writing

A company machine technician working on-site has learned of a major product recall announcement that will have a significant impact on corporate profits. He contacts several friends and tells them to dump their stock in this company. Which of the following statements is TRUE? A) The technician is an insider and has violated insider trading regulations B) The technician is guilty of misappropriation of information C) The technician has not violated insider trading rules because he did not make money on the transaction D) The technician has not violated insider trading rules because he made no trades based on confidential information

B) The technician is guilty of misappropriation of information

The Act that imposed new Anti-Money Laundering obligations directly on broker-dealers by requiring them to verify a customer's identity at account opening is the A) Bank Secrecy Act B) USA PATRIOT Act C) Gramm-Leach Bliley Act D) Foreign Asset Controls Act

B) USA PATRIOT Act

All of the following activities are defined as manipulative or fraudulent EXCEPT A) pegging B) stabilizing C) wash sales D) matched purchases

B) stabilizing

Firms are required to report to FINRA arbitration settlements against a representative when the amount exceeds A) $5,000 B) $10,000 C) $15,000 D) $20,000

C) $15,000

A respondent must supply information regarding a notice of claim within A) 20 days B) 30 days C) 45 days D) 60 days

C) 45 days

All of the following information about the individuals responsible for implementation and monitoring of a firm's anti-money laundering program and internal controls must be reported to FINRA EXCEPT A) Title B) Email address C) Employment history D) Facsimile number

C) Employment history

Typically, required public disclosure of sensitive information is made by the filing of A) Form 10Q B) Form BD C) Form 8K D) Form S-1

C) Form 8K

Which TWO of the following best describe the purpose of a Chinese Wall? I. Legal barrier II. Ethical barrier III. Hindrance to the sharing of material nonpublic information between the investment banking and retail sales divisions IV. Deterrent to the sharing of private customer information between the back office and the retail sales division A) I & II B) I & IV C) II & III D) II & IV

C) II & III

A Series 9/10 qualifies an individual to supervise I. Corporate securities underwriting activities II. Options transactions III. Municipal securities transactions IV. Syndication of Private Placements A) I and III B) I and IV C) II and III D) II and IV

C) II and III

The purpose of a Chinese Wall in a financial firm is to function as a(n) I. Legal barrier II. Ethical barrier III. Hindrance to the sharing of material nonpublic information between the investment banking and retail sales divisions IV. Deterrent to the sharing of private customer information between the back office and the retail sales division A) I and II B) I and IV C) II and III D) II and IV

C) II and III

Joe Schmo, a registered rep with Broker Dealer A, would like to call his clients on his personal time to help his friend Jane raise capital for her business. Although Jane cannot afford to pay Joe, she promises that she will direct additional deal work to him in the future. Which of the following best describes Joe's regulatory obligation for this engagement? A) Joe must notify FINRA of the nature of the activity B) Joe must notify his employer of the nature of the activity C) Joe must notify his employer of the nature of the activity and must await permission from the firm D) Joe is not permitted to engage in this transaction under any circumstances

C) Joe must notify his employer of the nature of the activity and must await permission from the firm

A New York Stock Exchange Member firm has reviewed employee trades and determined that there is a potential irregularity that requires further investigation. The firm is required to report this finding to the Exchange A) Promptly B) Within 10 business days C) No later than the 15th of the month following the calendar quarter in which the trade occurred D) Within 60 days

C) No later than the 15th of the month following the calendar quarter in which the trade occurred

A broker-dealer's anti-money laundering compliance program must be approved by A) The U.S. Treasury B) The SEC C) FINRA Department of Market Regulation D) A member of the firm's senior management team

D) A member of the firm's senior management team

All of the following events are reportable to FINRA within 10 business days of occurrence EXCEPT A) proceedings against the firm brought by a securities industry regulator alleging any rule violation B) A written customer complaint alleging forgery C) A representative's conviction of a securities industry misdemeanor D) A representative's involvement in an outside business activity

D) A representative's involvement in an outside business activity

All of the following are FINRA requirements for a firm's anti-money laundering training program EXCEPT A) Notification of a change in the person or persons responsible for day to day oversight and control of the program B) Independent review of the program every 2 years if the firm does not hold customer accounts C) Implementation of internal controls to ensure the program is functioning properly D) Anti-money laundering training for all employees of the firm

D) Anti-money laundering training for all employees of the firm

All of the following are FINRA requirements of a firm's anti-money laundering training program EXCEPT A) Notification if the person or persons responsible for day-to-day oversight and control of the program has changed B) Independent review of the program every two years if the firm does not hold customer accounts C) Implementation of internal controls to ensure the program is functioning properly D) Anti-money laundering training for all employees of the firm

D) Anti-money laundering training for all employees of the firm

Of the terms below, the term that is most similar in meaning and function to firewall is A) Restricted list B) Watch list C) Information barricade D) Chinese Wall

D) Chinese Wall

A municipal securities dealer that is registered with the SEC A) Is in good financial standing B) Is approved as a reputable office for conducting municipal securities business C) Is managed by principals that have no conduct violations D) Has been released to conduct municipal securities business by the SEC

D) Has been released to conduct municipal securities business by the SEC

The anti-fraud provisions of the Securities Exchange Act of 1934 apply to I. Representatives who sell government securities II. Firms that sell municipal securities III. Exempt transactions A) I only B) I and II only C) II and III only D) I, II and III

D) I, II and III

A Series 79 registered representative is found to be in violation of FINRA rules. FINRA may impose which of the following? I. Fine of $10,000 II. Revoke Series 79 registration III. Bar the representative from associating with any other member firm for 10 years A) I only B) I and III only C) III only D) I, II, and III

D) I, II, and III

The confirmation of a transaction for a bond must include I. a statement to the effect that the security may be redeemed in whole or in part before maturity, if applicable II. The dollar price or yield at which the transaction was effected III. The date and time of the transaction A) I only B) I and II only C) III only D) I, II, and III

D) I, II, and III

The mechanisms that prevent the sharing of sensitive information between the investment banking and research departments are known as I. Firewalls II. Chinese Walls III.Information Barriers A) I only B) I and II only C) II only D) I, II, and III

D) I, II, and III

The rules against manipulative and deceptive practices employed by broker dealers apply to I. Securities traded on national exchanges only II. Securities traded on national exchanges and business transacted through the use of mail III. Municipal securities IV. Municipal and U.S. government securities A) I and III B) I and IV C) II and III D) II and IV

D) II and IV

A customer grievance is considered a complaint subject to FINRA complaint filing and reporting requirements if it A) Is directed to the firm's compliance department B) Involves an unsolicited transaction C) Alleges embezzlement D) Is in writing

D) Is in writing

In reviewing whether a representative's request for outside securities activity is acceptable to the firm, the firm should be MOST concerned with whether the employment activity A) Compromises the time the employee commits to his employment with the firm B) Is an outside business activity that should be supervised by the firm C) Creates a conflict of interest with the employee's current position D) Raises investor protection concerns

D) Raises investor protection concerns

All of the following statements about insider trading regulation are true EXCEPT A) Nearly all trades by corporate insiders are required to be reported to the SEC within several days of their completion B) Insider trading regulations in the U.S. are more strict than in most other countries. C) The SEC and stock exchanges actively monitor transactions for signs of insider trading D) Shareholders who acquire more than 1% of the outstanding voting shares of a corporation are required to make public disclosure to the SEC

D) Shareholders who acquire more than 1% of the outstanding voting shares of a corporation are required to make public disclosure to the SEC

FINRA is authorized to enforce the rules of the following EXCEPT A) The SEC B) The Municipal Securities Rulemaking Board C) The New York Stock Exchange D) The Federal Reserve Board

D) The Federal Reserve Board

The Act that encourages informers to report illegal use of sensitive information is A) The Securities Act of 1933 B) The Securities Exchange Act of 1934 C) The Maloney Act of 1938 D) The Insider Trading and Fraud Enforcement Act of 1988

D) The Insider Trading and Fraud Enforcement Act of 1988

Which of the following is a violation of the Securities Exchange Act of 1934? A) Intentionally including incorrect financial information in a registration statement for a new security B) Ensuring an investor that because the new securities are registered they have been approved by the SEC C) Failing to deliver a prospectus to an investor at the time of sale D) Withholding relevant information about a security when recommending that the customer buy the shares of a stock that is currently trading on the NYSE

D) Withholding relevant information about a security when recommending that the customer buy the shares of a stock that is currently trading on the NYSE

Rules against fraudulent manipulation or omission in the sale of securities apply to all of the following EXCEPT A) pink sheet stocks B) U. S. government securities exempt from registration C) Private placements D) term life insurance

D) term life insurance