Chapter 3 - series 7
FINRA's quiet period rules are as follows:
1. 10 calendar days following the effective date for an initial public offering, which applies to any syndicate member or dealer 2. Three calendar days following the effective date for a secondary offering, which only applies to managers or co-managers
List the 3 restrictions that a firm is not allowed to do when it publishes a research report?
1. sending the report to the subject company for editing or approval 2. sending a suggested target price for the company's stock to the subject company 3. owning 1% of more of the outstanding shares, or making a market in the subject company's stock without disclosure.
If a mutual fund has been in existence for 17 years, the longest average annual return that's required to be shown in an advertisement is:
10 years 1 year: existed at least one year 1 - 5 years: existed at least five years 10 years: existed at least 10 years
An advertisement for municipal securities states the following: "15-year 10% tax-free bond priced to yield 12% to maturity. Call us now for more details." According to MSRB rules, this advertisement should also state that:
A portion of the yield to maturity is taxable if the bond is held to maturity, making the after-tax return between 10% and 12% According to MSRB rules, the advertisement must state that a portion of the yield to maturity for a discount bond may be subject to taxation and, therefore, does not represent a fully tax-free yield. In this question, the bond is being offered at a discount because the yield to maturity (12%) is greater than the nominal yield (coupon rate 10%). At maturity, the discount would be subject to taxation as ordinary income, causing the net yield to be between 10% and 12
Regarding communications, which of the following statements is TRUE concerning the responsibilities of a principal of a broker-dealer? A) principal must approve retail communications prior to use. B) A principal must approve all institutional communications prior to use. C) A principal must approve all correspondence prior to use. D) A principal must approve all retail communications and correspondence prior to use.
A) principal must approve retail communications prior to use.
When making a presentation on 529 plans, what information is NOT required?
The name and contact information for the municipal securities principal who will approve the customer's investment in the plan
A broker-dealer has established a page on a social media site which allows customers to post comments. The firm's responses to these comments are considered:
retail communications
Which TWO of the following choices must a principal approve prior to use? A) An advertisement concerning the appointment of new managing directors B) An advertisement promoting a new type of CMO C) An advertisement regarding covered call writing D) An email from an RR to a client concerning a security in her account
B and C
A registered representative is sending out electronic communication that has been prepared by her firm to 75 of her existing retail customers. The communication explains to the customers that their account statements are now available online. Which TWO of the following statements are TRUE? A) This is considered correspondence B) This is considered retail communication C) This activity requires principal approval prior to use D) This activity should be reviewed
B and D
In regard to recruitment advertising by member firms, which of the following statements is TRUE? A)Recruitment advertising is not permitted B) Recruitment advertising may not contain exaggerated claims about opportunities in the securities business C) Recruitment advertising is subject to FINRA filing rules D) Recruitment advertising may be published only once per month
B) Recruitment advertising may not contain exaggerated claims about opportunities in the securities business
Which of the following is NOT required to be filed with FINRA? A) A retail communication concerning direct participation programs B) A retail communication concerning collateralized mortgage obligations C) A retail communication that provides information on a broker-dealer D) A retail communication that provides information on variable insurance products
C) A retail communication that provides information on a broker-dealer
A registered representative (RR) sent promotional material to 20 prospective retail clients using a social media site. Then, 20 days later, the RR sends the same material to 30 institutional investors that are not existing clients of the broker-dealer. Under FINRA rules, the promotional material is:
Correspondence
Which of the following statements is TRUE concerning the disclosure requirements in CMO correspondence? A) A comparison between a CMO and an highly rated corporate bond is permitted B) A comparison between a CMO and a municipal bond is permitted if the client is in a high tax bracket C) A comparison between a CMO and a bank certificate of deposit is permitted if the bank is FDIC-insured D) A comparison between a CMO and a bank certificate of deposit is not permitted under any circumstances
D) A comparison between a CMO and a bank certificate of deposit is not permitted under any circumstances
All of the following may be included in investment company advertising EXCEPT: A) An application for a prospectus B) Information that is contained in the full prospectus C) A current yield quotation D) An application to invest
D) An application to invest Under SEC Rule 482, which addresses mutual fund advertising, an application to invest may not be contained within an advertisement. The investor must receive a prospectus before investing in funds.
Which of the following communications would most likely contain the legend "This material must be preceded by or accompanied by a prospectus"? A) Tombstone ad B) Omitting prospectus ad C) Generic advertising D) Supplemental sales literature
D) Supplemental sales literature
A registered representative receives text messages on a mobile device from one of her customers. Which of the follow is TRUE? A) The broker-dealer is not required to maintain any records of the messages. B) The broker-dealer is required to approve any communication with customers when the RR uses this type of device. C) The broker-dealer must purchase the mobile device that its RRs use to communicate with customers. D) The broker-dealer is required to maintain a record of all communication with customers regardless of the device used.
D) The broker-dealer is required to maintain a record of all communication with customers regardless of the device used.
Which of the following statements is TRUE concerning the use of bond volatility ratings when marketing a mutual fund? A) This practice is inherently deceptive and expressly prohibited under SEC regulations. B) These ratings must comply with the uniform standard set by Standard & Poor's and Moody's rating agencies. C) These ratings are often called risk ratings and are used for high yield funds exclusively. D) These ratings may account for NAV changes due to currency fluctuations.
D) These ratings may account for NAV changes due to currency fluctuations. Bond volatility ratings are independently produced ratings that attempt to quantify how sensitive a given bond fund's NAV is to changes in the economy such as interest rate and/or currency fluctuations. There is no standardized scale for this measurement and these ratings may never be referred to as risk ratings.
A client is reading a financial publication that contains an advertisement for a mutual fund. Under the "omitting prospectus regulations" of the Securities Act of 1933, which of the following statements is FALSE? A) This advertisement can list past performance of the mutual fund. B) This advertisement should disclose to investors that it is important to read the prospectus before investing. C) This advertisement can be accompanied by an application to receive a prospectus. D) This advertisement can be accompanied by an application to invest.
D) This advertisement can be accompanied by an application to invest. According to the SEC Rule 482, an offer to sell securities can only be made through a prospectus. An application to receive a prospectus can be placed in the advertisement but not an application to invest.
Which of the following statements is TRUE regarding the supervision of real-time communication through social networking sites? A) The site must be approved by FINRA. B) The site must be approved by the SEC. C) This communication is regulated in a manner that's similar to retail communication. D) This communication is regulated in a manner that's similar to correspondence.
D) This communication is regulated in a manner that's similar to correspondence. In other words, the communication is subject to review and supervision, but doesn't require principal approval prior to use. In addition, the communication is NOT required to be filed with FINRA.
Retail communications that pertain to mutual fund shares must be:
Filed with FINRA within 10 business days of first use
Which of the following research reports is NOT required to be approved by a principal of a broker-dealer that's distributing the report? A) Third-party research B) Independent third-party research C) Research which is prepared by the broker-dealer that makes material disclosures regarding conflicts of interest D) Research which is prepared by the broker-dealer that's underwriting an IPO and released more than 10 calendar days following the IPO
Independent third-party research
On behalf of her firm, a registered representative is holding a seminar and the audience will consist of registered representatives from other member firms. This type of communication is considered:
Institutional communication
The IPO of a new start-up company was registered on July 1, 20XX. If the co-manager of the offering wants to publish a research report on the issuing company, what's the earliest date on which it could publish the report?
July 12, 20XX Please note, when determining the earliest date that a research report may be published, the effective date is NOT counted
Promotional material made available to the public may compare collateralized mortgage obligations (CMOs) to:
No other investment product
A registered representative invites 40 clients to an investing seminar, the sales script that's used for the presentation is considered:
Retail communication
Michelle Gladstone has noticed that many of her elderly clients do not bother to read the prospectus prior to making a purchase. They consider these documents much too confusing and far too time consuming to go through. They generally rely on Michelle's advice when pondering investment selections. Michelle is uncomfortable with her clients' lack of due diligence and is attempting to come up with a better way to educate them about the risks and rewards of investing in a particular fund. Under SEC rules, Michelle may engage in which of the following activities?
She may provide her clients with a summary prospectus obtained from the fund's wholesaler.
A broker-dealer is distributing talking points to its registered representatives for them to use when discussing an investment product being sold to institutional investors. How should this document be marked?
Since this communication is not being sent to institutional investors, it should be marked "For internal use only."
When sent to a client, which of the following must be preceded or accompanied by a prospectus?
Supplemental sales literature for the bond mutual funds in the Flyer Group family of funds Supplemental sales literature may only be used in the post-effective period and must be preceded or accompanied by a prospectus. These requirements do not apply to generic advertising, tombstone ads, or omitting prospectus ads. The latter two types of ads are often published in newspapers.
(T/F) institutional communications and correspondence are subject to review and supervision by a principal, but not pre-approval.
T
The ABC growth fund has been in existence for 6 years. An advertisement that refers to its ranking based on total return must refer to the total return for:
The one and five year periods by the same ranking entity
Which of the following actions is a firm permitted to perform when it publishes a research report?
Verify factual information with the subject company.
Define SEC rule 482
addresses mutual fund advertising, an application to invest may not be contained within an advertisement. The investor must receive a prospectus before investing in funds.
A retail communication concerning _______________________________________, _______________________________________, and ______________________________________ are all required to be filed with FINRA
direct participation programs (DPPs), collateralized mortgage obligations (CMOs), and investment companies
A Web site is being designed for a registered representative of a member firm. Which TWO of the following statements are TRUE regarding the design of this Web site? i. The FINRA logo must be displayed ii. The registered representative's firm name must be displayed iii. A reference to FINRA membership is permitted iv. Links to other Web sites are not permitted
ii. and iii.
A registered representative works for a brokerage firm that is a dealer for a mutual fund complex. The RR has prepared a script and a slide presentation for a seminar on the funds in the complex and also intends to hand out prospectuses for the funds and a brochure that was created by her firm. In this situation, all of the following should be filed with FINRA, EXCEPT:
prospectus
A registered representative (RR) sent promotional material to 20 prospective retail clients using a social media site. Then, 20 days later, the RR sends the same material to 30 additional retail investors who are existing clients of the broker-dealer. Under FINRA rules, the promotional material is:
retail communication
A script, slide presentation, and brochure are all defined as _______________________ and are required to be filed with FINRA or another SRO within ____ business days of first use
retail communication; 10
