progress exam 03B

According to Regulation S-P, when is a broker-dealer required to provide disclosures regarding their policies for protecting customer information? a. At the time an account is opened and annually thereafter b. At the time an account is opened c. Each time the customer is sent an account statement d. At the time an account is opened and quarterly thereafter

a. At the time an account is opened and annually thereafter Regulation S-P requires broker-dealers to provide customers with a privacy notice at the time their accounts are opened and annually thereafter.

Which of the following choices is an exempt security? a. Commercial paper with a maturity of 30 days b. A closed-end investment company c. Corporate debt with a maturity of 30 years d. Preferred stock

a. Commercial paper with a maturity of 30 days Certain securities are exempt from the registration and prospectus requirements of the Securities Act of 1933 because of who the issuer is. Among the exempted securities are: - U.S. government and U.S. government agency securities - Municipal securities - Securities issued by nonprofit organizations - Short-term corporate debt instruments (such as commercial paper) that have a maturity not exceeding 270 days - Securities issued by domestic banks and trust companies (but not bank holding companies) - Securities issued by small business investment companies (exempted by federal legislation regarding small businesses) Since the commercial paper only has a maturity of 30 days, it is an exempt security.

The most detailed financial information regarding a municipal securities issuer is found in the: a. Official statement b. Prospectus c. Notice of sale d. Registration statement

a. Official statement Municipal securities are exempt from the registration provisions of the SEC. Therefore, a registration statement and prospectus are not required. Municipal issuers voluntarily provide the same financial information that would be found in a prospectus. This detailed financial information is found in the official statement. The notice of sale contains information pertaining to a competitive offering of bonds such as the time, place, date of sale, and type of offering.

A corporation intends to raise additional funds from its existing shareholders to avoid diluting their interest in the company. The corporation will be engaging in a: a. Rights offering b. Secondary distribution c. Primary offering d. Private placement

a. Rights offering The corporation will be engaging in a rights offering. Through the offering, the corporation will issue rights to all of its existing common stockholders, which allows them to purchase a pro rata portion of the new stock. By purchasing the new shares, the stockholders will be able to maintain the same level of equity ownership in the company. The subscription price of a right is set at a discount from the current market price of the stock. If the offering is successful, the issuer is able to complete the offering without using an underwriter (it is therefore less costly).

For T-bonds, regular way settlement is on: a. The next business day after the trade date. b. The same day as the trade date. c. The second business day after the trade date (skip a day). d. The fourth business day after the trade date.

a. The next business day after the trade date. Treasuries, including T-bonds, settle one business day after the trade date (i.e., T+1). Corporate and municipal securities settle two business days after the trade date (i.e., T+2). Under Regulation T, the payment date (the date on which retail investors must pay for their trades) is two business days after regular way settlement (i.e., S+2 or T+4). Treasuries are exempt from Regulation T, which means that customers must pay for their Treasury trades on the settlement date (i.e., T+1).

Which of the following choices best describes a wrap account? a. A personal, joint, and IRA account with one account number b. A managed account in which advisory and transaction charges are included in one comprehensive fee c. A consolidated account in which the investor can buy or sell options, equities, or bonds d. An investment club account with no more than 99 investors

b. A managed account in which advisory and transaction charges are included in one comprehensive fee The term wrap account refers to the fee arrangement where one fee, usually ranging from one to three percent annually, is charged by a broker-dealer. The fee is used to cover administrative, portfolio management, and transaction costs. A wrap account is usually managed by an investment adviser.

A registered representative is permitted to contact a person whose name is on the national Do Not Call List: a. Under no circumstances b. If the person has provided prior written consent to be contacted c. If the person has a brokerage account with another broker-dealer d. If the person is an accredited investor

b. If the person has provided prior written consent to be contacted A person may register her number on the Federal Trade Commission (FTC) National Do Not Call Registry and have it remain on the list indefinitely. Broker-dealers are required to download the names on this list in order to prevent RRs from cold calling any of these persons. The following three exceptions exist which permit RRs to contact any person whose name is on this list. 1. The firm has obtained the person's expressed prior written consent as evidenced by a signed written agreement. The agreement must state that the person agrees to be contacted and the telephone number to which calls may be made. 2. There is an established business relationship between the RR and the person. 3. There is a personal relationship between the RR and the person.

How long is a broker-dealer required to keep a customer on its "Do-Not-Call" list? a. Three years b. Indefinitely c. Five years d. Six years

b. Indefinitely If a customer requests that her name be placed on the firm's "Do-Not-Call" list, it must be completed within 30 days and must remain there indefinitely.

A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is: a. 18.25 b. 18.38 c. 18.50 d. 18.63

c. 18.50 After the order was activated by the round-lot sale of 18.25 (which is at or lower than 18.50), the order became a limit order to sell 100 shares at 18.50 or better. 18.50 is the first price that meets this requirement and is the execution price.

Nonpublic, personal information regarding a client may be given to a nonaffiliated third party: a. At any time b. After providing the client with a privacy notice c. After providing the client with a privacy notice and the client does not opt out of disclosing the information d. After a principal approves of its disclosure

c. After providing the client with a privacy notice and the client does not opt out of disclosing the information Firms must provide every customer with a privacy notice when the relationship is first established and annually thereafter. Nonpublic, personal information may only be used if the client does not opt out of disclosing it.

What is the term that's used to refer to the state registration of securities? a. Codification b. Securitization c. Blue-skying d. Green-lighting

c. Blue-skying Blue-skying is a term that refers to the state registration of securities. Blue Sky Laws (state securities laws) are established under the Uniform Securities Act, which is a model law that's used by many states to help create their specific laws.

Immediately prior to the effective date of an underwriting, an adverse event occurs that causes a sharp decline in the price of the stock. Which of the following clauses permits the underwriter to withdraw without a penalty? a. All-or-none b. Best-efforts c. Market-out d. Penalty bid

c. Market-out A market-out clause in an underwriting agreement allows the underwriter to withdraw from the issue if certain events occur that make the sale of the issue difficult or impossible.

A customer wishes to open an account with a brokerage firm to trade options. The customer provides all the necessary new account information required but refuses to provide financial information. The brokerage firm: a. May not open the account under any circumstances b. Must record the customer's refusal on its records and may open the account with the approval of the Options Clearing Corporation only c. Must record the customer's refusal on its records and use whatever information it can obtain on its own in determining whether it should accept the account for options trading d. May open the account without restrictions but requires the customer to sign a waiver

c. Must record the customer's refusal on its records and use whatever information it can obtain on its own in determining whether it should accept the account for options trading According to the rules of the options exchanges, the brokerage firm must record the customer's refusal on its records, and must use whatever information it can obtain on its own in determining whether it should accept the account for options trading.

Which of the following statements regarding telephone solicitations is TRUE? a. RRs may not make telephone solicitations between 9 a.m. and 8 p.m. local time b. If an RR calls a potential client and the prospect asks to be placed on the do-not-call list, their number must remain on the list for two years c. Time-of-day restrictions on telephone calls by RRs do not apply to calls to an existing customer for the purposes of servicing the account d. Each RR must set up and maintain a separate do-not-call list

c. Time-of-day restrictions on telephone calls by RRs do not apply to calls to an existing customer for the purposes of servicing the account According to industry rules regarding telephone solicitations, prospective customers can be contacted between 8:00 a.m. and 9:00 p.m. local time of the party called. This restriction does not apply to existing customers. In addition, persons must remain on the do-not-call list indefinitely and each RR does not maintain his own list.

An individual wishes to sell stock according to Rule 144 requirements. There are 3,500,000 shares outstanding. The individual decides to sell on January 30. The trading volume for the stock is as follows. Week ending January 120,000 shares Week ending January 848,000 shares Week ending January 1530,000 shares Week ending January 2236,000 shares Week ending January 2940,000 shares How many shares may be sold? a. 33,500 b. 34,800 c. 35,000 d. 38,500

d. 38,500 The individual may sell the greater of 1% of the outstanding shares or the average weekly trading volume for the preceding four weeks. The average is 38,500 [(40,000 + 36,000 + 30,000 + 48,000) divided by 4]. This is greater than 1% of the outstanding shares (1% of 3,500,000 equals 35,000).

Which of the following statements about orders is TRUE? a. A market order to buy is executed at a specified price or lower. b. A limit order to buy can only be executed at a specified price or higher. c. A limit order to sell is executed immediately at the best available price. d. A limit order to buy can only be executed at a specified price or lower.

d. A limit order to buy can only be executed at a specified price or lower. A limit order to buy can only be executed at a specified price or lower, while a limit order to sell can only be executed at a specified price or higher. Conversely, market orders are executed immediately at the best available price at the time they are entered (market orders don't specify a price).

If a client wants to buy 100 shares of stock immediately at the best available price, he should place: a. A buy limit b. A buy stop c. A buy stop-limit d. A market order to buy

d. A market order to buy Market orders are executed immediately at the best available price at the time they are entered. A limit order to buy will only be executed at a specified price or lower, while a limit order to sell will only be executed at a specified price or higher.

Two sisters want to open a joint account which allows the surviving sister to receive the entire account in the event of one sister's death. Which type of account should be suggested? a. Trust account b. Joint tenants in common c. Transfer on death d. Joint tenants with right of survivorship

d. Joint tenants with right of survivorship If a joint tenants with right of survivorship account is used, all of the assets pass to the surviving owner (sister) upon the death of the other owner. In a joint account that is established as tenants in common, each owner has a percentage of ownership and, at the time of death, the decedent's interest passes to her estate. Transfer on death (TOD) is not a designation for a joint account; instead, it is the instruction to transfer ownership of an individual account to a designated beneficiary upon the death of the account holder. Although a TOD designation avoids probate, estate taxes may still be levied against the decedent's estate.

On Wednesday, March 11, a customer purchases 1,000 shares of an OTC equity security in a cash account through an online brokerage firm. The transaction will settle: a. By the close of business on March 11 b. Immediately c. On March 12 d. On March 13

d. On March 13 For corporate securities, regular way settlement is two business days following the trade date. In this question, the settlement occurs on Friday, March 13. The key to this question is understanding that any corporate transactions which are being executed in either cash or margin accounts will settle on a regular way basis (T + 2). However, if a question references a cash trade, a cash transaction, or a trade settling for cash, it has special treatment and will settle on the same day as the trade.

A customer sells short 100 shares of XYZ at 34. The customer wishes to protect herself against a loss. Which of the following orders will prevent a loss on the short position? a. Enter a buy stop order at 34 b. Purchase an XYZ 30 call at 5 c. Enter a buy limit order at 32 d. The customer will be exposed to the possibility of loss no matter which of these additional positions or orders is used

d. The customer will be exposed to the possibility of loss no matter which of these additional positions or orders is used None of the choices listed will guarantee that there will be no loss on the position. A buy stop becomes a market order once triggered and does not guarantee a specific price. A buy limit does not guarantee execution. The purchase of the call would not totally prevent a loss since it would reduce the investor's sale proceeds to $29, and the strike price of the call only guarantees a purchase price of $30 (resulting in a one-point loss if exercised).