Regulations: Other Federal and State Regulations

A customer has opened the following accounts: Individual cash account Individual margin account Joint cash account with husband Custodian Account for minor child This is treated as how many "covered accounts" in an SIPC liquidation?

3 Securities Investor Protection Corporation coverage is applied "per customer name." If a customer has both an individual cash and margin account, they are treated as one account. The joint account with someone else is treated as a separate account. Finally, the custodian account for a minor child is treated as a separate account.

A customer has an account with a brokerage firm that is in receivership. The account holds $220,000 of securities and has a $90,000 debit. Which statement is TRUE regarding SIPC coverage? A. The customer must deposit $90,000 to receive the $220,000 of securities B. The account is covered for $100,000 C. The account is covered for $130,000 D. The account is covered for $220,000

C. The account is covered for $130,000 SIPC covers the equity in a customer's account, with coverage not to exceed $500,000 equity per account in securities. However, cash coverage is limited to $250,000. This account has $220,000 of securities and a $90,000 debit, so the equity is $130,000. The customer will receive $130,000 worth of securities in the liquidation.

All of the following must be registered under state blue sky laws EXCEPT: A. Sales Representatives B. Broker-Dealers C. U.S. Government Issues D. Real Estate Investment Trust Issues

C. U.S. Government Issues Issues that are exempt from registration under Federal laws are also exempt under state laws, so U.S. Governments do not have to be registered with the state. However, sales representatives, broker-dealers, and non-exempt issues (such as REITs) must be registered.

The date that SIPC uses to value securities for purposes of insurance coverage limits is the date that the: A. securities were purchased by the customer B. securities were sold by the customer C. petition was made in court for a trustee appointment D. certificates are retrieved from Depository Trust

C. petition was made in court for a trustee appointment The "valuation date" for coverage purposes in an SIPC liquidation is the date that SIPC files in court to be the trustee in the bankruptcy of the failed broker-dealer.

The legislation that requires a broker-dealer's research analysts to be completely separated from that firm's investment banking department the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Trust Indenture Act of 1939 D. Sarbanes-Oxley Act of 2002

D. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 requires that research analysts at broker-dealers be completely separated from investment banking, so that the analysts are not "encouraged" or "intimidated" by the firm's investment bankers to write favorable reports to get future investment banking business.

John Jones has an individual cash account; a joint margin account with his wife; a custodian account for his minor daughter; and a custodian account for his minor son; all at the same brokerage firm. If the firm should fail, Securities Investor Protection Corporation will cover: A. all of the accounts as a single account B. the individual and joint accounts as one account; and the custodian accounts as one account C. the individual and joint accounts as one accounts; and each custodian account separately D. each account separately

D. each account separately Securities Investor Protection Corporation coverage is applied "per customer name." If a customer has an individual cash account, that is one name; the joint margin account is a second name; the custodian account for the daughter is the third name; and the custodian account for the son is the fourth name.

A primary offering of $200,000,000 of ACME Corporation 10% debentures with a 20 year maturity would be regulated under the: I Securities Act of 1933 II Securities Exchange Act of 1934 III Trust Indenture Act of 1939 IV Investment Company Act of 1940

I and III New corporate bond issues are non-exempt securities under the Securities Act of 1933 and thus must be registered and sold under a prospectus. In addition, corporate bond offerings in excess of $50,000,000 fall under the Trust Indenture Act of 1939, requiring that the bonds be sold under a Trust Indenture. The Securities Exchange Act of 1934 regulates the trading markets (secondary market) - not the primary market. Investment companies fall under the Investment Company Act of 1940; regular corporate securities are not subject to this Act.

There are 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list. These are the:

1. Established Business Relationship ("EBR") Exception 2. Prior Express Written Consent Exception 3. Personal Relationship With The Associated Person Exception

The Federal Telephone Consumer Protection Act of 1991 requires the following procedures for making unsolicited "commercial" phone calls:

1. Unsolicited calls cannot be made before 8:00 AM nor after 9:00 PM, in the time zone of the recipient. 2. The caller must identify him or herself by: * Name * Firm * Address or telephone number from which the caller is dialing 3. If the person called states that he or she does not wish to receive calls, the person must be placed on a "Do Not Call" list. Violations of the Act can be enforced by each State Attorney General and by the FTC (Federal Trade Commission).

The Trust Indenture Act of 1939 Definition

A federal law passed in 1939 that prohibits bond issues valued over $5 million from being offered for sale without a formal written agreement (an indenture), signed by both the bond issuer and the bondholder, that fully discloses the particulars of the bond issue. The act also requires that a trustee be appointed for all bond issues, so that the rights of bondholders are not compromised.

A lawyer is a partner at a major investment advisory firm and is paid a fee by a customer for investment advice. Which statement is TRUE? A. The lawyer must be registered with the Securities and Exchange Commission (SEC) as an investment adviser B. The lawyer must be registered with FINRA as a representative C. The lawyer must be registered with both the SEC as an investment adviser and with FINRA as a representative D. The lawyer is not required to be registered with the SEC as an investment adviser nor with FINRA as a representative

A. The lawyer must be registered with the Securities and Exchange Commission (SEC) as an investment adviser Anyone who renders investment advice in the normal course of business for a fee is considered to be an investment adviser. Thus, a lawyer that is a partner in a major advisory firm who renders advice for a fee is defined as an adviser that must register. Also, note that the lawyer/adviser will only be required to register with the SEC as a federal covered adviser if the adviser has $100 million or more of assets under management. If it does not meet the threshold, then it must register in the State and not with the SEC.

In a Securities Investor Protection Corporation (SIPC) liquidation, which statement regarding SIPC coverage limits is correct? A. SIPC covers each customer account for $250,000 in securities plus $250,000 in cash B. SIPC covers each customer account for $500,000 total inclusive of $250,000 in cash C. SIPC covers each customer account for $500,000 in securities plus $250,000 in cash D. SIPC covers each customer account for $750,000 in combined cash and securities

B. SIPC covers each customer account for $500,000 total inclusive of $250,000 in cash

A customer has an account with a brokerage firm that is in receivership. The account holds $350,000 of securities and has a $150,000 debit. Which statement is TRUE regarding SIPC coverage? A. The customer must deposit $150,000 to receive the $350,000 of securities B. The account is covered for $200,000 C. The account is covered for $350,000 D. The account is covered for $500,000

B. The account is covered for $200,000 SIPC covers the equity in a customer's account, with coverage not to exceed $500,000 equity per account in securities. However, cash coverage is limited to $250,000. This account has $350,000 of securities and a $150,000 debit, so the equity is $200,000. The customer will receive $200,000 worth of securities in the liquidation.

In an SIPC liquidation, the trustee has distributed all securities registered in customer name. After this distribution, a customer has a claim for $590,000 in securities and another $260,000 of cash (free credit balance). Which statement regarding SIPC coverage limits is TRUE? A. The customer is covered for the total amount of $850,000 B. The customer is covered for $500,000 total, and becomes a general creditor for $350,000 C. The customer is only covered for $500,000 of the securities; cash is not covered D. The customer is only covered for $250,000 of the cash; securities are not covered

B. The customer is covered for $500,000 total, and becomes a general creditor for $350,000 SIPC coverage is limited to $500,000 total, inclusive of maximum cash coverage of $250.000. Customer has: $590,000 in securities + $260,000 cash= $850,000 total claim Cash is covered to a max of $250,000, so $10,000 of the claim for cash is uncovered (client had $260,000 cash) Total covered max is $500,000, so after the $250,00 of the customer's cash is covered, only $250,000 of the $590,000 securities can be covered. $340,000 of the securities claim is uncovered. The customer becomes a general creditor for the uncovered claim amount of $10,000 + $340,000 = $350,000.

A registered representative who has passed the Series 63 examination wishes to sell managed accounts to customers in differing states. Which statement is TRUE? A. The registered representative needs no further licenses to sell managed accounts B. The registered representative must pass either the Series 65 or Series 66 examination to sell managed accounts C. The registered representative must post a surety bond prior to selling managed accounts D. The registered representative is prohibited from selling managed accounts

B. The registered representative must pass either the Series 65 or Series 66 examination to sell managed accounts

The maximum coverage provided by Securities Investor Protection Corporation for securities held in a customer's account is: A. $250,000 B. $400,000 C. $500,000 D. $600,000

C. $500,000 Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit.

A trust indenture is required for a(n): A. Treasury bond B. Agency bond C. Corporate debenture D. General Obligation bond

C. Corporate debenture

Which statement is TRUE about Securities Investor Protection Corporation (SIPC)? A. SIPC protects broker-dealers from falling below minimum net capital requirements B. SIPC protects cash held in bank accounts from the failure of the deposit taking institution C. SIPC protects cash and securities held in brokerage accounts from the failure of the broker-dealer D. SIPC hedges customer accounts at brokerage firms against a loss due to falling market values

C. SIPC protects cash and securities held in brokerage accounts from the failure of the broker-dealer SIPC insures customer accounts holding cash and/or securities against loss if a broker-dealer fails. FDIC insures customer accounts at banks against bank failure.

The legislation that requires the CEO (Chief Executive Officer) of a publicly traded company to make an annual certification of the information presented in the company's financial statements is the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Trust Indenture Act of 1939 D. Sarbanes-Oxley Act of 2002

D. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002, in an attempt to prevent fraudulent actions by corporate officers, requires both the CEO and CFO of publicly traded companies to make an annual certification as to the appropriateness of the financial statements and disclosures made in that issuer's 10K and 10Q reports.

State registration (Blue Sky) requirements apply to which of the following securities? I ABC Corporation common stock II ABC Corporation warrants III U.S. Government bonds IV General Obligation bonds

I and II Generally speaking, if a security is exempt from Federal law, it will be exempt under Blue Sky laws (though there are some exceptions). Government and municipal issues are exempt under both Federal and State law; corporate issues are non-exempt.

A customer wishes to place a buy order for a security that has not been registered in the state. The security may be purchased if the security: I is exempt from state registration II falls under a "Blue Chip" exemption by being listed on a recognized national stock exchange III is traded by at least 2 market makers IV has been trading in the market for at least 1 year

I and II Generally, securities that are exempt from Federal registration are also exempt from state registration. For example, government and municipal securities do not have to be registered in each state. States also allow for "Blue Chip" exemptions for non-exempt securities. Under this exemption, stocks listed on national stock exchanges are exempt from state registration. There is no exemption offered from state registration for securities trading for at least 1 year or securities traded by at least 2 market makers.

A Series 7 licensed individual wishes to sell "wrap" accounts. Which statements are TRUE? I This individual must be State-registered II This individual must be Federal-registered III This individual must pass either the Series 65 exam or the Series 66 exam IV This individual is not required to take any additional licensing exams

I and III A "wrap" account is not defined as a brokerage product. Any flat annual fee account is defined as an "advisory product" and the firm must be a registered investment adviser to sell them. The representative that sells them, in addition to being registered as an agent of the broker-dealer, must also register as an agent of the investment adviser firm. There is no Federal registration of investment adviser representatives. Only the investment adviser firm may be required to register with the SEC (and only if its assets under management exceed $100 million). Any investment adviser representative is State-registered and must pass either the Series 65 or Series 66 exam.

A client of a sales representative who is based in New York moves to the State of Florida. The sales representative and his broker-dealer are registered in the State of New York, but not in the State of Florida. To solicit the customer's business in the State of Florida, the: I sales representative must be registered in Florida II sales representative does not have to be registered in Florida, since he is registered in New York and this is an existing customer III broker-dealer that employs the sales representative must be registered in Florida IV broker-dealer that employs the sales representative does not have to be registered in Florida, since it is registered in New York and this is an existing customer

I and III In order for the registered representative to solicit orders in the State of Florida, both the registered representative and his firm must be registered in the State of Florida under Uniform State Law. It makes no difference that this was an existing customer of the broker-dealer that had moved to the State of Florida

Which statements are TRUE about banks that have customer accounts holding both exempt and non-exempt securities? I The bank must be registered as a broker-dealer under the Securities Exchange Act of 1934 II The bank does not need to be registered as a broker-dealer under the Securities Exchange Act of 1934 III The bank must be member of the Securities Investor Protection Corporation IV The bank does not need to be a member of the Securities Investor Protection Corporation

I and III Insurance coverage for customer accounts at any broker-dealer that must be registered under the Securities Exchange Act of 1934 is provided by SIPC - Securities Investor Protection Corporation. The broker-dealers that must be registered are those that handle non-exempt securities. Thus, if a bank has customer accounts that hold both exempt and non-exempt securities, it would be obligated to register as a broker-dealer under the Securities Exchange Act of 1934; and would be obligated to join SIPC as well.

The Federal Telephone Consumer Protection Act of 1991 prohibits unsolicited calls from being made: I before 8:00 AM in the time zone of the recipient II after 8:00 AM in the time zone of the recipient III before 9:00 PM in the time zone of the recipient IV after 9:00 PM in the time zone of the recipient

I and IV

Which of the following statements are TRUE regarding the Federal Telephone Consumer Protection Act of 1991? I The Act applies to for-profit organizations II The Act does not apply to for-profit organizations III The Act applies to not-for-profit organizations IV The Act does not apply to not-for-profit organizations

I and IV The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited "commercial" phone calls. Charitable (not-for-profit) institutions are exempt from the Act's provisions.

Which statements are TRUE about trustees performing their duties under the Trust Indenture Act of 1939? I The trustee is appointed by the issuer II The trustee is elected by the bondholders III The trustee protects the interests of the issuer IV The trustee protects the interests of the bondholders

I and IV trustees are appointed by the issuer (who pays the trustee); however, the trustee is appointed to protect the interests of the bondholders

Which information, at a minimum, must be disclosed when making unsolicited phone calls to potential customers? I Caller's name II Firm's name III Address or phone number from which the caller is dialing

I, II, III

Which of the following communications fall under the Federal Telephone Consumer Protection Act of 1991? I Telephonic via live human voice II Telephonic via pre-recorded message III Facsimile transmission IV Courier delivery

I, II, III The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited offers made through the phone - whether these are made by personal contact, pre-recorded messages, facsimile or electronic mail. It does not apply to offers made through the U.S. mail or by delivery services.

Which of the following persons MUST be registered under State "Blue Sky" Laws? I Brokers soliciting customers in that State II Dealers soliciting customers in that State III Salespersons soliciting customers in the State IV Investment advisers soliciting customers in that State

I, II, III and IV Under the Blue Sky laws of each state, any broker, dealer, or agent (registered representative) that solicits in that State must be registered.

Which of the following statements about the Securities Investor Protection Corporation (SIPC) are TRUE? I SIPC is a non-profit government sponsored corporation II Every broker-dealer registered under the Securities Exchange Act of 1934 must be a member of SIPC III SIPC is an insurance fund protecting against broker-dealer insolvency IV SIPC is funded through annual assessments paid by broker-dealer members

I, II, III, IV Securities Investor Protection Corporation is a non-profit membership corporation, composed of all broker-dealers registered under the Securities Exchange Act of 1934. SIPC is government sponsored, but is not an agency of the U.S. Government. SIPC is funded by annual assessments paid in by its broker-dealer members. SIPC insures customer accounts at broker-dealers for up to $500,000, inclusive of maximum cash coverage of $250,000.

Which TWO of the following are correct statements regarding telephone solicitations? I Calls are only permitted between 8:00 AM and 10:00 PM in the time zone of the recipient II The firm must maintain written procedures regarding telephone solicitations III The firm must maintain a "Do Not Call" list IV The representative must maintain a "Do Not Call" list

II and III

A customer who lives in New York has an account with a broker-dealer and sales representative that are both registered in State of New York. The customer moves to the State of Georgia, a state where the broker-dealer and sales representative are not registered. Which statements are TRUE? I Solicitations may be directed to this customer II Solicitations cannot be directed to this customer III Unsolicited orders can be accepted from this customer IV Unsolicited orders cannot be accepted from this customer

II and IV Because the broker-dealer and sales representative are not registered in the State of Georgia, they cannot solicit the purchase of securities in the State of Georgia (to do so requires registration in the state). Under State law, there is an "unsolicited transaction exemption" that gives an exemption from State registration to any security involved in an unsolicited transaction. However, it does NOT give an exemption from registration to the agent involved in the transaction! In order for the agent to deal with a customer in Georgia (either solicited or unsolicited), the agent and broker-dealer must be registered in Georgia as well!

Which statements are TRUE about SIPC coverage for customer accounts at banks that solely handle exempt securities? I The bank must be registered as a broker-dealer under the Securities Exchange Act of 1934 II The bank does not need to be registered as a broker-dealer under the Securities Exchange Act of 1934 III The bank must be a member of the Securities Investor Protection Corporation IV The bank does not need to be a member of the Securities Investor Protection Corporation

II and IV Dealers who solely handle exempt securities are not required to be SIPC members. Therefore, customer accounts at firms that deal solely in U.S. Government securities or municipal securities, are not covered by SIPC.

A registered representative has mailed promotional material and response cards to potential clients in near-by affluent neighborhoods. The registered representative receives a returned signed response card from one of the prospects, and when calling the phone number provided, finds that it is on the National Do-Not-Call List. Which statement is TRUE? A. This prospect cannot be called by the registered representative B. This prospect can be called by the registered representative C. This prospect can only be called by the registered representative between the hours of 8:00 AM and 9:00 PM D. This prospect can only be called by the registered representative with written approval of the #24 General Principal

B. This prospect can be called by the registered representative

For any claims that a customer may have against a failed broker-dealer that are in excess of Securities Investor Protection Corporation coverage limits, the customer: A. can deduct the loss from that year's taxes B. becomes an unsecured general creditor with last claim in the liquidation C. becomes a super-secured creditor with first claim in the liquidation D. has no claim against the failed broker-dealer

B. becomes an unsecured general creditor with last claim in the liquidation Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit. For any uncovered claim amounts above these limits, the customer becomes a general creditor of the failed broker-dealer.

The Trust Indenture Act of 1939 protects: A. municipal bondholders from being taken advantage of by the issuing municipality B. corporate bondholders from being taken advantage of by the issuing corporation C. government bondholders from being taken advantage of by the issuing governmental unit D. all bondholders from being taken advantage of by the issuing entity

B. corporate bondholders from being taken advantage of by the issuing corporation

Which of the following actions taken by a fiduciary would NOT be consistent with the obligations imposed under the "Prudent Man Rule"? A. Diversifying a fixed income portfolio with securities of varying maturities B. Selecting AA rated corporate convertible bond investments to meet an investment objective of both income and capital gains C. Investing in small capitalization unlisted new issue investments for long term growth D. Writing covered calls against securities positions held in the account to increase income

C. Investing in small capitalization unlisted new issue investments for long term growth The "prudent man rule" is part of Uniform State Law, and it requires fiduciaries to make investments for accounts under their control as would a "prudent man." This makes sense, since fiduciaries are investing for the benefit of others, and the investments are supposed to provide a long term future benefit to these persons. Investing in unproven, speculative new issues would not be consistent with the "prudent man rule." Diversifying a portfolio, investing in AA rated convertible bonds to meet an objective of both income and growth, and writing covered calls against stock positions are all proven, prudent investment strategies.