Regulations Practice (finals)
A prospective options customer must receive which of the following at, or before, the time that sales literature that includes recommendations is sent to the client? I Options Disclosure Document II Options Agreement III Broker-dealer financial statement A. I only B. II only C. I and II D. I, II, III
The best answer is A. A customer who receives any options communication that makes a recommendation; shows past performance; or includes a performance projection; must get the latest Options Disclosure Document (ODD) at or prior to the receipt of the material. There is no requirement to give the customer a new account form or a broker-dealer financial statement.
A Series 11 assistant representative license permits an individual to: I accept unsolicited customer orders II solicit customer orders III make recommendations to customers IV approve new accounts A. I only B. I and II only C. II and IV only D. I, II, III, and IV
The best answer is A. An Assistant Representative - Order Processor is an individual that has a Series 11 license. This person can only accept unsolicited customer orders. He or she cannot solicit customers. This person can take new account information (e.g., customer name, address, social security number, etc.) but cannot perform a suitability determination or sign the new account form. This person can be paid a salary, but cannot be paid commissions. Account approval is performed by the principal.
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 A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
The best answer is A. 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. The logic for this exemption is that the issuer must meet stringent exchange listing and reporting requirements, as well as Federal registration requirements. Therefore, separate state registration is overkill. 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 customer brings $50,000 of cash to the brokerage firm office and gives it to the registered representative to pay for a securities purchase. The registered representative should: A. reject the cash payment, since cash payments over $10,000 cannot be accepted B. accompany the customer to the cashier, so that the customer can be given a receipt for the payment C. accept the payment on the firm's behalf D. deposit the cash to his personal account and issue a check in the same amount to the firm for crediting to the customer's account
The best answer is B. Cash can only be accepted from a customer if it is to be deposited to the customer's account. A registered representative cannot personally accept cash from a customer.
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
The best answer is B. Managed or wrap accounts are defined as "investment advisers" in most states. As such, the firm selling managed accounts must register as an investment adviser; and the individuals selling managed accounts for these firms must register as "investment adviser representatives" and pass either the Series 65 or Series 66 examination.
ABC corporation has 100,000,000 shares outstanding. An officer of ABC wishes to sell ABC stock on November 15th under Rule 144. The prior weeks' trading volumes are: Week Ending Volume Nov. 12th Nov. 5th Oct. 30th Oct. 23rd Oct. 16th 1,000,000 shares 875,000 shares 700,000 shares 850,000 shares 950,000 shares If the Form 144 is filed on November 15th, the maximum sale is: A. 10,000,000 shares B. 1,000,000 shares C. 856,250 shares D. 843,750 shares
The best answer is B. Rule 144 limits public sales of restricted shares to the greater of 1% of the outstanding shares; or the weekly average of the prior 4 weeks' trading volume. 1% of outstanding shares = 1% of 100,000,000 = 1,000,000 shares or: 1,000,000 + 875,000 + 700,000 + 850,000 = 3,425,000 / 4 weeks = 856,250 shares The greater amount, 1,000,000 shares, can be sold during the next 90 days.
Which of the following statements are TRUE about listed securities? I Under Regulation T, all listed securities are marginable II Listed securities are subject to Regulation SHO III Listed securities trade in the Second Market IV Listed companies must be registered with, and report their results to, the SEC A. I and II only B. II and III only C. I, II, IV D. I, II, III, IV
The best answer is C. Listed securities (those listed on an exchange) are marginable under Regulation T. Under the Exchange Act of 1934, Regulation SHO requires that before any equity security (either listed or unlisted) can be sold short, the member firm must affirmatively determine that the security can be borrowed and delivered on settlement. This is called the "locate" requirement. Listed securities trade in the first (exchanges), third (OTC trading of exchange listed securities) and fourth (direct trades between institutions via ECNs) markets. The second market is trading of unlisted securities over-the-counter. These are OTCBB and Pink Sheet issues. Listed companies must register with, and report their results to, the SEC.
Which of the following is defined as options "advertising"? A. Options disclosure document B. Standard option worksheet C. Options website D. Letters of an "individual" nature sent to customers
The best answer is C. Options advertising is defined as any sales material that reaches a public audience through a mass medium, including: websites, newspapers, periodicals, magazines, radio, television, telephone recordings, motion pictures, billboards, signs, or through sales communications to the public. A letter sent to a customer is defined as correspondence; an options worksheet is defined as sales literature. The Options Disclosure Document (ODD) is the required offering information that must be given to customers when they open an options account; and that must accompany or precede any options communication that makes a recommendation; that shows past performance; or that makes a projection.
Under Regulation M, which statements are TRUE? I Syndicate members that are not market makers are restricted from buying Tier 1 securities for the 5 business day window of time prior to the effective date II Syndicate members that are not market makers are permitted to buy Tier 1 securities anytime prior to the effective date III Syndicate members that are not market makers are restricted from buying Tier 3 securities for the 5 business day window of time prior to the effective date IV Syndicate members that are not market makers are permitted to buy Tier 3 securities anytime prior to the effective date A. I and III B. I and IV C. II and III D. II and IV
The best answer is C. Rule 101 of Regulation M covers syndicate members who are not market makers in that stock that are in an underwriting group for an "add on" stock offering. The intent is to make sure that they do not try and manipulate the price of the security upwards prior to the effective date, so that a higher POP could be set. They are subject to a restricted period for secondary offerings, of either 1 business day or 5 business days prior to the effective date, where they are prohibited from purchasing, making a bid for, or inducing the purchase of, the underwritten security. If the security is very actively traded, there is no restricted period. Note that they can accept unsolicited orders to buy the security. The rule states that: Tier 1 Issue - if the security is actively traded (average daily trading volume of $1,000,000 or more and public float of at least $150,000,000), there are no restrictions placed on market makers trading the issue prior to the distribution. The idea here is that this issue is too big for the price to be manipulated. This is called a "Tier 1" issue. Tier 2 Issue - if the security has an average daily trading volume of $100,000 and a public float of at least $25,000,000 the restricted period is the business day prior to the effective date. This is called a "Tier 2" issue. Tier 3 Issue - any other security not meeting these minimums is a "Tier 3" issue and is subject to a restricted period of 5 business days prior to the effective date.
Which of the following requires filing with the SEC? I Purchase of a 5% position in one company's stock II An officer selling 1% of that company's stock III Broker-Dealer Net Capital computation IV Corporate proxy materials A. I only B. II only C. I, II, IV D. I, II, III, IV
The best answer is D. All of the items listed are filed with the SEC. Anyone who accumulates a 5% position in one company must make a 13D filing with the SEC; officers must report their sales of that company's stock under the insider rules by filing a Form 4 within 2 business days of the trade; broker/dealers must report their Net Capital to the SEC; corporate proxy materials must be filed with the SEC 10 business days before use.
