Regulations SIE

Which of the following protects investors in the event of the insolvency of a broker-dealer? A Securities Investor Protection Act of 1970 B Investment Advisers Act of 1940 C Investment Company Act of 1940 D Federal Deposit Insurance Corporation

A Securities Investor Protection Act of 1970 Plain and simple, SIPC protects investors' assets from insolvency related to the bankruptcy of or financial troubles of member firms.

All of the following are considered to be "insiders" EXCEPT: A an investor holding 11% of ABC preferred stock B the in-house counsel of ABC Corporation C the spouse of ABC Corporation's President D ABC Corporation's Chief Executive Officer

A an investor holding 11% of ABC preferred stock An insider is defined as an officer, director, 10% common shareholder or "affiliated person." The Chief Executive officer of the corporation is an officer; the President's spouse is an "affiliated person." Court decisions have extended the definition of an insider to include almost anyone who has "material non-public information" about the company. Because of this, an in-house lawyer is considered an "insider." An investor who holds non-convertible bonds or preferred stock of the company is not an insider - he or she is not in a position to get non-public information.

Excluding the percentage of the outstanding shares test, the maximum permitted sale under Rule 144 is the weekly average of the last: A 2 weeks' trading volume xz B 4 weeks' trading volume C 8 weeks' trading volume D 12 weeks' trading volume

B 4 weeks' trading volume Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater) to be sold every 90 days.

All of the following requires filing with the SEC EXCEPT: A Purchase of a 5% position in one company's stock B An officer selling 1% of that company's stock C Corporation declaring bankruptcy D Corporate marketing materials

D Corporate marketing materials 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; a corporate 8K filing is required for any unusual corporate announcements such as a merger or divestiture, or bankruptcy declaration; and corporate proxy materials must be filed with the SEC 10 business days before use.

All of the following securities are exempt from registration under the Securities Act of 1933 EXCEPT: A Insurance company issues B Bank issues C Savings and loan issues D Junk bonds

D Junk bonds When the Securities Act of 1933 was written, issuers that were already regulated under other laws were generally exempted from the provisions of the Act. Insurance companies were already regulated under state insurance laws; banks and savings and loans were regulated by both state and federal banking laws. Junk bonds are high-yield corporate securities and as corporate issues, are subject to the Securities Act of 1933.

Electronic delivery of a prospectus is NOT permitted for: A common stock issues B preferred stock issues C corporate debt issues D investment company issues

D investment company issues The "access equals delivery" rule that permits electronic delivery of a prospectus (instead of paper) to those customers that have internet access is permitted for all securities offerings with the exception of investment company issues. For example, the purchaser of a mutual fund must still get a paper prospectus.

New Issue: $16,275,000 southwest railway company non callable to mature in 15 equal annual installments of $1,085,000 commencing october 15 2018 These securities are: A subject to the Securities Act of 1933 B a form of municipal transportation debt C offered with a prospectus D offered without a prospectus

D offered without a prospectus Notice that the announcement does not include the legend that "this is not an offer to sell these securities. The securities can only be sold under the Prospectus." This legend is required for non-exempt offerings. It is not required for exempts. Common carrier issues such as railway issues are exempt under the Securities Act of 1933 because they were already regulated by the Interstate Commerce Commission (I.C.C.) before the Act was written; and Congress did not want to subject them to "double" regulation.

An officer of a company has been invited by a large mutual fund company to give a talk to the fund company's analysts about its business plans and prospects. At the talk, the officer inadvertently discloses material information that could affect the stock's price. Which statement is TRUE? A A public announcement of the news must be made within 24 hours B A public announcement of the news must be made within 10 business days C A public announcement of the news must be made within 5 business days D No public announcement of the news is required

A A public announcement of the news must be made within 24 hours If an officer of a company makes an accidental disclosure of material non-public information at a presentation to analysts, Regulation FD considers the officer to be a tipper and the analysts to be tippees. To avoid insider trading liability, the company can either make an immediate public disclosure of the information (defined as public disclosure within 24 hours of the inadvertent disclosure) or can file an 8K report (a special report of significant events with the SEC, which makes the information public).

An individual whose net worth exceeds $1 million, not including primary residence, is considered a(n): A Accredited investor B Institutional investor C Qualified institutional buyer D Established customer

A Accredited investor An accredited investor includes any of the following: Large institutional investor Corporation, trust, or partnership with more than $5 million in assets Issuer's director, executive officer, or general partner Individual with net worth more than $1 million, alone or with a spouse, not including primary residence Individual with income of at least $200,000 in each of the last two years, or $300,000 with spouse Firm where all owners are accredited investors (e.g., venture capital firms)

The Securities and Exchange Commission is empowered to administer all of the following EXCEPT: A Blue Sky Laws B Securities Act of 1933 C Trust Indenture Act of 1939 D Investment Company Act of 1940

A Blue Sky Laws The SEC administrates the Securities Act of 1933; the Securities Exchange Act of 1934; the Trust Indenture Act of 1939; and the Investment Company Act of 1940. The Uniform Securities Act is more commonly known as the "blue sky" state law, and is adopted "state by state." The SEC, a federal agency, has no jurisdiction over activities within each state and does not administrate this Act.

The Chairman of XYZ Corporation, while playing golf with a neighbor, casually mentions that this quarter's earnings are likely to be lower than expected. Based on this information, the neighbor sells short XYZ stock the next day. Which statement is TRUE? A Both the Chairman and the neighbor have violated the insider trading rules B Only the Chairman has violated the insider trading rules C Only the neighbor has violated the insider trading rules D Neither has violated the insider trading rules since the actual earnings number was not disclosed

A Both the Chairman and the neighbor have violated the insider trading rules Under the Insider Trading Act of 1988, any person who uses material non-public information to trade in a company's stock for profit can be considered to be an "insider." In addition, the Act extends the definition of an insider to "controlling" persons - in this case, the provider of the information. A person who "communicates" material non-public information can be held liable under the Act unless "that person acted in good faith and did not directly or indirectly induce the act constituting the violation." Therefore, both the person trading on the inside information (the "tippee") and the communicator of the information (the "tipper") can be held liable under the Act.

All of the following must be sent to customers of broker-dealers semi-annually EXCEPT: A Broker-dealer securities inventory amounts B Broker-dealer balance sheet C Broker-dealer subordinated loan amounts D Broker-dealer net capital computation

A Broker-dealer securities inventory amounts Semi-annually, customers receive a balance sheet (which includes a listing of subordinated loans - these are loans to brokerdealers where the lender subordinates his claim to all other creditors and are included as part of the firm's capital base) and a net capital computation from the broker-dealer. There is no requirement for a broker-dealer to disclose his inventory positions to customers.

The separation of investment banking/research and trading functions within a broker-dealer to stop the potential flow of inside information is known as the: A Chinese Wall B Berlin Wall C Wall Street Wall D Circuit Breaker

A Chinese Wall The "Chinese Wall" as used in the securities industry, is the complete separation of a broker-dealer's investment banking or research unit from its trading unit. Broker-dealers establish a "wall" between the investment banking unit or research unit and the trading unit, so that inside information is not received by the firm's traders in advance of its release to the public. (Note: We know that using the term "Chinese Wall" is not PC and the term "Information Barrier" is much better. However, this term is commonly used in the securities industry and is used on the exam.)

Which statement is TRUE regarding Commercial Paper? A Commercial Paper may be sold without a prospectus B Commercial Paper must be sold with a prospectus C Commercial Paper must be sold with an Official Statement D Commercial Paper must be sold with an Offering Memorandum

A Commercial Paper may be sold without a prospectus Since Commercial Paper is an exempt security under the Securities Act of 1933, it may be sold without a prospectus. The prospectus is the disclosure document for new issues that are not exempt from registration. The Official Statement is the disclosure document for municipal bonds (which are an exempt issue). An Offering Memorandum is the disclosure document for a private placement - which is a security sold in an exempt transaction.

Which of the following is NOT exempt under the Securities Act of 1933? A Corporate Bonds B Municipal Bonds C U.S. Government Bonds D Small Business Investment Companies

A Corporate Bonds Government bonds, municipal bonds, and Small Business Investment Company issues are all exempt securities under the 1933 Act. Corporate bonds are non-exempt securities that must be registered with the SEC under the Securities Act of 1933.

Which of the following issuers must report to the SEC under the Securities Exchange Act of 1934? A Corporations and Investment Companies B The U.S. Treasury C Municipalities D Federal Agencies

A Corporations and Investment Companies Only corporations and investment companies (which are either corporations or trusts) file annual and semi-annual reports with the SEC. Municipal and federal issuers are exempt from the Securities Exchange Act of 1934.

Which of the following is an exempt issue? A Fixed annuity contract B Variable annuity contract C Government bond mutual fund D Municipal bond unit investment trust

A Fixed annuity contract Fixed annuity contracts are considered to be an insurance product, since the insurance company bears the investment risk, and are exempt from SEC registration. On the other hand, variable annuity contracts, where the investor bears the investment risk, are a non-exempt security under the 1933 Act and must be registered. Investment company issues such as mutual funds and unit trusts are also non-exempt and must be registered with the SEC. It makes no difference that the investment company is investing in exempt securities such a U.S. Governments or municipals.

All of the following issues are exempt from registration under the Securities Act of 1933 EXCEPT: A Investment companies B Insurance companies C Agency issues D Municipal issues

A Investment companies Governments, agencies and municipals are all exempt issues. Insurance company and bank issues are exempt as well. Investment company issues are non-exempt and must be registered and sold with a prospectus under the 1933 Act.

Which of the following is not true of SIPC coverage for customers of a broker-dealer that goes bankrupt? A It applies to all broker-dealers B It is up to $500,000 per customer C It is up to $250,000 in cash per customer D It does not include the claims of persons who own more than 5% of the failed firm

A It applies to all broker-dealers While most broker-dealers that are registered with the SEC must be SIPC members, thus subjecting their customers to SIPC coverage rules, it is not a requirement for all firms. The following types of broker-dealers are excluded from SIPC membership requirements: Firms that deal exclusively in U.S. government securities Firms that sell mutual funds, variable annuities, insurance products, or that exclusively provide investment advice to registered investment or insurance companies Customers of those firms that are SIPC members have their investments protected up to $500,000 per customer, with a maximum of $250,000 in cash protection. Finally, claims of officers or partners of the firm, persons who own more than 5% of the failed firm, and subordinated lenders are all excluded from SIPC coverage.

A stabilizing bid is a bid for shares by the underwriters in an effort to: A Prop up the price of the new issue B Encourage sales in the secondary market C Win an underwriting contract D Collect indications of interest from investors

A Prop up the price of the new issue A stabilizing bid is a bid by the underwriters to purchase shares that they've already sold in an effort to shore up a falling market price. Occasionally, flipped shares will also be repurchased for this reason, but generally such a penalty bid is meant to discourage investors from turning their purchase into an immediate profit and putting increased pressure on the market.

Which of the following are NOT exempt issues under the Securities Act of 1933? A Real Estate Investment Trusts B Savings and Loan Issues C U.S. Government Bonds D G.O. Bonds

A Real Estate Investment Trusts Investment companies, such as mutual funds, are non-exempt; therefore their securities must be registered and sold under a prospectus. Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, municipal debt, savings and loan issues, and municipal issues are exempt.

The director of a public corporation wishes to sell stock of that company in compliance with Rule 144. Which statement is FALSE? A Registered control stock must be held for 6 months, fully paid, before it can be sold B Unregistered restricted stock must be held for 6 months, fully paid, before it can be sold C If the sale is for 5,000 shares or less, worth $50,000 or less, no SEC filing is required D Any short swing profits (within 6 months) from trading the stock must be returned to the corporation

A Registered control stock must be held for 6 months, fully paid, before it can be sold Rule 144 requires that unregistered shares be held fully paid for 6 months before they can be sold under the rule. Registered shares held by officers can be sold without meeting the holding period requirement, but are subject to the other provisions of the rule. No filing is required if 5,000 shares or less, worth $50,000 or less, are sold every 3 months. Under the Securities Exchange Act of 1934, any short swing profits (achieved within a 6-month time frame) that officers derive from trading that company's stock must be repaid to the company.

All of the following are covered under the Securities Exchange Act of 1934 EXCEPT: A Registration of new issues B Stabilization of new issues C Registration of exchanges D Registration of broker/dealers

A Registration of new issues The Securities Act of 1933 requires registration of non-exempt new issues. The Securities Exchange Act of 1934 requires registration of exchanges and their members with the SEC, and allows stabilization of new issues in the secondary market under prescribed conditions.

Which of the following is a governmental regulatory agency of the securities industry? A The Securities Exchange Commission (SEC) B The Financial Industry Regulatory Authority (FINRA) C The North American Securities Administrators Association (NASAA) D The Municipal Securities Rulemaking Board (MSRB)

A The Securities Exchange Commission (SEC) The Securities Exchange Commission, abbreviated SEC, is the primary governmental regulator of the securities industry in the United States. Established by the Securities Exchange Act of 1934, the SEC's mission is to protect investors; maintain, fair, orderly, and efficient markets; and facilitate capital formation. Each of the other answers represents an entity organized to assist in the regulation of the securities industry, but none of them are government agencies.

A customer who has his primary residence in Montana, has a vacation home in Colorado. An intrastate offering is being made in the state of Montana. Which statement is TRUE regarding the customer purchasing this securities offering? A The customer is permitted to buy these securities B The customer is prohibited from buying these securities C The customer can buy the securities if he spends at least 2 weeks per year in the state of Montana D The customer can buy the securities if he files an affidavit of domicile in the state of Montana

A The customer is permitted to buy these securities To purchase an intrastate offering, the purchaser must be a primary resident of that state. Having a vacation home in another state does not invalidate that person's "primary residence."

Which statement is TRUE regarding the preliminary prospectus? A The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest B The preliminary prospectus cannot be distributed at a road show for the offering C The preliminary prospectus constitutes an offer to sell the issue D The preliminary prospectus contains the public offering price

A The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest A "red herring" preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20-day cooling off" period that commences upon filing of the registration statement with the SEC. It would not contain the POP since at this early juncture, the issue would not yet be priced. The use of the "preliminary prospectus" does not constitute an "offer" under the 1933 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring"). The red herring is used to obtain non-binding indications of interest in the issue, and may be sent to anyone during the cooling off period, whether or not that person has previously expressed any interest in the issue. Part of the IPO marketing process is to schedule road shows during the 20-day cooling off period, attended by invited large institutional investors, portfolio managers and research analysts. These are informational only - not promotional. The officers of the company make presentations and the attendees get to have their questions answered. This process helps build investor interest in the offering. The red herring can be distributed at the road show.

A new issue private placement offering is: A exempt under Regulation D and is allowed to be sold to a maximum of 35 non-accredited investors B exempt under Regulation D and is limited to a maximum sale of $50,000,000 within 1 year C exempt under Regulation A and is allowed to be sold to a maximum of 35 non-accredited investors D exempt under Regulation A and is limited to a maximum sale of $50,000,000 within 1 year

A exempt under Regulation D and is allowed to be sold to a maximum of 35 non-accredited investors Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement. There is no dollar limitation on the amount of securities that can be sold under a private placement exemption. Regulation A is not an exemption. Rather, it is an "EZ" registration rules for small dollar issues, with the maximum amount permitted being $50 million.

A new issue private placement offering is: A exempt under Regulation D and is allowed to be sold to a maximum of 35 non-accredited investors B exempt under Regulation D and is limited to a maximum sale of $50,000,000 within 1 year C exempt under Regulation A and is allowed to be sold to a maximum of 35 non-accredited investors D exempt under Regulation A and is limited to a maximum sale of $50,000,000 within 1 year

A exempt under Regulation D and is allowed to be sold to a maximum of 35 non-accredited investors Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement. There is no dollar limitation on the amount of securities that can be sold under a private placement exemption. Regulation A is not an exemption. Rather, it is an "EZ" registration rules for small dollar issues, with the maximum amount permitted being $50 million.

A wealthy customer has been asked by his neighbor to invest in the private placement of a "start-up" technology company as a venture capital investor. This is the first time that the customer has considered such an investment. The customer contacts his registered representative and asks: "Aside from the investment risk associated with a "start-up" company, what are the other issues that I should consider before making such an investment." The registered representative should inform the customer that: A there is no public resale market for these securities unless the company "goes public" and is current in SEC filings B these securities can only be sold to customers that have a minimum net worth of $100,000,000 C these securities must be held for at least 12 months before a public resale is permitted under the provisions of Rule 144 D after issuance, these securities can only be traded in the PORTAL market

A there is no public resale market for these securities unless the company "goes public" and is current in SEC filings Private placement securities are not registered and hence, cannot be publicly traded. Only if the company subsequently "goes public" and begins reporting its results to the SEC can the shares trade in the public markets. However, these securities can be resold "privately" - but there is not much of a market for private resales of unregistered securities. If the company does go public, and if the customer holds these securities for 6 months fully paid, then they can be sold under Rule 144 and the sale via the rule will register the shares. There is no trading of Rule 144 issues in the PORTAL market. PORTAL is an electronic marketplace for the trading of Rule 144A issues (Rule 144A is completely different than Rule 144!) from QIB (Qualified Institutional Buyer with at least $100 million of assets to invest) to QIB.

An accredited investor must meet one of the following EXCEPT: A A net worth of $1 million or more, excluding their primary residence B A liquid net worth of $500,000 or more check_circle C An annual income of $200,000 per year or $300,000 per year jointly with spouse D A director, executive officer, or general partner of the company selling the securities

B A liquid net worth of $500,000 or more Under SEC Rule 501 there is no requirement to have a net worth of any amount that is cash or near-cash. The $1 million net worth requirement may be met by the aggregate of many assets, cash, CDs, T-bills, stocks, bonds or other bonafide securities. The SEC wanted to avoid un-registered offerings falling into the hands of less sophisticated individuals who may be taken advantage of by more informed issuers or stock promoters.

A prospectus does not need to be given to which of the following investors? A An investor in a mutual fund B An investor in a Regulation D offering that was first sold ten days ago C An investor in a security registered with the SEC that was first sold to the public three weeks ago D An investor in a variable annuity

B An investor in a Regulation D offering that was first sold ten days ago Regulation D offerings are exempt from SEC registration, and thus there is no prospectus associated with them. On the other hand, whenever an investor purchases shares in a mutual fund or purchases a variable annuity, he must be given a copy of the prospectus associated with the fund or annuity. Finally, investors in a new issue (meaning an exchange-traded security first sold to the public within the past 25 days or an OTC-traded security that was first sold within the past 90 days) must be provided with a prospectus by the time of trade confirmation.

Which of these elements is not required to be included in a security's registration statement to the federal government? A Information about the company's business operation and its management B Expected settlement date of securities C A description of the securities being offered for sale D Financial statements certified by independent accountants

B Expected settlement date of securities The Securities Act of 1933 requires the disclosure of material information to investors. The disclosure is done through the registration statement. Securities must be registered with the federal government prior to their sale, and this registration includes a disclosure which must contain information about the company's business operation and its management, a description of the securities that are being offered for sale, and financial statements from the company that have been certified by independent accountants. The expected settlement date of the securities is not a requirement of the registration statement.

Margins on government and municipal securities are set by (the): A MSRB B FINRA C FRB D SEC

B FINRA Because municipals and governments are exempt, the Federal Reserve has no power to set margins. However, FINRA sets minimum maintenance margins for these securities that member firms must meet.

Which of the following is true of purchasers of restricted securities? A They are always subject to holding periods B If they qualify for a Rule 144A exemption, they may sell their securities to certain buyers at any time C They must always resell their securities to qualified institutional buyers D They must be qualified institutional buyers

B If they qualify for a Rule 144A exemption, they may sell their securities to certain buyers at any time Rule 144A allows issuers and non-issuers to sell restricted securities to qualified institutional buyers without restrictions. Thus no time limit must pass before the securities can be sold to this type of buyer. Qualified institutional buyers are institutional investors that manage at least $100 million in assets, including insurance companies, investment companies, pension plans, and banks. They must always be entities; they can never be individuals.

Which of the following is an example of an organization that enforces blue sky laws? A Securities and Exchange Commission B Pennsylvania Securities Commission C Freddie Mac D New York Stock Exchange

B Pennsylvania Securities Commission "Blue sky laws " are a common name for state securities laws. The purpose of a blue sky law is to protect a state's investors against securities fraud, and they are typically enforced by a state securities regulator. Blue sky laws vary from state to state, but most are based on a piece of model legislation called the Uniform Securities Act.

A registered representative solicits a new customer to purchase a "penny stock." Prior to effecting the transaction, which procedure is required? A Have the customer sign a letter of intent B Prepare and have the customer sign a suitability statement C Have the branch manager approve the initial order and then fill the order in the same manner as with any other security D No special procedures are required

B Prepare and have the customer sign a suitability statement Under the SEC's "penny stock rule" (Rules 15g-1 through 15g-6), if a registered representative solicits a new customer to buy a non-NASDAQ over-the-counter stock priced under $5 (translated, this is a Pink OTC Markets stock under $5), the registered representative must complete a detailed suitability statement for the customer, and the customer must sign this statement before the order can be confirmed. This rule is expected to curb unethical sales practices of so-called "penny stocks."

A customer wants to raise capital through the sale of stock in his family owned business but does not want a public sale or registration of the stock with the SEC. A possible solution for the customer would be: A Primary Distribution B Private Placement C Greenshoe Option D Eastern Underwriting

B Private Placement A private placement or Reg D Offering is a sale to institutional investors, wealthy individuals (accredited investors), trusts or corporate affiliates which does not require full registration with the SEC under the Securities Act of 1933 and cannot be offered to the public.

A shelf registration is defined as: A Registration of securities that must be sold within 90 days or risk being put "on the shelf" B Registration of securities that may be put "on the shelf" to be offered in the future C An issue of equity securities only that the SEC determines is stable enough to sit "on the shelf" D Registration of securities with a state ("the shelf") instead of the SEC

B Registration of securities that may be put "on the shelf" to be offered in the future A shelf registration is a registration with the SEC of equity or debt securities that may be put on the "shelf." A shelf registration allows an issuer to register new securities without having to sell the entire issue at once. Portions of the newly registered stock can be sold over the next three years without needing to be reregistered (2 years if the registration is for securities issued during a business combination).

Issuers that wish to give "earnings guidance" to research analysts must conform with the provisions of SEC: A Regulation SB B Regulation FD C Regulation SK D Regulation SP

B Regulation FD Regulation FD (Fair Disclosure), passed in 2000, is basically an elaboration of the insider trading rules. It prohibits issuers from making selective disclosure of non-public information to research analysts, mutual fund managers, and other industry professionals, unless at the same time, the information is broadly disseminated to the public. Regulation SP requires financial institutions to provide customers with a copy of their privacy policies and procedures, including whether customer information is provided to third parties; and requires that customers be given the ability to "opt out" of any such disclosures. Regulation SK standardizes the reporting of financial and non-financial information by issuers to the SEC. Regulation SB (Small Business) streamlines registration of issues by small businesses with the SEC.

Which statement is TRUE regarding intrastate offerings under Rule 147? A Resale of the securities is permitted within that state and outside the state immediately following the initial offering B Resale of the securities is permitted within that state immediately following the offering but resale outside the state is prohibited for the 6 month period following the initial offering C Resale of the securities is prohibited within that state for 6 months following the offering but resale outside the state is permitted immediately D Resale of the securities is prohibited within that state and outside the state for the 6 month period following the initial offering

B Resale of the securities is permitted within that state immediately following the offering but resale outside the state is prohibited for the 6 month period following the initial offering Securities that are sold under a Rule 147 exemption (intrastate exemption) cannot be resold outside that state for 6 months following the initial offering. There is no restriction on resales within that state. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."

Which of the following activities is NOT permitted after the registration statement is filed? A Solicitation of indications of interest for the issue in registration B Solicitation of orders for the issue in registration C Sending a preliminary prospectus to a customer about the issue in registration D Publishing a tombstone announcement for the issue in registration

B Solicitation of orders for the issue in registration Once the registration statement is filed, a preliminary prospectus can be sent; indications of interest can be taken; and a "tombstone" announcement can be published. Legally, all of these are not considered to be "offers" of the security (offering the securities to the public is prohibited until the registration is effective). Once the registration is effective, orders can be accepted for the new issue if customers receive the final prospectus at, or prior to, confirmation of sale.

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.

Which statement is TRUE regarding the Securities Exchange Act of 1934? A The general provisions of the Act apply only to exempt securities B The general provisions of the Act apply only to non-exempt securities C The general provisions of the Act apply to both exempt and non-exempt securities D The general provisions of the Act do not apply to either exempt or non-exempt securities

B The general provisions of the Act apply only to non-exempt securities The general provisions of the Securities Exchange Act of 1934 apply to non-exempt securities only. For example, holders of municipal bonds (an exempt security) cannot be considered to be "insiders" while a holder of corporate stock (a non-exempt security) can be an "insider." However, the anti-fraud provisions of the Act apply to both exempt and non-exempt securities. Thus, if a person fraudulently trades municipal bonds (an exempt security), this person is in violation of the Act.

A registered representative has prepared a research report about a new stock issue that is currently in registration. The registered representative wishes to send the report to customers. Which statement is TRUE? A The report can be mailed without restriction B The report constitutes an "offer" under the 1933 Act and cannot be sent C The report can only be mailed if approved or prepared by a Supervisory Analyst D The report can only be sent if accompanied or preceded by a preliminary prospectus

B The report constitutes an "offer" under the 1933 Act and cannot be sent During the "cooling off" period, the only items that do not constitute an "offer" or "sale" are the sending of a preliminary prospectus and the acceptance of an indication of interest. Anything more, such as sending a research report, is considered to be an "offer," which is prohibited until the registration is effective.

All of the following statements are true about Rule 147 EXCEPT: A The rule exempts intrastate issues from federal registration B The rule exempts intrastate issues from state registration C Both the issuer and all purchasers must be state residents D Resale is permitted to state residents only, for the 180 day period following the offering

B The rule exempts intrastate issues from state registration Rule 147 exempts "intrastate" issues from registration with the SEC. However, the issue is still subject to state (blue-sky) registration. To obtain the 147 exemption, both the issuer and the purchaser must be state residents. Resale is restricted to state residents for 6 months following the offering; thereafter, the issue can be sold interstate. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."

Who removes the restriction from private placement securities? A The SEC B The transfer agent C FINRA D The stock exchange where it will be traded

B The transfer agent Rule 144 requires purchasers of restricted securities to hold them for a certain amount of time before they sell them. If the issuer is a company that files reports to the SEC, the holding period is six months. If the issuer is a non-reporting company, the holding period is 12 twelve months. These are often referred to as holding limits. Before selling restricted securities, investors will need to get the restricted legend removed from the securities. This can only be done by a transfer agent, and it requires permission from the issuer.

All of the following are required to sell "144" stock EXCEPT: A seller's representation letter B buyer's representation letter C issuer's representation letter D broker's representation letter

B buyer's representation letter To effect Rule 144 transactions, certain representations are required to ensure that the sale is not being made in contravention of the rule. The issuer must represent that the corporation is current with all required SEC filings because it is prohibited to use Rule 144 to sell if this is not the case. The seller must represent that the securities have been held fully paid for 6 months, otherwise Rule 144 cannot be used. Finally, the broker must represent that it did not solicit the transaction and that it acted as agent in executing the transaction. There is no representation required on the part of the buyer - when the restricted stock is sold through the rule, the buyer receives "clean" unrestricted shares from the transfer agent.

All of the following statements about the Securities Exchange Act of 1934 are true EXCEPT the: A general provisions of the Act apply to non-exempt securities B general provisions of the Act apply to exempt securities C anti-fraud provisions of the Act apply to non-exempt securities D anti-fraud provisions of the Act apply to exempt securities

B general provisions of the Act apply to exempt securities The general provisions of the Securities Exchange Act of 1934 apply to non-exempt securities only. For example, holders of municipal bonds (an exempt security) cannot be considered to be "insiders" while a holder of corporate stock (a non-exempt security) can be an "insider." However, the anti-fraud provisions of the Act apply to both exempt and non-exempt securities. Thus, if a person fraudulently trades municipal bonds (an exempt security), this person is in violation of the Act.

SEC Rule 10b-5-1: A is the "catch all" fraud rule that makes any deceptive or manipulative practice in connection with the sale of a security potentially fraudulent under the Securities Exchange Act of 1934 B gives officers of publicly held companies a safe harbor from being charged with an insider trading violation if they establish a pre-arranged trading plan for that issuer's securities C prohibits the purchase or sale of an issuer's securities based on material nonpublic information in breach of duty of trust owed to the issuer or shareholders of that security D prohibits any person, in connection with a tender offer for securities, to bid for or purchase the security which is subject of the tender offer through any means other than via the offer

B gives officers of publicly held companies a safe harbor from being charged with an insider trading violation if they establish a pre-arranged trading plan for that issuer's securities SEC Rule 10b-5-1 allows officers of publicly held companies (statutory insiders) to establish "pre-arranged trading plans" that set future transaction dates and amounts of that issuer's securities; or that specify algorithms that establish the transaction dates and amounts. As long as the officer does not deviate from the plan, the officer is given a "safe harbor" from being accused of insider trading based on those trades.

Under SEC Rule 144, calculated amounts to be sold of restricted or control stock are permitted over the upcoming: A 30 days B 60 days C 90 days D 180 days

C 90 days Rule 144 under the Securities Act of 1933 most often applies to the public resale of restricted stock granted to officers and directors of privately held companies. These are typically start-up companies that don't have the funds to pay large salaries, so to attract quality people, they give these officers stock instead. Because the company is still private, these are restricted private placement shares that cannot be sold in the public market, unless the company goes public. Assuming that the company does go public later on, these officers can now "cash out" their holdings under Rule 144. By using the rule, the officers can sell metered amounts of the stock into the public market over each 90-day time window (and they can get very wealthy in the process!). The rule authorizes the registration of the stock with the SEC, so the buyer in the market gets clean registered shares.

Under Regulation D, which statement is TRUE? A A Prospectus is used to provide disclosure B An Official Statement is used to provide disclosure C An Offering Circular is used to provide disclosure D No disclosure is normally provided to investors since each is accredited

C An Offering Circular is used to provide disclosure Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum." An Official Statement is a disclosure document used for municipal issues.

Which of the following can purchase restricted securities? A Only qualified institutional purchasers B Only institutional investors C Any investor D Only broker-dealers and qualified institutional purchasers

C Any investor Any of the investors listed in the question can purchase restricted securities. Retail investors can only purchase them after a holding period has expired, but qualified institutional purchasers can buy them at any time. Since the question doesn't specify a time period in which the purchase of restricted securities can be made, the correct answer is any investor.

What type of security is eligible to be sold under Rule 144A? A ETFs B Mutual funds C Corporate bonds D Unit investment trusts

C Corporate bonds SEC Rule 144A allows qualified institutional buyers (QIBs) to buy restricted securities without the holding period restriction and without having to register the security. Rule 144a states that the securities offered or sold under this rule must not be "securities of an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under section 8 of the Investment Company Act." ETFs, Mutual funds, and Unit investment trusts all fall within this definition. Corporate bonds on the other hand, may be sold through Rule 144A.

An issuer is required to make an 8K filing with the SEC for all of following events EXCEPT: A Election of new members of the Board of Directors B Declaration of bankruptcy C Declaration of a cash dividend D Proposal of a merger with another corporation

C Declaration of a cash dividend An 8K filing with the SEC is required by a corporation if a "major event" happens at the company. These include if there is a change in the composition of the Board of Directors; if the company declares bankruptcy; if there is a major acquisition or divestiture of assets; if the company proposes a merger; or if any other major corporate event occurs. The notice must be filed no later than 4 business days after the event.

All of the following statements are true about a tender offer for common shares EXCEPT: A The offer must remain open for at least 20 business days B Each "sweetening" of the offer must extend the offer for an additional 10 business days C During the life of the offer, the issuer can buy the stock in the market in addition to buying shares via the offer D During the life of the offer, any subscribing investors' shares that are tendered are held in escrow pending the outcome of the offer

C During the life of the offer, the issuer can buy the stock in the market in addition to buying shares via the offer When a tender offer is made for the common shares of an issuer, the maker of the offer is attempting to buy a majority stake in the company. To attract shareholders to tender, the maker usually prices the offer at a premium to the current market price. Such offers are typically contingent on a minimum number of shares being tendered. If the minimum number is not met, the maker might "sweeten" the offer by raising the tender price, or could simply cancel the offer and return the tendered shares to the subscribing shareholders. Note that an escrow agent is used to hold the tendered shares, pending the outcome of the offer. During the life of the offer, the maker of the offer and its agents are treated as "insiders," since they have information on how the tender offer is progressing that the general public does not know about. This means that, during the offer, they are prohibited from buying the stock in the market. The initial offer must be held out for a minimum of 20 business days under SEC rules. Each sweetening of the offer must extend the life of the offer by another 10 business days.

Which of the following securities is NOT exempt from the Securities Act of 1933? A Municipal revenue bond issues B Common carrier issues C Income bond issues D U.S. Government bond issues

C Income bond issues Income bonds (a.k.a. Adjustment Bonds) are issued to existing bondholders by corporations which are in default. On these bonds, the corporation is only obligated to pay the interest on the bonds if it has sufficient income. Since these are corporate issues, they are not exempt. U.S. Government bonds, municipal bonds, and common carrier issues (airlines, railroads which are subject to federal regulation, etc.) are all exempt.

Which statement is TRUE regarding intrastate offerings? A Intrastate offerings are subject to federal registration only B Intrastate offerings are exempt from state registration only C Intrastate offerings are subject to "Blue Sky" laws D Intrastate offerings are subject to both state and federal registration

C Intrastate offerings are subject to "Blue Sky" laws The federal government has no jurisdiction over intrastate offerings. The federal government only has jurisdiction over interstate offerings. Thus, intrastate offerings of securities are exempt from federal registration, but still are subject to registration within that state under the state's Blue Sky laws.

All of the following are benefits of a shelf registration except: A One registration covers a public offering of securities for up to three years in advance. B A corporation may get a better price for securities during the public offering because the corporation can wait for the most favorable time. C One registration covers a public offering of securities for up to five years in advance. D The issuer may sell part of the securities at a given time, and another part at a later time.

C One registration covers a public offering of securities for up to five years in advance. An issuer may file a shelf registration when the market conditions are not favorable for an initial public offering to occur. Using a shelf registration, an issuer may carry out all the necessary registration procedures ahead of time, and put them on a "shelf" until the market conditions become more favorable. A shelf registration is permitted under SEC Rule 415 in certain situations. There is an advantage to filing in advance. The issuer may be able to time the public offering for when market conditions are most favorable, getting a better price for securities offered. The public offering must be made within either 2 or 3 years of filing a shelf registration depending on the type of offering and the type of issuer. S-3 filers can check a box on the form to file an automatic shelf registration, allowing an automatic three year shelf registration. A shelf registration can be used for both equity and debt securities.

Which of the following entities sets the minimum allowable initial margin requirement for customers of broker-dealers who have margin accounts: A The Treasury Department B FINRA C The Federal Reserve Board D The SEC

C The Federal Reserve Board The power to establish guidelines for the extension of credit by lenders was placed with the Federal Reserve Board under the Securities Exchange Act of 1934. Reg T of the Federal Reserve Board governs credit for lending in securities transactions. Brokerdealers may impose more stringent margin requirements if they wish, but the minimum margin requirements are set by the Federal Reserve Board.

Which statement is TRUE regarding the Securities Exchange Act of 1934? A The anti-fraud provisions of the Act apply only to exempt securities B The anti-fraud provisions of the Act apply only to non-exempt securities C The anti-fraud provisions of the Act apply to both exempt and non-exempt securities D The anti-fraud provisions of the Act do not apply to either exempt or non-exempt securities

C The anti-fraud provisions of the Act apply to both exempt and non-exempt securities The anti-fraud provisions of the Act apply to both exempt and non-exempt securities. Thus, if a person fraudulently trades municipal bonds (an exempt security), this person is in violation of the Act. In contrast, the general provisions of the Securities Exchange Act of 1934 apply to non-exempt securities only. For example, holders of municipal bonds (an exempt security) cannot be considered to be "insiders" while a holder of corporate stock (a nonexempt security) can be an "insider."

What does it mean when the SEC sends a deficiency letter in response to a registration statement? A The registration statement has been rejected. B The registration statement must be withdrawn. C The registration statement must be amended. D The registration statement was filed on the wrong form

C The registration statement must be amended If the SEC, upon reviewing a registration statement, finds it to be inadequate in some way, it will send a deficiency letter. A deficiency letter is an order to amend the registration statement, often by providing additional information. Once an amendment has been filed, the SEC will review the amended registration statement. If the amendment did not satisfy the SEC's concerns, the SEC will send another deficiency letter and the issuer will need to file another amendment.

An officer of a listed company calls his registered representative and tells him to sell the maximum amount of that company's common shares in accordance with Rule 144. Prior to placing the order to sell, the registered representative calls five of his customers and tells them to sell that company's stock. Which statement is TRUE? A This action does not violate any securities laws B This action violates the Securities Act of 1933 C This action violates the Securities Exchange Act of 1934 D This action violates Rule 144

C This action violates the Securities Exchange Act of 1934 This is a violation of the Securities Exchange Act of 1934 Rule 10b-5. When the registered representative received the sell order from the officer, he is obligated to execute that order before acting on the information he has received. Once the order is executed, the Form 144 has been filed (it must be filed either at or prior to execution of the order) and the order is public information. At this point, he can trade for himself or his customers, and he is no longer considered to be an "insider." In effect, the registered representative is "front running" the officer by telling his other customers to sell before placing the officer's sell order. This is a violation of the Securities Exchange Act Rule 10b-5.

An issuer that registers securities on an automatic shelf registration statement must offer those securities to the public: A Within 45 days of the effective date of the registration statement B Immediately C Within 3 years from the initial effective date of the registration depending on the kind of offering D Within 1 year of the initial effective date of the registration

C Within 3 years from the initial effective date of the registration depending on the kind of offering An issuer may file a shelf registration when the market conditions are not favorable for an initial public offering to occur. Using a shelf registration, an issuer may carry out all the necessary registration procedures ahead of time, and put them on a "shelf" until the market conditions become more favorable. A shelf registration is permitted under Rule 415. Under the Rule, an issuer must bring the shares to market within 3 years of the initial effective date of the shelf registration (2 years for securities issued through a business combination). S-3 filers can check a box on the form to file an automatic shelf registration, allowing an automatic three year shelf registration. A shelf registration can be used for both equity and debt securities.

A customer is long 1,000 shares of ABCD stock and has gone "short against the box" 400 shares of ABCD stock. If there is a tender offer for the shares of ABCD Corporation, the customer: A cannot tender any shares B can tender 400 shares C can tender 600 shares D can tender 1,000 shares

C can tender 600 shares A customer is only considered to be "long" to the extent of his or her "net" long position in a security. This customer is long 1,000 shares of ABCD and short 400 shares of ABCD, for a net long position of 600 shares. This is the amount that can be tendered (remember that the customer must replace the 400 shares borrowed to sell short, leaving him or her with the remaining 600 shares out of the 1,000 owned.)

The definition of a "short swing" profit under the Securities Exchange Act of 1934 is a completed round turn trade effected at a profit within: A the same day by any investor B six months by any investor C six months by an insider D within one year by an insider

C six months by an insider A "short swing" profit is defined as one achieved by an insider (officer, director, or 10% shareholder) trading that company's stock within a six month period. Short swing profits must be returned to the corporation under the Act

Under the provisions of the Securities Exchange Act of 1934, all of the following must be registered EXCEPT: A Sales personnel of member firms B Member firms C Officers of member firms D Clerical employees of member firms

D Clerical employees of member firms The Securities Exchange Act of 1934 requires the registration of each securities exchange, so that it now becomes a "selfregulatory organization" (SRO), subject to SEC oversight. In addition, FINRA and the MSRB are SROs. The Act requires that member firms register with FINRA; that their officers register; and that their sales employees and traders register. (Now you know where the term "registered representative comes from! And to be registered, you must pass both the SIE and the appropriate Top-Off Exam - these exams are corequisites.) Clerical persons are not required to register.

Which of the following is a broker-dealer not required to provide a customer who has an account that trades in penny stocks? A The bid and offer prices of the stock both prior to any transaction B Risk disclosure document C The firm's and registered representative's compensation both prior to and after any transaction D Current prospectus on the firm

D Current prospectus on the firm A risk disclosure document must be provided by a firm to their client prior to executing a penny stock transaction. The SEC also requires that customers be provided the bid and offer prices of the penny stock and the compensation to both the firm and registered representative's compensation. The initial quote of the price spread can be made verbally to the client, but the postexecution bid/offer disclosure must be provided to the client in writing via a trade confirmation. Finally, due to the greater risk associated with penny stock investments, firms are required to provide monthly statements for all accounts in which a penny stock trade was executed within the prior six months. Customers only need to be provided a prospectus for new issues.

Fines assessed for convictions involving violations of insider trading laws are paid to the: A Department of Justice B Securities and Exchange Commission C Securities Investor Protection Corporation D Department of Treasury

D Department of Treasury Fines assessed for insider trading convictions are paid to the Department of Treasury. The fines are not paid to the SEC. If they were, then the SEC might be tempted to "go crazy" prosecuting insider trading cases to pump up its operating budget (raises for everyone!)

A restricted security from a SEC registered company could be resold if: A It fulfills Regulation D requirements B It is sold to a QIB individual C It is held for 5 months D It is sold to a bank with $120 million in securities

D It is sold to a bank with $120 million in securities Restricted securities are those sold during a private placement. SEC Rule 144 requires purchasers of restricted securities to hold them for a certain amount of time before selling them. The holding period is 12 months for a non-reporting company issuer or six months for a company that files reports with the SEC. Restricted securities may also be sold to qualified institutional buyers (QIBS) without the holding period restriction. QIBs include insurance companies, investment companies, pensions plans, and banks that own at least $100 million in securities. QIBs must always be entities; they can never be individuals.

Jason works in the mailroom at IBX Investments, a dually-registered investment adviser and broker-dealer. On Monday, he delivers mail to Jenny, one of the firm's directors. Jenny opens one of the letters while Jason is in her office and tells him that it contains interesting news that is unavailable to the general public. She then describes to Jason that Connor, one of her friends who works for Data Inc., has sent the nonpublic results of the most recent test of the company's upcoming software update, which is set to hit the market in three weeks. Those results indicate that the software will include innovations that could change the entire industry. This is great news for Data Inc! That night Jason tells his wife, Marie, everything that Jenny told him about Connor's letter. The next day, Marie calls her broker, Sue, and places an order for 1,000 shares of Data Inc.'s stock. Which of the following is true? A Only Marie is guilty of insider trading B Jason, Marie, and Sue are all guilty of insider trading C Jason, Jenny, and Marie are all guilty of insider trading D Jason, Jenny, Connor, and Marie are all guilty of insider trading

D Jason, Jenny, Connor, and Marie are all guilty of insider trading In sending the nonpublic software results to Jenny, Connor is guilty of divulging insider information. Similarly, when Jenny relates that information to Jason, and then when Jason relates that information to Marie, each of Jenny and Jason is guilty of divulging insider information. Then when Marie trades based on that information, she, Jason, Jenny, and Connor are all guilty of insider trading. Since Sue did not know it was inside information, she is not guilty of insider trading, even though she executed the trade.

An offering of municipal bonds is most likely to be offered under which registration exemption? A Rule 147 B Regulation A, Tier 2 C Regulation D, Rule 504 D Municipal bonds are automatically exempt from registration, and so the offering does not need to qualify for any other exemption.

D Municipal bonds are automatically exempt from registration, and so the offering does not need to qualify for any other exemption. The Securities Act of 1933 exempts some types of securities, period. These types of securities do not need to be offered under a specific exemption such Reg A or Reg D.Among these exempt types of securities are: U.S. Treasuries Municipal securities Securities issued or guaranteed by a federal agency (CMOs and MBSs) Securities issued by a nonprofit (including church bonds) Commercial paper (matures in under nine months) Banker's acceptances (matures in under nine months) Bank securities Eurobonds

The provisions of the Penny Stock Rule, which require the pre-qualifying of a new customer before a recommended "penny" stock can be sold to that individual, apply to recommendations of: A NYSE and NASDAQ listed securities only B NASDAQ listed securities only C all risky issues D OTC Pink Open Markets securities

D OTC Pink Open Markets securities The "penny stock rule" (Rules 15g-1 through 15g-6) requires that new customers who receive a recommendation and purchase non-exchange listed securities (meaning OTC Markets Group issues - formerly known as the Pink Sheets) priced under $5 per share sign and return a suitability statement before sale can be confirmed. This rule is intended to stop "boiler room" high pressure phone sales of speculative penny stocks.

Generally speaking, the Securities Act of 1933 regulates the _________ market in securities, whereas the Securities Exchange Act of 1934 regulates the _________ market. A Second; first B First; second C Secondary; primary D Primary; secondary

D Primary; secondary The Securities Act of 1933 regulates how securities are registered, issued, and distributed to the public for the first time—the primary market. The Securities Exchange Act of 1934 regulates the reselling of securities—the secondary market.Note: Don't confuse primary and secondary markets with first and second markets. "First market " is a term for exchanges like the NYSE with auction pricing, and "second market " is a term for networks like NASDAQ with negotiated pricing. The first and second markets are both part of the secondary market. Look again at whether that exam question said "second " or "secondary. "

Which of the following activities may a Registered Representative do prior to the filing of a registration statement for a new issue securities offering? A Solicit potential buyers and collect indications of interest B Solicit customer to place order to buy the issue C Send a preliminary prospectus to interested customers D Read background material on the industry

D Read background material on the industry Prior to the filing of a registration statement for a new issue, nothing can be done with customers. Of course, Registered Representatives are allowed to educate themselves on the industry the issuer is involved in. Once the registration statement is filed, a preliminary prospectus can be sent; indications of interest can be accepted; and a "tombstone" announcement can be published. Once the registration is effective, orders can be accepted if customers receive the final prospectus, at or prior to, confirmation of sale.

A customer has a cash account holding $200,000 of securities and $340,000 of cash. If the broker-dealer were to fail, which statement is TRUE regarding the status of the account in an SIPC liquidation? A SIPC will provide coverage for the $200,000 of securities only B SIPC will provide coverage for the total of $540,000 of securities and cash C SIPC will provide coverage for only $340,000 of cash D The customer will become a general creditor in the amount of $90,000

D The customer will become a general creditor in the amount of $90,000 SIPC covers customer claims against a failed broker-dealer for a total of $500,000, inclusive of maximum cash coverage of $250,000. For any claims above these limits, the customer becomes a general creditor of the failed broker-dealer. This customer has $200,000 of securities (covered in full) and $340,000 of cash (covered only for $250,000), for total coverage of $450,000. For the remaining $90,000 of cash not covered, the customer becomes a general creditor.

The Vice-President of ACME Corporation, an NYSE listed firm, places an order to buy 10,000 shares of ACME common at the market. 3 months later, ACME stock's price has increased by 20% and the officer places an order to sell. Which statement is TRUE? A The sale of the stock is not subject to Rule 144 B The stock cannot be sold unless it has been held, fully paid, for 6 months C The sale is prohibited until a "waiver of liability" has been obtained from the issuer D The officer must forfeit the profit on the sale

D The officer must forfeit the profit on the sale Since the seller is an officer of that company, he is a control person under Rule 144, and any sales must conform with the Rule. Rule 144 requires that restricted shares be held for 6 months, fully paid, before being sold. Since these shares are registered, they are not "restricted" and the 6-month holding period requirement does not apply. There is no requirement for a "waiver of liability" from the issuer. Since the officer did not hold the appreciated securities for at least 6 months, he or she has a "short swing" profit that must be paid back to the issuer under the Securities Exchange Act of 1934 "Insider" rules.

An officer of a listed company calls his registered representative and tells him to sell the maximum amount of that company's common shares in accordance with Rule 144. Prior to placing the order to sell, the registered representative calls five of his customers and tells them to sell that company's stock. Which statement is TRUE? A There is no violation of FINRA rules B There is no violation of Securities and Exchange Commission rules C This action violates the Securities Act of 1933 D This action violates insider trading provisions

D This action violates insider trading provisions When the registered representative received the sell order from the officer, he is obligated to execute that order before acting on the information he has received. Once the order is executed, the Form 144 has been filed (it must be filed either at or prior to execution of the order) and the order is public information. At this point, he can trade for himself or his customers, and he is no longer considered to be an "insider." In effect, the registered representative is "front running" the officer by telling his other customers to sell before placing the officer's sell order. This is a violation of the Securities Exchange Act Rule 10b-5. This is not a violation of the Securities Act of 1933, which solely covers the registration and sale of new issues.

All of the following actions require a filing with the SEC EXCEPT: A the purchase of a 5% position in one company's stock B an officer selling 1% of that company's stock C a broker-dealer's net capital computation D a company declaring a cash dividend to stockholders

D a company declaring a cash dividend to stockholders 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; and broker/dealers must report their Net Capital to the SEC. A corporate 8K filing is required for any unusual corporate announcements such as a merger or divestiture - it is not required for a dividend announcement, which is rather typical

What document provides information contained in the registration statement of a security and must be provided to investors of that security after the effective date for the security while the security is still a new issue? A trust indenture B tombstone advertisement C red herring D final prospectus

D final prospectus A security's prospectus contains important information from the registration statement, which is included in the security's prospectus to aid investors in making informed decisions. The final prospectus includes the public offering price and effective date, in addition to the information contained in the red herring, or preliminary prospectus. Underwriters give red herrings to potential investors during the cooling-off period (the time after the registration statement has been filed with the SEC, but before it has become effective) when gathering indications of interests.

All of the following are included in the 10K report filed by corporate issuers with the SEC EXCEPT: A income statement B balance sheet C retained earnings statement D net capital computation

D net capital computation Corporate annual reports contain the following audited financial statements - Income Statement; Balance Sheet; Statement of Changes to Retained Earnings (this shows earnings added for the year and dividends paid from retained earnings for that year); and Statement of Sources and Uses of Cash (this shows cash received that year from income earned; stock and bond offerings; and disposals of equipment; and cash paid that year for equipment purchases, pay-down of debt; dividends, etc.). Net capital computations are only required for broker-dealers registered with the SEC.

All of the following must be sent to broker-dealer customers semi-annually EXCEPT a broker-dealer's: A balance sheet B subordinated loan amounts C net capital computation D securities inventory amounts

D securities inventory amounts There is no requirement for a broker-dealer to disclose its inventory positions to customers. Semi-annually, customers receive a balance sheet (which includes a listing of subordinated loans - these are loans to broker-dealers where the lender subordinates his claim to all other creditors and are included as part of the firm's capital base) and a net capital computation from the broker-dealer.

Securities Investor Protection Corporation coverage limits per customer account are: A $500,000 total in cash and securities but only covers cash balances of up to $250,000 B $750,000 total in cash and securities C $250,0000 total in cash or securities D $500,000 total in cash and securities with no limit on the cash amount

A $500,000 total in cash and securities but only covers cash balances of up to $250,000 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.

Under the "penny stock rule," an established customer that is exempt from the rule is defined as a person who has made a deposit of funds or securities with that broker-dealer more than: A 1 year previously B 2 years previously C 3 years previously D 5 years previously

A 1 year previously Suitability statements are not required under the "penny stock rule" for so-called "established customers." These are customers who have either had cash or securities in custody of that broker-dealer for at least 1 year; or customers who have bought 3 or more "penny stock" issues previously from that broker-dealer.

Excluding the trading volume test, how much of the issuer's outstanding shares can be sold every 90 days under Rule 144? A 1% B 5% C 10% D 25%

A 1% Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is higher) to be sold every 90 days.

Which statement is TRUE about the spouse of an owner of 10% of the outstanding shares of a company? A The spouse is considered to be an affiliated person subject to Rule 144 B The spouse is considered to be an affiliated person and may sell up to 1% is the issued shares every 90 days C The spouse can sell shares without filing Form 144 D The spouse must file Form 144 within 24 hours of selling shares

A The spouse is considered to be an affiliated person subject to Rule 144 Rule 144 is applicable to officers, directors, and "affiliated" persons - meaning someone whom they "control." A spouse is considered an affiliated person. To sell, a Form 144 must be filed. The rule allows the greater of 1% of the outstanding shares or the weekly trading average of the last 4 weeks to be sold under the filing. 4 filings are allowed per year. The Form must be filed by the seller at, or prior to, with the placement of the sell order.

The SEC requires financial reports from all of the following EXCEPT: A municipal issuers B corporate issuers C municipal broker-dealers D corporate broker-dealers

A municipal issuers Municipal issuers are exempt from the provisions of the Securities Acts, as are all other governmental issuers. The SEC has authority over corporate issuers, and requires financial reports from corporations. Broker-dealers, including municipal broker-dealers, are registered through FINRA under SEC oversight; and their financial reports are filed with both FINRA and the SEC.

During a tender offer, all of the following activities are prohibited EXCEPT: A purchasing the stock in a cash account and tendering 4 business days after trade date B purchasing a call option in a cash account and tendering 4 business days after trade date C tendering shares held in an arbitrage account where the position is "short against the box" D purchasing a warrant in a cash account and tender 5 business days after trade date

A purchasing the stock in a cash account and tendering 4 business days after trade date Under the short tender rule, a customer can only hand in shares on a tender offer to the extent of his or her "net long" position. A customer who has bought the stock is "long" and can tender. A customer who has bought a call option or a warrant is not "long" until the option or warrant is exercised, so he or she cannot tender. A customer who is "short against the box" has a net "zero" position and cannot tender.

How much uninvested cash is protected, per investor, under SIPC? A $50,000 B $250,000 C $500,000 D $1,000,000

B $250,000 There is a $250,000 limit on the amount of cash that SIPC covers in an investor's account. This would apply individually to both spouses.

Which organization is NOT subject to the Federal Telephone Consumer Protection Act of 1991? A A Broker-Dealer B A University C An Investment Adviser D A Commercial Bank

B A University The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited "commercial" phone calls. Charitable (not-forprofit) institutions are exempt from the Act's provisions.

A new issue offering to a maximum of 35 non-accredited investors that has not been registered with the SEC is: A exempt under Regulation A B exempt under Regulation D C exempt under Rule 144 D not exempt and must be registered

B exempt under Regulation D Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement.

Which of the following can NOT be a stabilizing bid for a new issue that has a Public Offering Price of $30 per share? A $29.75 B $29.88 C $30.03 D $30.00

C $30.03 Stabilizing bids can only be entered at or below the public offering price, never above. If the bid were allowed to be placed above the public offering price, it would make the issue instantly "hot" and this is prohibited.

Under Rule 144, no filing is required if the sale amount every 90 days does not exceed: A $10,000 B $25,000 C $50,000 D $100,000

C $50,000 Form 144 does not have to be filed to sell restricted or control stock if 5,000 shares or less, worth $50,000 or less, is sold during each 90 day period.

Under FTC and FINRA rules, individuals who ask to be placed on "Do Not Call" lists go on the list for: A 3 years, and then must renew to remain on the list B 4 years, and then must renew to remain on the list C 5 years, and then must renew to remain on the list D 10 years, and then must renew to remain on the list

C 5 years, and then must renew to remain on the list Under "former" FINRA and FTC rules, any individual who asked to be placed on either a Firm Do Not Call list or the National Do Not Call registry remained there for 5 years. Subsequent rule changes now place an individual on the list "indefinitely," but this is not reflected in the question. This is the way it should be known for the exam, unless "indefinitely" shows as a choice.

The provisions of the Penny Stock Rule, which require the pre-qualifying of a new customer before a "penny" stock can be sold to that individual, only apply to the recommendations of: A NYSE securities B NASDAQ securities C OTC securities D AMEX securities

C OTC securities The "penny stock rule" (Rules 15g-1 through 15g-6) requires that new customers who receive a recommendation and purchase non-exchange listed securities (meaning OTC Markets Group issues) priced under $5 per share sign and return a suitability statement before sale can be confirmed. This rule is intended to stop "boiler room" high pressure phone sales of speculative penny stocks.

The main purpose of the Securities Exchange Act of 1934 is to: A regulate the sale of new issue securities B create the Securities and Exchange Commissions C establish anti-fraud rules for securities market participants D establish anti-money laundering rules for securities market participants

C establish anti-fraud rules for securities market participants There are 2 correct answers to this question, but one is more correct! The Securities Exchange Act of 1934 regulates the securities markets, with the main intent being to prevent fraud and manipulation. It also created the SEC as the regulatory authority over the markets and market participants. In contrast, it is the Securities Act of 1933 that was enacted to prevent fraud in the sale of new issue securities by requiring registration with the SEC and full and fair disclosure with a prospectus (unless the securities are exempt or are offered in an exempt transaction, such as a private placement).

The Self Regulatory Organizations (SROs) are: A private companies B government sponsored enterprises C membership organizations D publicly traded companies

C membership organizations The self regulatory organizations are membership organizations. Note that the self regulatory organizations are now divested from the actual trading marketplaces. For example, FINRA is the SRO; and NYSE and NASDAQ are the stock exchanges. Both of these exchanges are publicly traded entities. The SRO is a membership organization that writes and enforces rules for members, audits members for compliance, and that collects dues from members to pay for these activities.

Banker's Acceptances are: A money market instruments subject to the Securities Act of 1933 B capital market instruments subject to the Securities Act of 1933 C money market instruments exempt from the Securities Act of 1933 D capital market instruments exempt from the Securities Act of 1933

C money market instruments exempt from the Securities Act of 1933 Bankers Acceptances are a money market instrument used to finance imports and exports. They are an exempt security under the Securities Act of 1933 and can be sold without a prospectus.

The Securities Act of 1933 is primarily concerned with registration of: A broker-dealers B exempt issues C non-exempt issues D self-regulatory organizations

C non-exempt issues The Securities Act of 1933 requires that new issues that are not exempt from the Act be registered with the SEC. Thus, the 1933 Act is concerned with the primary (new issue) market. The Securities Exchange Act of 1934 consists of a variety of rules covering the trading (secondary) market. It requires the registration of broker-dealers and self-regulatory organizations (the exchanges).

Stabilization of new issues is: A a provision of the Securities Act of 1933 B a provision of the Uniform Securities Act C permitted at, or above, the Public Offering Price D permitted at, or below, the Public Offering Price

D permitted at, or below, the Public Offering Price Since a stabilizing bid is placed in the trading (secondary) market, the rules for stabilizing bids come under the Securities Exchange Act of 1934. Stabilizing bids are permitted at, or below, the Public Offering Price - never above.

Government bonds must have their indentures qualified by the SEC: A If their total issue amount exceeds $5 million B If their total issue amount exceeds $50 million C In all cases D At no time: they are not required to have their indentures qualified by the SEC

D At no time: they are not required to have their indentures qualified by the SEC Under the Trust Indenture Act of 1939, corporate bond issues valued at $50 million or greater must have their indentures qualified by the SEC. Government bonds and other exempt securities (e.g., corporate paper, banker's acceptances) are not subject to this requirement