S24 Exam 3 Study Set
A broker-dealer that quoted NMS securities must maintain a minimum net capital of:
A broker-dealer that makes markets and effects transactions for its own account is required to maintain a minimum net capital of $100,000.
In order to qualify for the block-size order exception to the SEC's Limit Order Display Rule, the order must be for at least:
10,000 shares or have a value of at least $200,000 The SEC's Limit Order Display Rule does not apply to a block-size order, unless the customer placing the order requests that the order be displayed. Block-size is defined as any order of at least 10,000 shares or for a quantity of stock having a market value of at least $200,000. Block orders under the Customer Limit Order Protection Rule are defined as orders of at 10,000 shares or more and a value of at least $100,000.
IF the department of enforcement issues a complaint how many days does the repondent have to answer
25 days
All communication to the public retention period
3 years
When is disclosure required for any updates on a U4 for felonies, theft, et
30 days
If under the COP, a Hearing Panel is convened, a decision is typically rendered within: 60 days of the hearing's conclusion
60 days of the hearing's conclusion A Hearing Panel adjudicates complaints against a member firm and assesses penalties. A decision is rendered within 60 days of the conclusion of the hearing. The penalty becomes effective unless appealed to the National Adjudicatory Council 30 days from the date of the decision. However, a ban or expulsion is effective as soon as the decision is served on the respondent. (82803)
Which of the following is TRUE concerning a Private Investment in Public Equity (PIPE) transaction?
A Private Investment in Public Equity (PIPE) is a type of private placement where a broker-dealer acts as a placement agent for the restricted securities of an issuer that already has publicly traded securities. These offerings may be sold under Reg. D to accredited investors over an extended period at various prices. Once the PIPE offering is announced, the company's share price will generally decline since there will be an increase in the number of shares (potential dilution) along with a perception that the company is in need of capital. NOTE: Hedge funds are frequent purchasers of this type of offering, and if the hedge fund covered a recently executed short sale with shares purchased through a PIPE, the action would violate Regulation M.
OATS
A broker-dealer is required to transmit to the Order Audit Trail System (OATS) all order-related information by 8:00 a.m. on the calendar day following the OATS business day (after the trade).
Generic Advertising
A communication that mentions the investment objectives and desirability of owning shares of a registered investment company is called:
Which of the following transactions would require a customer to be designated as a pattern day trader?
A customer is considered a pattern day trader if the account executes four or more day trades (purchase and sale or short sale and purchase) executed within any 5-day period. Simply executing 4 individual trades over 5 days would not designate a client as a pattern day trader. (Note: All days referenced in this question are assumed to be business days since trades cannot be executed on weekends or holidays.) The minimum equity required for a pattern day trader is $25,000.
When are short position reports due to FINRA?
A member firm is required to file semimonthly reports of its short positions (short interest). The reports must be received by FINRA by the second business day after the reporting settlement date. (82926)
Member firm participating in a distribution of an OTC equity
A member firm participating in a distribution of an OTC equity security is required to withdraw its quotations during the Regulation M restricted period. Passive market making, and filing for excused withdrawal status, would only be applicable for a registered Nasdaq market maker. (98988)
Which of the following statements is TRUE regarding of supplemental MPID quotes?
A member firm that is registered as a market maker in a specific security must have its own two-sided firm quote. This is known as its Primary MPID. A FINRA member firm may have additional displayable or nondisplayable supplemental MPIDs. The nondisplayable (nonattributable) quotes or orders are posted anonymously through Nasdaq's NSDQ. Supplemental MPID quotes may be one-sided and are not subject to unexcused withdrawal penalties. Trades should be reported using the same MPID as the quote. Supplemental MPIDs may not be used for passive market making or stabilizing bids. (82751)
Broker-Dealer A is an introducing firm that has a trading desk. It typically provides the DTC number of its clearing firm to trade counterparties. This practice is known as a:
A member may, by agreement, permit another member to report and lock in trades on its behalf. This arrangement requires written documentation and is commonly known as a give-up agreement. Both firms may still be held responsible if the trade is not properly reported. (82716)
SEC Rule 135
A notice may be required to be published concerning the transfer of assets of a companySuch notices are not required to be filed with the SECThe notice must have a legend explaining that it does not contain an offer to sell securities
Which of the following is TRUE concerning a private placement memorandum?
A private placement memorandum is a disclosure document commonly used in Regulation D offerings. The document is required to be produced only if non-accredited investors are permitted to invest in the offering. If the document is produced, it must be distributed to all participants (both accredited and non-accredited). (82699)
what securities are cleared through the NSCC?
A qualified security between two members of the NSCC
Payments for which of the following is acceptable under a soft-dollar relationship?
A soft-dollar arrangement is a practice in which an investment adviser pays for research or other services from a broker-dealer with commission dollars rather than buying these services separately. Paying for mass marketed periodicals with soft dollars is prohibited but paying for a subscription to a trade publication is acceptable. Paying admittance fees to a securities conference is acceptable but travel expenses may not be paid for through soft dollars. (82730)
A broker-dealer is engaged in a follow-on offering and a hedge fund customer wants to sell short 100,000 shares of the stock. The broker-dealer may take which of the following actions?
Accept the order Rule 105 of Regulation M stipulates that it is a violation for any person to sell short the security that is the subject of an offering and to purchase an offered security from an underwriter if the short sale was executed during the period beginning five business days prior to the pricing of the offering and ending with the pricing of the issue. The hedge fund customer is permitted to sell short within the five-business-day restricted period prior to pricing provided it does NOT purchase the securities being offered in the follow-on. (82800)
Cross Trading
Acting on both sides of the trade and it is ok as long as full disclosure
AAA Investments is applying to become a new member firm with FINRA. There are some deficiencies in its initial application. How long does the firm have to correct these deficiencies?
After receiving a BD membership application through the Firm Gateway, FINRA must review and process it within 180 calendar days. First, FINRA conducts a preliminary review of the application to determine if it is substantially complete. If the application is found to be deficient, the applicant will be given 5 days to correct the deficiency. If the application filing is deemed substantially complete, FINRA staff is allotted 30 days to complete its review and determine whether more information is needed. If additional information is required, the FINRA staff must issue a written request within this time frame. The applicant will then have 60 calendar days to fully respond to FINRA's initial request for additional information. (82749)
A wholesaler for WWW Funds has given an RR at Triple Z Brokerage an advertisement trumpeting the fund family's superior performance. This communication:
All retail communications related to investment companies must be filed with an SRO within 10 business days of initial use. If a fund (sponsor) prepares the retail communication that is subsequently used by a broker-dealer, the sponsor (not the broker-dealer) is required to file the retail communication. Remember, prior to its use by the member firm's salespersons, the retail communication must be approved internally by a principal of the broker-dealer. (82677)
The manager of an office of supervisory jurisdiction (OSJ):
An OSJ must be supervised by a registered principal. As a general rule, FINRA requires this person to be on-site, and have a physical presence on a regular and routine basis but there is no requirement as to the frequency of the principal's presence at the OSJ. The OSJ manager may function as a producing registered representative if the firm documents how this person will be properly supervised. Inspection of the OSJ is routinely done by personnel from outside of the location to avoid conflicts. Certain options activates must be approved by a registered options principal (ROP) who may be remote from the OSJ location. (82708)
Under Regulation SHO, in which of the following circumstances would a customer be required to borrow shares prior to selling the stock?
An individual is considered to be long a security for purposes of the short sale rule if the investor or an agent, such as a bank, broker-dealer or prime broker, has title to the security. The customer is also considered to be long upon entering into an unconditional contract to purchase the security, even if delivery has not yet been made. Although a customer owns a security that is convertible into the shares that will be sold (short), since the security remains unconverted, the customer, under Regulation SHO, is not considered to be long. (82790)
What is the primary goal of a risk-based trade review process?
Avoiding SRO rule and securities laws infractions The term risk-based describes the type of methodology a firm may use to identify and prioritize for review those areas that pose the greatest risk of potential securities laws and self-regulatory organization (SRO) rule violations. In this regard, a firm is not required to conduct detailed reviews of each transaction if the firm is using a reasonably designed risk-based review system that provides the firm with sufficient information to enable the firm to focus on the areas that pose the greatest numbers and risks of violation. (82748)
Which of the following is/are responsible for ensuring the accuracy of a trade report between a clearing and non-clearing firm?
Both firms Under both the ORF and TRF reporting rules, both broker-dealers are required to report transactions in equity securities. The member firm that has the reporting obligation (usually the seller) is required to report the trade within 10 seconds after execution. In order to clear (affirm) the transaction, the other broker-dealer will either enter its trade information, or use the Browse Function to accept or decline the trade (based on the other member firm's details) within 20 minutes after execution. DTCC accepts the cleared trade for settlement after the contra party's affirmation. (82672)
Under FINRA rules, what defines a branch?
Branches are defined as locations where 25 or more securities trades are effected annually. If a representative uses a vacation home to transact business for 30 business days or more per year, the location qualifies as a branch. Both branches and non-branches may have signage displaying the firm's name. (82817)
A broker-dealer would like to promote the benefits of portfolio margin on its Web site. Which of the following is TRUE?
Broker-dealers are permitted to advertise or promote the benefits of portfolio margin on their Web site. This communication would be defined as a retail communication, subject to principal approval and filing with FINRA, and retention of a copy for three years. The broker-dealer must notify and receive approval from FINRA to offer this type of account as well as deliver to customers a special written disclosure document. Portfolio margin is available to investors who are approved for uncovered options writing. (82698)
Rule 15c3-3
Customer protection rule-
What is the intra-day buying power of an pattern day trader's account that has a long market value of $100,000 and a debit balance of $40,000?
Day-trading buying power is limited to four times the trader's maintenance margin excess, determined as of the close of the previous day. The client's equity is $60,000 ($100,000 - $40,000). The SRO maintenance requirement is 25% of the long market value ($25,000). The maintenance margin excess is found by subtracting the SRO maintenance requirement from the current equity ($60,000 - $25,000 = $35,000). The day-trading buying power is 4 x $35,000, which equals $140,000.
An individual is considering opening a new account with a broker-dealer and provides some personal information in order to develop an investment profile. The dealer intends to share some of this client's non-public information with its affiliate. According the Regulation SP, the broker-dealer will:
Do nothing The individual in this question has yet to establish a relationship with the broker-dealer and would be defined as a consumer. If a broker-dealer plans to share the information with only affiliates, there is no requirement to provide the consumer with a privacy notice. If the broker-dealer intends to share the information with a non-affiliated third party, a privacy notice must be provided to the consumer before the information is disclosed. If the individual establishes a relationship as a customer of the broker-dealer, the privacy notice must be provided at that time and annually thereafter. This privacy notice would allow the customer to opt out of sharing this information with the non-affiliated third party.
The 5% Policy applies to which of the following transactions?
ETF trades The 5% Policy applies to both equity and debt trades. IPOs and mutual funds are excluded from the policy since these products are sold via prospectus. An ETF transaction would be subject to the policy. (82687)
When giving notice of a distribution, an issuer should supply all the following information to FINRA, EXCEPT the:
Ex-date The issuer should provide FINRA with the name of the security to which the declaration relates, the date of declaration and the date of record used to determine holders entitled to receive the dividend or to participate in the stock or reverse split, and the payment date. The ex-date is not given since it is a function of the type of distribution, the record date, and/or the settlement date. (82798)
FINRA members reporting requirements for short interest
FINRA members must maintain a record of total short positions in any security listed on a national securities exchange (e.g., NYSE and Nasdaq) and OTC equity securities for both customer and proprietary accounts. This information must be filed with FINRA twice each month and would be reported by the close of business on the second day after the calculation. OTC equity securities are defined as any security not listed on a national securities exchange and include securities quoted on the OTCBB and OTC Pink Marketplace. (71189)
A firm holds an undisplayed customer limit order to buy 1,000 shares of XXX at $33.33. The dealer subsequently buys a large block at a negotiated price of $33.08. The firm must:
Fill the client at $33.08 or better within 60 seconds
What is the reporting threshold on Form U-4 for arbitration awards?
Fines in excess of $2,500 and arbitration awards of $15,000 or greater must be reported on Form U4. These awards would also be disclosed to the public through FINRA's BrokerCheck® system. (82674) 15,000
John Smyth is the CEO of NNN Industries. He wants to sell 3,000 shares of his company's stock but the shares are stuck in transfer. When is he required to deliver the shares?
Generally, insiders are prohibited from selling short stock in their subject company. An exception is granted in that an insider may engage in a technical short sale known as a short-against-the-box transaction in which the seller owns the shares but cannot make immediate delivery. In this case, the seller must make delivery within 20 days. (82778)
SEC Rule 17a3
If books and records requirements for this isn't current the notice must be filed immediately IN 48 hours it must file a notice stating what the firm has done to correct the situtuation
The husband of a registered representative may purchase shares of an initial public offering:
If his allocation was issuer directed Under the New Issue Rule, a restricted person may not purchase shares of a new issue (an IPO). A member firm and its employees are considered restricted persons, regardless of whether the RR's firm is a member of the syndicate or selling group. A RR's immediate family members (spouse, children, parents, siblings, and in-laws) are also restricted persons. Nonsupported immediate family members may purchase new issues (IPOs) if the purchase is made though a different broker-dealer. An exception existed if a restricted person is employed by the issuer and receives shares directly from his employer. (82754)
According to the Customer Order Protection Rule, a broker-dealer may trade in front of a customer buy order:?
If the firm is willing to pay at least .01 more per share for the stock
Which of the following persons are bound by industry rules when opening an account at another member firm?
Industry rules regarding employees of member firms who wish to open an account at another member firm, also apply to the employee's spouse and minor children. (88527)
The inside market is 10.20 - 10.30. The confirmation of a customer's sell transaction shows an execution price of 10.205. This execution level:
Is an example of price improvement This trade is an example of price improvement; a practice in which a seller receives a price above the best (highest) bid or in the case of a buyer, receives a price below the best (lowest) offer. Price improvement is often measured in fractions of a cent. Quotes, not trades must typically be entered in .01 increments.
Broker-Dealer X sells stock to a customer as principal. The compensation on the trade is referred to as a:
Mark-Up and is based on the inside market asking price
A new member firm is required to execute its first compliance certification:
No later than its first anniversary of becoming a member
Exceptions to manning rule
Orders for institutional accounts (banks sand l, RIA) or registered investment advisors or any other entities. Large orders from retail customers, 10,000 100k
Which of the following statements is TRUE concerning the use of portfolio margin in retail accounts?
Portfolio margin is not available for small retail clients. The following entities are permitted to engage in portfolio margining. Any broker or dealer registered with the SEC under the Exchange Act Any member of a national futures exchange to the extent that listed index options, unlisted derivatives, ETF options, index warrants, or underlying instruments hedge the member's index futures Any person approved to engage in uncovered option contracts. If a customer wants to trade unlisted derivatives, the customer must maintain equity of at least $5,000,000 at all times. (82908)
The Customer Order Protection Rules requires firms to:
Protect customer orders in the pre-market The Manning Rule (Customer Limit Order Protection Rule) prevents market makers from trading ahead of customer limit orders. In other words, it requires a market maker to fill a customer limit order immediately if the market maker executes a trade for its own account that would have satisfied the customer's order. Immediately generally means within 60 seconds of the execution for the firm's account. Of course non-marketable limit orders (those buy orders below the market or sell orders above the market) are not required to be filled by the firm. Manning obligations apply to both pre-market and after-market orders. (82759)
Which of the following disclosure items would NOT be included on an order ticket?
RR and client identifiers would be included on an order ticket. Contra-broker, routing instructions or execution venue information would not be included because this information would not be known prior to the execution. The type of account (cash, margin, DVP etc.) would also be noted on the order ticket. In addition, whether the order was solicited or unsolicited, and do-not-reduce instructions would also be recorded on an order ticket. The trade date appears on the order ticket as well as the conformation. Both the settlement date and CUSIP information would be found on the confirmation. (82725)
When are RR's permitted to hold outside financial accounts without notifying their employer?
RR's are required to notify their employer regarding outside brokerage and investment advisory accounts. This requirement does not apply to accounts that only involve mutual fund or variable annuity transactions. (82713)
Which of the following is TRUE concerning a participant in a Regulation A+ offering?
Regulation A+ is a public offering open to both U.S. and foreign investors. There is no requirement that the purchasers are accredited. The disclosure document in a Reg. A+ offering is referred to as an offering circular and must be provided to all purchasers. (82791)
Regulation SX
Regulation S-X sets forth the form and content for financial statements filed under the Securities Act of 1933 and reports filed under the Securities Exchange Act of 1934. The Trust Indenture Act of 1939 requires a trustee to be retained by an issuer of certain corporate debt offerings, but the Act is not impacted by Regulation S-X. (99656)
If a principal discovers that his firm is in possession of counterfeit securities, which of the following choices describes an appropriate action?
Report the counterfeit security within one day
SEC Rule 17a-11
Requires BD's to file notice if certain events occur
A registered representative frequently blogs in an interactive chat room devoted to precious metals stocks. This type of communication:
Requires principal supervision but the content does not require preapproval An interactive blog is treated by FINRA as a form of public appearance. These activities must be monitored by a principal but since the communication is fluid between participants, preapproval of each post is not required. (82671)
Which of the following would permit an insider to trade during a blackout period?
Rule 10b5-1 prohibits a person from buying or selling a security based on material, nonpublic information. Many corporate executives may want to purchase or sell securities in which they are considered a corporate insider or considered to be privy to material, nonpublic information. A 10b5-1 plan allows a person to have an affirmative defense against insider trading if certain conditions are met.
13e-3
SEC Rule 13e-3 applies to going private, a transaction by issuers of publicly traded securities. The issuer is required to file a Schedule 13E-3 with the SEC. (71050)
SEC Rule 145
SEC Rule 145 applies to situations in which securities are offered as a result of business combinations due to mergers, acquisitions, consolidations, reclassifications of securities, or transfers of corporate assets. The only information permitted is: The name of the person whose assets are to be sold in exchange for the securities to be offered The names of any other parties to the transaction A brief description of the business of the parties to the transaction The date, time and place of the meeting of the security holders to vote on, or consent to the transaction A brief description of the transaction and the basic terms of the transaction
NOn directed order flow reporting requirement
SEC Rule 606 requires broker-dealers to disclose quarterly, nondirected order flow sent to market centers. Nasdaq is a market center which, under Rule 605, must report order execution statistics for all orders received. With a directed order, a customer specifies a specific market center. A nondirected order does not have a specific market center designated by the customer and is chosen by the broker-dealer. (98881)
Rule 15c2-1
SEC rule governing the safekeeping of securities in customer margin accounts. It prohibits broker/ dealers from (1) using a customer's securities in excess of the customer's aggregate indebtedness as collateral to secure a loan without written permission from the customer, and (2) commingling a customer's securities without written permission from the customer. Related item(s): rehypothecation.
If you acquire more than 5% of stock who do you notify and within what timeframe?
SEC, issue, exchange within 10 days after purchase
Rule 10b-18
SafeHarbor from Issuer illegally increasing the price of it's own stock via repurchase. Legal purchases must: - only use one broker dealer to place bids and make purchases during any trading session. - may not make first purchase of the day nor make anyy purchases during the last half hour of the normal trading day. If actively traded, prohibition changes to last 10 mins - Price paid by issuers may not be higher than the highest independent BID or the last independent TRANSACTION price. - amount of stock purchased on any single day limited. The total volume on any single day may not exceed 25% of ADTV for that security.
Schedule 13D
Section 13(d) of the Securities Exchange Act requires anyone who acquires more than 5% of an issuer's equity securities to notify the issuer, the exchange where the securities are traded, and the SEC, within 10 days. Schedule 13D is filed by persons who may intend to influence or control the issuer, while a Schedule 13G is (usually) filed by institutional investors (e.g., a mutual fund company) that have no intention to influence or control the issuer. The background and identity of the person or group is disclosed in this schedule. (61292)
Broker-Dealer A is holding a customer's limit order to sell an NMS stock at $3.77. In order for a broker-dealer to trade for its own account without creating a front-running violation the firm must:
Sell the stock for its own account at $3.76 or lower Under the Customer Order Protection (Manning) Rule, a minimum price improvement of $.01 (1 cent) is required for a broker-dealer to execute a transaction for its own account while holding a customer's held limit order. This condition applies to NMS stocks that have a price of $1.00 or more. In this example, the broker-dealer would need to sell at $3.76 or lower to avoid front-running the client. The Manning Rule requires that a firm repair a front running violation within 60 seconds. (82736)
Simplified arbitration
Simplified arbitration is used if the amount of the dispute does not exceed $50,000 and the dispute involves a public customer. If the dispute is between members or affiliated persons and does not exceed $50,000 then the type arbitration used would be simplified industry arbitration and the arbiter would be a nonpublic arbitrator. Normally with simplified arbitration there will be a single nonpublic arbitrator deciding the case based on written evidence without a hearing but the public customer can either demand or consent to both a hearing and an arbiter from within the industry. (99822)
Rule 15c2-11
The MM must file a form 211 with FINRA for OTC Reg. -Must be filed 3 business days prior to entering priced quotes in OTCBB or Pink -Must first conduct due diligence
A customer enters an order for 750 shares of an NMS stock. The order is:
The Nasdaq system accepts round-lot orders (100 share increments), odd-lot orders (less than 100 shares), and mixed-lots (a round- and odd-lot order combined). Note: All quotes may only be entered in round-lots. (82719) A mixed-lot, and may be accepted as is
Under industry rules, in which of the following situations could a broker-dealer be considered to be approaching financial difficulty?
The SEC's Early Warning rule is triggered if a broker-dealer's ratio of aggregate indebtedness to net capital exceeds 12:1 (8:1 is only required for a new firm) or its net capital is less than 120% of the required minimum. FINRA rules also describe conditions under which it considers a firm to be approaching financial or operational difficulty, which includes, for example, if a broker-dealer displays the inability to clear and settle transactions promptly—an increase in DKs, choice (b). An extended list follows:
Which of the following statements is TRUE concerning cold calling?
The Telemarketing Rule prohibits unsolicited telephone calls made prior to 8:00 a.m. or after 9:00 p.m. local time, based on the destination of the call. A member is also prohibited from making unsolicited phone calls to any number that is on a Do Not Call List. Calls made to existing clients are not covered by the limitations of the rule. (82755)
How do you transfer securities as a donor?
The donor may use two methods to transfer the securities to a charity. If the stock is held by a broker-dealer and is registered in street name, the client would provide written instructions to indicate his intention to transfer the securities to the charity. A transfer instruction form may be submitted for account title changes and gifting. The signature of the donor (or donors) is required. If the stock is held in the name of the donor, the stock certificate may be endorsed or the donor will deliver the certificates with a signed stock power. Automated Customer Account Transfer (ACATS) is the system used by broker-dealers to transfer and retitle securities when a customer transfers an account to another member firm. (71202)
An applicant for a sales position who was formerly an RR, was convicted of a felony concerning commodities 8 years ago. Under FINRA rules which of the following procedures is TRUE?
The firm may request relief from FINRA A disqualified person may apply to an SRO to enter or reenter the securities industry before the 10-year disqualification period has elapsed. A waiver from the SRO must be granted following an Eligibility Proceeding in order to reenter. However, if the SRO grants the waiver, it must notify the SEC. Ultimately, the SEC has the authority to overturn the waiver. If the SEC has no objections, these persons are often placed under heightened supervision procedures at the employing broker-dealer that are detailed in the firm's WSP. (82997)
A broker-dealer using the alternative standard of calculating its minimum net capital must maintain:
The greater of $250,000 or 2% of its aggregate debit items
Stabilizing Bid (how many? unlimited bids?)
The highest price at which a stabilizing bid could be entered is the public offering price. The syndicate may only have one (not multiple) stabilizing bids, which is generally placed by the manager. Although there is only one stabilizing bid permitted, there is no limit as to the number of stabilizing purchases that may be made. The managing underwriter is required to notify the principal market that it will be placing a stabilizing bid. In addition, under Rule 104, stabilizing is prohibited in an at-the-market offering. (71085)
Which of the following statements is TRUE regarding the internal inspection of a broker-dealer's different office locations?
The inspection may be conducted by an OSJ principal or another qualified person Each member firm shall inspect every OSJ and any branch office that supervises one or more non-branch locations on at least an annual basis. For branch offices that do not supervise one or more non-branch locations, an inspection is required every three years. For non-branch locations, an inspection should be conducted on a regular, periodic schedule. Under FINRA rules, member firms must ensure that the person conducting the inspections is not an associated person who is assigned to the location or is not directly or indirectly supervised by an associated person assigned to the location. (87796)
Under what circumstances is a market maker prohibited from making a passive market?
The issue is listed on the Bulletin Board Passive market making may only be employed for national market securities. If an offering is regarding a Pink Market or Bulletin Board issue, the distribution participant must cease making markets in the issue immediately. To make a passive market, there must be at least one independent bid in the issue. (82732)
The maximum civil penalty for insider trading violations is:
The maximum civil penalty for insider trading violations is three times the amount (treble) gained or loss avoided. The maximum criminal penalties per violation for individuals are a fine of $5,000,000, 20 years in prison, or both. Corporations are subject to a criminal penalty of $25,000,000 per violation. (82737)
In a transaction between a customer and a member involving a nasdaq stock who must report the trade?
The member must report the trade irrespective of whether it makes a market in the stock
Switching
The practice of selling one mutual fund and reinvesting the proceeds in another fund is called switching. A mutual fund switch is a supervisory red flag since it is a taxable event and the client may incur additional sales charges. While there are valid reasons for altering a client's mutual fund holdings, such as a change in investor objectives or dissatisfaction with the fund's performance, the RR should be prepared to justify the transactions. Transactions that are initiated primarily to generate commissions for a representative are not permitted. (99120)
Which of the following statements is TRUE concerning stabilization?
This practice is prohibited in ATM offerings The SEC defines stabilizing as the placing of any bid or the effecting of any purchase for the purpose of pegging, fixing, or otherwise maintaining the price of a security. As its definition implies, the act of stabilizing is manipulative. However, if performed in accordance with Rule 104 of Regulation M, stabilizing is allowed so that the benefits of an orderly distribution of securities can be realized. At-the-market offerings (ATMs) are follow-on offerings performed at various prices over an extended timeframe. Stabilization of these offerings is not permitted. (82673)
Safe Harbor rule 10b-18
The safe harbor afforded issuers by Rule 10b-18 applies only to open market purchases by an issuer of its common stock. The safe harbor does not apply to purchases of any other type of security, even if related to the common stock. Transactions in derivative securities, such as warrants, options, or single-stock futures, are not eligible for the safe harbor offered under Rule 10b-18. (99236)
Subscription Agreement for Private Placement
The subscription agreement is a sales contract for the sale of securities in a private placement. It sets forth the terms and conditions of the offering. This agreement would usually contain the following information. A statement in which the investor agrees that she alone, or with the assistance of a purchaser representative, has sufficient knowledge and experience to evaluate the risks and merits of the investment A statement by the investor providing her annual gross income and net worth A statement regarding the status of the investor, and the category of accredited investor (This is also referred to as the qualification of investor section.) The number of shares (or units) and the price per unit that the investor is purchasing A statement by the investor acknowledging that she has received and carefully reviewed a numbered copy of the appropriate disclosure document, and any other related information concerning the issuer
The amount of restricted securities that may be sold under Rule 144 without notifying the SEC is:
There is a limitation on the amount of stock that may be sold pursuant to Rule 144. If a stock is listed on an exchange, the maximum that may be sold is the greater of 1% of the total shares outstanding or the average weekly volume of the past four weeks. There is an exemption from the filing requirements under 144 available to a seller of no more than 5,000 shares worth no more than $50,000.
IN house maintenance margin requirements
There is no notification requirement
Which of the following is TRUE regarding equity trades executed on a firm's internal crossing network?
Trades done on any Alternative Trading System must be reported to the TRF or ORF within 10 seconds. OATS is not a trade reporting system. (82765)
A firm is bid $30.30 and offered at $30.45. A customer would like to buy stock at $30.33. The firm must reflect the client's interest:
Under the Customer Limit Order Display Rule, a displayable customer limit order must be reflected in the market maker's quote immediately, which the SEC defines as within 30 seconds under normal market conditions. (82763)
A firm is distributing a follow-on issue of a NYSE listed company. A prospectus must be provided to any aftermarket purchaser for:
When a new issue is sold to the public, a prospectus must be provided to all potential purchasers. In addition, dealers who sell the security in the aftermarket may be required to provide a prospectus. This requirement lasts for 25 days following the initial public offering (IPO) for issues to be listed on an exchange (NYSE or Nasdaq) and 90 days for IPOs to be listed on the Bulletin Board or Pink Markets. Follow-on offerings of listed issues are not subject to aftermarket prospectus delivery rules. Only follow-on offerings of Bulletin Board or Pink Market issues have an aftermarket delivery requirement (40 days).
A stock is borrowed from Client A and sold short by Client B to Client C. The trade occurs 3 days before the ex-dividend date. Which of the following would receive the cash dividend from the issuer?
When an investor sells short, the broker-dealer executing the short sale borrows the stock on behalf of the investor. Since the stock was sold short prior to ex-dividend date, the new buyer (Client C) will receive the dividend from the issuer. The short seller/borrower (Client B) will owe the dividend to Client A (the original owner/lender). (82756)
When must advertisements be filed with the SRO? (UIT , variables)
Within 10 days of initial use
A broker-dealer would like to move a branch location. The firm is required to notify FINRA:
Within 30 days Form BR is used to notify FINRA as to the status of a given branch location. Under FINRA rules, an applicant is under a continuing obligation to revise Form BR promptly whenever the information becomes inaccurate or incomplete. Amendments must be filed promptly, which typically means the applicant has 30 days to submit the revised information. It is important to remember that a branch office is any location where a member regularly conducts the business of effecting transactions in, or inducing or attempting to induce the purchase or sale of any security, or is held out as such. While a branch is typically located at a permanent location such as a building, it may also be housed at a movable location such as a boat, recreational vehicle or mobile home. (82714)
Who reports TRACE eligible transactions
both buyer and seller reports the transaction
A circular or other form of advertisements isn't considered a prospectus if ....
fund performance isn't included but has funds objectives, funds emphasis on growth or income, and the name of its principal officers
Which of the following issuers would NOT be defined as a well-known seasoned issuer (WKSI)?
n issuer that wants to qualify as a well-known seasoned issuer (WKSI) must meet the following requirements. Eligible to register on Form S-3 (the short form of the registration statement) or Form F-3 (the registration statement for certain foreign private issuers) Within 60 days of the determination of eligibility must have either A worldwide market value of outstanding voting and nonvoting common equity held by nonaffiliates of $700 million or more, or In the last three years issued at least $1 billion aggregate principal amount of nonconvertible securities (other than common equity). These primary offerings must be purchased for cash, as exchanges of securities do not qualify. Additionally, the offerings must be registered under the Securities Act of 1933 May not be an ineligible issuer
Mandatory research report disclosures
the analyst (or members of the analyst's household) has a financial interest in the securities of the subject company (i.e., holds shares, warrants, or option contracts of the subject company) Whether the firm has ownership of the subject security, if such ownership is 1% or greater of the outstanding stock of the subject company. Ownership must be ascertained as of the end of the month directly preceding publication of the research report, allowing for a 10-day calculation period. If the report is published less than 10 days from the end of the month, a member may ascertain ownership based on the second most recent month. Disclosure of whether the firm makes a market in the subject security Any material conflict of interest about which the analyst or member knows or has reason to know Whether the member has received compensation for investment banking activity from the subject company during the 12 months preceding publication, or expects to receive or seek compensation in the three months following publication
When is cash settlement or same day settlement complete?
when the customer is recorded as the owner of the stock
When does an interactive investment tool need to be notified?
within 10 days from use
