Series 6 - Unit 5

To be in compliance with the Investment Company Act of 1940, every registered investment company must report to shareholders no less frequently than every: A) 16 months. B) 3 months. C) 12 months. D) 6 months.

6 months. Investment companies must report to customers on the state of the company at least twice a year with one audited annual report and one unaudited semiannual report.

According to the Conduct Rules, a FINRA member must do which of the following? A) Authorize a registered representative to share in a client's profits or losses only in writing. B) Repurchase any securities the client offers for sale. C) Quote a quantity discount on blocks consisting of more than 100 shares. D) Grant an extension of the settlement date for a purchase made in a cash account.

Authorize a registered representative to share in a client's profits or losses only in writing. To share in the profits or losses of a customer's account, a registered person must obtain the firm's prior written approval, and the representative must share only to the extent of his proportionate contribution to the account. (Note: Accounts of the associated person's immediate family are exempt from the proportionate share limitation.)

Excessive activity in a customer's account primarily for the purpose of generating excess commissions for the registered representative is referred to as: A) hypothecating. B) commingling. C) selling dividends. D) churning.

churning., was correct! Excessive activity for the purpose of generating commissions is known as churning.

All of the following statements regarding a transfer on death (TOD) account are correct EXCEPT: A) the owner of the account may change beneficiaries at will. B) probate is avoided. C) only those assets held at the broker/dealer are transferred. D) estate taxes are reduced.

estate taxes are reduced. A TOD account avoids probate, but not estate taxes. The owner of the account may change beneficiaries and their percentages as he wishes. The TOD account is an account at a specific broker/dealer and only relates to the assets in that account.

The Code of Procedure (COP): A) is used in the processing of applications for the registration of registered representatives. B) handles trade practice complaints regarding violations of the Conduct Rules. C) handles OTC transactions and primary issues of stock. D) is the application for granting extensions of time for trade settlements under Regulation T.

handles trade practice complaints regarding violations of the Conduct Rules. The Code of Procedure is followed when handling trade practice complaints involving violations of the Conduct Rules.

A registered representative of a FINRA member firm wishes to open an account with another member firm. To do so, the executing member must take all the following actions EXCEPT: A) notify the representative of the executing member's intent to notify the employer. B) notify the employer in writing, before the execution of the transaction, of its intention to open or maintain the account for the representative. C) immediately transmit duplicate copies of confirmations or other statements to the employer with respect to the representative's account. D) transmit duplicate copies of confirmations or other statements to the employer with respect to the representative's account on request of the employer.

immediately transmit duplicate copies of confirmations or other statements to the employer with respect to the representative's account. When a registered representative opens an account with another FINRA member, the representative is notified that his employer will receive notification. Copies of confirmations and other reports must be available on request.

One of the benefits of using arbitration to settle disputes between member firms is that it: A) gives more time to prepare arguments. B) does not allow for arguments from parties outside the industry. C) is relatively inexpensive. D) is not binding on both parties.

is relatively inexpensive. Arbitration is a method for settling disputes between member firms that is less costly than litigation. In addition, all decisions are final and binding on all parties.

Your customer has given power of attorney over his account to his investment adviser. You must: A) explain to the customer that the account cannot be managed in this fashion. B) obtain a copy of the documentation indicating the granting of the POA to the investment adviser. C) assess the investment adviser's track record before agreeing to this arrangement. D) obtain permission from FINRA before you can accept instructions from an investment adviser.

obtain a copy of the documentation indicating the granting of the POA to the investment adviser., was correct! In order to accept third party orders, proper documentation must be signed giving that power of attorney over to someone other than the client.

The first stage of money laundering is known as: A) implementation. B) placement. C) integration. D) layering.

placement. The first stage in cleansing illicit funds is placing them in the laundering system with little or no effort to disguise their illegal origins. The placement stage may involve the use of a financial institution but can also take place entirely outside the financial system.

If a broker/dealer decides to give a $300 bonus to the registered representative from any other member firm who sells the most shares in a joint sales contest, this arrangement is: A) acceptable as long as it is not considered compensation. B) unacceptable, since a broker/dealer may give bonuses only to its own employees. C) acceptable if the SEC approves. D) unacceptable, since it involves a gift of material value.

unacceptable, since it involves a gift of material value. Gifts to employees of other member firms, or to customers, exceeding $100 per person per year are not allowed.

If a complaint filed with FINRA charges a member or an associated person with violations of one or more of the Conduct Rules, which of the following codes governs its resolution? A) Business Conduct Code. B) Code of Arbitration Procedure. C) Professional Practice Code. D) Code of Procedure.

Code of Procedure., was correct! Any complaint charging that a member firm or an associated person violated one or more of the Conduct Rules is handled under the Code of Procedure.

An investor traveling abroad receives communication from his broker/dealer that a stock he has been following has moved to a price of $17 per share, including all commissions and expenses. The investor wishes to buy 100 shares at that price. He executes an international wire transfer for the equivalent of $1,700 in euros ($2,600 USD) and sends it to his broker/dealer with an order to buy. What action is called for by the broker/dealer? A) Because the wire transfer is received from abroad, the broker/dealer may not accept it. B) The broker/dealer must report wire transfers in excess of $2,500 on FinCEN Form 112. C) The transaction should be reported within 15 days to the Office of Foreign Assets Control (OFAC). D) This transaction need not be reported.

This transaction need not be reported. There is nothing suspicious regarding this transaction. Broker/dealers are required to file suspicious activity reports (SARs) involving transactions of $5,000 or more when financial behavior appears commercially illogical and serves no apparent reasonable business or legal purpose.

Under the Conduct Rules, a registered representative may share in an account if approved by: A) FINRA and the registered representative bears all of the losses. B) a principal and there is proportionate sharing in both gains and losses. C) FINRA and there is proportionate sharing in both gains and losses. D) a principal long as it is stated in writing that the registered representative is not responsible for losses.

a principal and there is proportionate sharing in both gains and losses. A registered representative may share in an account if it is approved in writing by a principal of the firm. There must be proportionate sharing of both gains and losses, unless the customer is a member of the immediate family of the representative.

The principal underwriter of an open-end investment company decides to offer a trip to Majorca to the registered representative of any other member who sells the most shares. This practice is: A) not acceptable, because the trip would be outside the United States. B) legal as long as no cash is given. C) a violation of the conduct rules. D) legal if the firm pays only for airfare.

a violation of the conduct rules. Gifts in excess of $100 are prohibited. A trip to Majorca would be well in excess of the $100 limit.

A holder of mutual fund shares: has the right to vote for a vacancy on the board of directors. will be able to redeem as many of those shares as desired at the next computed public offering price. receives regular reports on the fund's expenses no less frequently than semi-annually. is the owner of a diversified investment company. A) III and IV B) I and II C) I and III D) II and IV

I and III Mutual fund portfolios can be diversified or nondiversified. Redemptions are done at the next computed NAV, not the next computed POP.

The Predispute Arbitration Agreement disclosure includes clauses that explain which of the following? Arbitration is nonbinding and rulings are often reversed in a court of law. All parties to the agreement are giving up the right to sue each other in court. Firms can always initiate arbitration with customers. If a customer requests a copy of the agreement, the firm must provide it within 10 business days. A) II and IV B) I and IV C) II and III D) I and III

II and IV, was correct! Disclosure includes clauses explaining that arbitration is binding. Parties to the agreement do give up the right to sue each other when signing the arbitration agreement. Firms can only initiate arbitration with customers if the customer agrees in writing.

A registered representative may arrange for the purchase of an interest in a privately offered stock, for which she will receive a few shares of the stock, if the representative: gives written notification to her broker/dealer after the purchase has been paid for. gives a waiver of liability to the client before the transaction. provides all documents and information requested by her broker/dealer. obtains written permission from her broker/dealer before the transaction. A) II and IV. B) I and III. C) III and IV. D) I and II.

III and IV., was correct! In a private securities transaction where any compensation, whether direct or indirect, cash or securities, is paid to the representative, a written notification, must be made to the firm, and the firm must grant permission in writing prior to engaging in the transaction. Any and all documents requested by the firm must be supplied, because the firm is obligated to process this transaction on its own books.

Which of the following statements regarding joint accounts is TRUE? A) Two customers have a TIC account. Customer 1 deposits $10,000 and customer 2 deposits $10,000 into the account. If customer 1 dies, assets will automatically transfer to customer 2. B) Customers 1 and 2 have a JTWROS account. If customer 1 wanted to trade in the account, he could not do so without notifying customer 2 first. C) Three customers open a TIC account. Each deposits funds into the account, but only one tenant is allowed to place trades in the account on behalf of the other tenants. D) If an account has a joint registration, distributions must be made payable to all parties.

If an account has a joint registration, distributions must be made payable to all parties. In a joint account all distributions must be made payable to all parties and all parties can trade in joint accounts; in a TIC account, a deceased party's assets pass to his estate.

The federal act that requires investment companies to register with the SEC as face amount certificate companies, unit investment trusts, or management companies is the: A) Trust Indenture Act of 1939. B) Securities Act of 1933. C) Investment Company Act of 1940. D) Securities Exchange Act of 1934.

Investment Company Act of 1940. The Investment Company Act of 1940 classified investment companies into these three types and required that they be registered with the SEC.

If a customer wishes to open a cash account, who must sign the new account form? A) Only the customer. B) Only the principal. C) Only the registered representative. D) The customer, the registered representative, and the principal.

Only the principal. Neither the customer nor the registered representative are required to sign a new account form. A principal must review, and then accept, the new account by signing the form.