SIE - 1.1 Questions
Which of the following is an SRO? A) SEC B) FINRA C) FDIC D) FRB
FINRA Explanation FINRA is considered the primary self-regulatory organization (SRO) in the securities industry.
Carrying firms, those that carry customer accounts, must A) segregate customer funds and securities from the firms' funds and securities. B) maintain levels of net capital equal to or lower than non-carrying firms. C) commingle customer funds and securities with the firms' funds and securities. D) not disclose its net capital if it is higher than non-carrying firms.
segregate customer funds and securities from the firms' funds and securities. Explanation Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm's and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would be required for non-carrying firms.
Which of the following organizations was created to protect investors financially from a bank failure? A) OFAC B) FDIC C) SIPC D) FRB
FDIC Explanation The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank.
Which regulatory body oversees trading in the over-the-counter (OTC) market? A) FINRA B) MSRB C) SEC D) NYSE
FINRA Explanation FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.
Which of the following regulatory bodies regulates but has no enforcement powers? A) MSRB B) CBOE C) FINRA D) SEC
MSRB Explanation The MSRB regulates all matters related to the underwriting and trading of state and municipal securities. While they have the authority to write the MSRB rules and regulations they have no enforcement powers.
Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules? A) CBOE B) FINRA C) MSRB D) NYSE
MSRB Explanation The Municipal Securities Rulemaking Board (MSRB) is unique among regulatory bodies in that it writes its own rules, but by law, it cannot enforce them. Rather, the Board must rely entirely upon other designated examining authorities to enforce its rules.
The FDIC protects which of the following? A) Bank depositors B) Insurance purchasers C) Options speculators D) Broker-dealer clients
Bank depositors Explanation The Federal Deposit Insurance Corporations protects bank depositors in the event the bank fails. It will cover up to $250,000 for each recognized separate account.
Broker-dealers and registered representatives may be subject to each of the following administrative and regulatory bodies EXCEPT? A) State securities administrator B) NYSE C) FINRA D) SIPC
SIPC Explanation Depending on their lines of business, broker-dealers are subject to a variety of regulatory bodies, such as FINRA, the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), state administrators, and others. Those broker-dealers that have a municipal securities line of business must comply with MSRB rules which are enforced by FINRA. However, SIPC is not a regulatory body; rather it provides insurance protection for investors of failed broker-dealers.
An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is BEST described as a(n) A) Investment advisor B) Market maker C) Trustee D) Prime broker
Trustee Explanation A trustee is legally appointed to manage as a fiduciary assets in a trust.
Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as A) a receivership B) a fully disclosed firm C) a carrying firm D) a depository trust
a carrying firm Explanation A firm that chooses to ""introduce"" its customers' business to another firm to clear and process transactions, as well as handle all back-office tasks such as sending trade confirmations and taking custody of customer funds and securities, is known as an ""introducing"" or ""fully disclosed"" firm. The firm receiving the business is known as the ""carrying"" or ""clearing"" firm.
When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) an agent B) an investment banker C) an underwriter D) a market maker
a market maker Explanation When a broker-dealer buys and sells securities into and out of its own account as for the purpose of making a profit it is engaged in proprietary trading and is acting as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Agents act on behalf of others in the marketplace, such as a broker-dealer buying or selling for one of its customers.
Broker-dealers must comply with SEC rules and regulations when conducting business. A broker-dealer that does not comply may be subject to all of the following EXCEPT A) censure B) a prison sentence for principals of the firm ranging from 2 to 5 years C) fines D) suspension or revocation of its registration
a prison sentence for principals of the firm ranging from 2 to 5 years Explanation Broker-dealers must comply with SEC rules and regulations when conducting business. A broker-dealer that does not comply is subject to censure, limits on activities, functions, operations, suspension of its registration (or one of its associated person's license to do business), revocation of registration, and/or fines.
A broker-dealer that executes trades and settles transactions for another broker-dealer is called a A) carrying firm B) fully disclosed firm C) introducing firm D) limited broker-dealer
carrying firm Explanation Carrying firms, also known as clearing firms, execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks such as sending trade confirmations and statements for themselves as well as for other broker-dealers classified as introducing, or fully disclosed firms.
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities EXCEPT A) the National Securities Clearing Corporation B) credit unions C) the Depository Trust Company D) carrying firms
credit unions Explanation Credit unions cannot serve as a depository or clearing facility for securities transactions.
An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as a(n) A) fully disclosed firm B) investment company C) unit investment trust D) custodian
custodian Explanation A person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as a custodian. For example, the custodian for the account of a minor. This is different than a trustee who is a legally appointed entity. By contrast, anyone for example can open a custodial account for a minor as long as they are themselves an adult.
Anyone who, as part of their business, gives investment advice for compensation must register as a(n) A) underwriter B) stock broker C) agent for the issuer D) investment adviser under the Investment Advisers Act of 1940.
investment adviser under the Investment Advisers Act of 1940. Explanation Broker-dealers who provide advice for a fee are subject to registration under this 1940 IA Act. Agents of investment advisers must register and pass a qualification examination.
A person who looks to provide advice to a city government concerning the issuance of municipal debt securities would BEST be described as a(n) A) market maker B) investment adviser C) municipal advisor D) municipal securities representative
municipal advisor Explanation A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal products or the issuance of municipal securities.
Some institutions can function as a depository and intermediary for settling transactions between buyers and sellers of securities. All of the following are acceptable for this purpose EXCEPT A) carrying firms B) the National Securities Clearing Corporation C) national banks D) the Depository Trust Company
national banks Explanation Being a bank alone does not allow for serving as a depository or clearing facility for securities transactions. The National Securities Clearing Corporation and the Depository Trust Company are set up specifically to perform these functions, and they may also be performed by broker-dealers known as carrying or clearing firms.
An institutional investor selects a single FINRA/NYSE member firm to provide for financing and custody of securities, while orders to buy or sell are placed with executing brokers. This is an example of a(n) A) managed account B) Investment advisory account C) prime brokerage account. D) omnibus clearing arrangement
prime brokerage account. Explanation A prime brokerage account is one in which a customer (an institution) selects one member to provide custody and financing of securities and executes trades with other firms known as executing brokers.
All of the following are benefits of using a prime broker EXCEPT A) research B) cost savings C) consolidation of records D) multiple executing brokers
research Explanation An institutional investor may select one firm (the prime broker) to provide custody and financing of securities while other firms, called executing brokers, handle all trades placed by the customer. It is not unusual for large companies to use dozens of executing broker-dealers. Trade confirmations from the many executing broker-dealers are consolidated and are provided along with account statements by the prime broker. Prime brokerage is efficient and saves the customer time and money. Research is not associated with prime brokerage accounts.
A customer has a significant amount of money in bank deposit accounts: $225,000 in a savings account titled in the customer's name; $240,000 in a checking account titled jointly with a spouse; and $100,000 in an account where the customer is custodian for a grandchild. Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover A) $250,000 for the savings and checking accounts, $100,000 for the custodial account B) $225,000 for the savings account, $100,000 for the custodial account, and nothing for the checking account C) the entire $565,000 D) a total of $250,000, divided proportionately among the 3 accounts
the entire $565,000 Explanation The FDIC provides deposit insurance guaranteeing the safety of a depositor's accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. Each account listed (savings, checking, and custodial) is a separate ownership category under FDIC rules, so all the money in each of them is covered.
A market maker A) can only be an institution doing proprietary trading B) acts as an agent to buy and sell for public customers who will hold their own securities C) trades in a proprietary account to facilitate trading of a security and provide liquidity D) trades in a customer's account standing ready to buy or sell at their own discretion
trades in a proprietary account to facilitate trading of a security and provide liquidity Explanation Any entity, individual or institution, willing to accept the risk of holding a particular security in its own account to facilitate trading and provide liquidity in that security is known as a market maker or trader.
A company that offers sales of another company's securities would BEST be described as a(n) A) underwriter B) transfer agent C) market maker D) issuer
underwriter Explanation A broker-dealer (investment banker) that works with an issuer to bring the issuer's securities to the market by offering the securities for sale to investors is best described in this context as an underwriter.
Certain investors are deemed ""accredited"" when they have a net worth of A) $.5 million not including net equity in the primary residence B) $1 million C) $1 million not including net equity in the primary residence D) 200000
$1 million not including net equity in the primary residence Explanation An accredited investor is defined as a natural person who has a net worth of $1 million or more, not including net equity in a primary residence; or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level during the current year.
An investor opens an account with BNZ Government Securities, a broker-dealer limiting its transactions exclusively to securities issued by the U.S. government. The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash. If BNZ's broker-dealer business should fail, the investor would receive SIPC protection in the amount of A) $500,000 of the securities, none of the cash B) 0 C) all of the securities and all of the cash, because U.S. government securities do not go bankrupt D) $50,000 of the cash and $450,000 of the securities
0 Explanation Although the vast majority of broker-dealers are required to be members of SIPC, those who deal exclusively in U.S. government securities are exempt.
An investor has a cash account with $300,000 in securities and $40,000 in cash. The investor also has a restricted long margin account containing securities with a market value of $220,000 and equity of $60,000. What is the extent of this investor's SIPC coverage? A) 280000 B) 620000 C) 400000 D) 100000
400000 Explanation Coverage under SIPC may not exceed $500,000 in cash and securities, of which up to $250,000 may be cash. In the cash account, his coverage is $300,000 in securities plus $40,000 in cash. In the long margin account, the coverage is only the equity, which is $60,000. Total: $300,000 + $40,000 + $60,000 = $400,000.
A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A depository trust B) An investment company C) A carrying firm D) A fully disclosed introducing firm
A carrying firm Explanation Most firms choose to ""introduce"" their customers to another member firm known as a clearing or carrying firm to handle back office tasks, such as clearing trades, sending trade confirmations, settlement and reporting compliance, trade execution, and custody of customer funds and securities.
Which of the following must be a member of the Securities Investor Protection Corporation (SIPC)? A) A firm that deals only in U.S. government bills, notes and bonds B) A firm that deals only with mutual funds C) A firm that deals only in industrial development revenue bonds D) A firm that deals only in OTC and exchange listed stocks
A firm that deals only in OTC and exchange listed stocks Explanation The Securities Investor Protection Act, which established SIPC, was passed in 1970 to protect persons with brokerage accounts from loss due to failure of their broker-dealer. Firms with such accounts are required to join, with the exception of dealers exclusively in government and municipal bonds, and those involved only with investment company securities.
A registered securities broker-dealer that does not comply with FINRA and SEC rules and regulations is subject to each of the following sanctions EXCEPT: A) Partial or full suspension of its registration. B) Limits on activities, functions, or operations. C) Censure. D) Reductions in SIPC coverage.
Reductions in SIPC coverage. Explanation Broker-dealers that do not comply with SEC and FINRA rules and regulations are subject to censure, limits on activities, functions, or operations, suspension of its registration, revocation of registration, fines and more.
All of the following are self-regulatory organizations (SROs) EXCEPT A) NYSE B) MSRB C) FINRA D) SEC
SEC Explanation All US exchanges such as the NYSE and CBOE are SROs. In addition, FINRA and the MSRB are SROs. The Securities Exchange Commission (SEC) is not.
Broker-dealers who transact securities business with other BDs or customers must be registered with A) FRB B) OCC C) FINRA D) SEC
SEC Explanation Any entity such as a broker-dealer intending to do business with other BDs or customers involving securities must be registered with the Securities and Exchange Commission (SEC).
The transfer agent for a corporation is responsible for each of the following EXCEPT: A) Maintaining records of ownership B) Canceling old and issuing new certificates C) Acting as an intermediary between the buy and sell sides of a transaction D) Ensuring that its securities are issued in the correct owner's name
Acting as an intermediary between the buy and sell sides of a transaction Explanation The transfer agent (often a bank) for a corporation is responsible for ensuring that its securities are issued in the correct owner's name, canceling old and issuing new certificates, maintaining records of ownership, and handling problems relating to lost, stolen, or destroyed certificates. Acting as an intermediary in a trade is the function of the clearing corporation.
Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following? A) Carrying firm B) Introducing firm C) Fully disclosed firm D) Limited broker-dealer
Carrying firm Explanation Carrying firms, or clearing broker-dealers, can execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks, such as sending trade confirmations and statements for themselves as well as for other broker-dealers.
A broker-dealer and its associated persons may be subjected to sanctions for violations of FINRA and SEC rules. Which of the following penalties can be levied against the associated persons? A) Imprisonment B) Censure C) Limits placed on research activities D) Loss of SIPC coverage
Censure Explanation There are many ways a firm and its associated persons can be sanctioned by FINRA including censure. However, imprisonment and forced withdrawal from SIPC are not approved disciplinary actions.
Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members? A) FINRA B) SIPC C) MSRB D) SEC
FINRA Explanation Financial Industry Regulatory Authority (FINRA) regulates all matters related to investment banking, trading in the OTC markets and some exchange markets, and the conduct of FINRA member firms and associated persons including the promotion of self-discipline among members. It also investigates and looks to resolve grievances between the public and members and between members. The MSRB relies upon FINRA to perform dispute resolution.
Each SRO functions under the SEC's oversight and is accountable to the commission for enforcing federal securities laws. While the MSRB regulates all matters related to the underwriting and trading of state and municipal securities, it does not have enforcement powers of its rules. Which of the following does the MSRB rely on for enforcement of these rules? A) Federal Deposit Insurance Corporation B) Financial Industry Regulatory Authority C) Chicago Board Options Exchange D) Securities and Exchange Commission
Financial Industry Regulatory Authority Explanation The MSRB regulates all matters related to the underwriting and trading of state and municipal securities but does not have enforcement powers. It depends on other SROs (e.g., FINRA) for the enforcement of its rules.
A firm designated as self-clearing can I. act in a back-office capacity for an introducing firm II. not act in a back-office capacity for an introducing firm II. not act in a back-office capacity for an introducing firm IV. only clear transactions it executed A) I and IV B) I and III C) II and IV D) II and III
I and III Explanation Self-clearing firms not only clear and settle their own executions (transactions) but can clear the executions of other firms that would be considered introducing or fully disclosed firms. In this light, fully disclosed firms are those that ""introduce"" their business to clearing firms. Clearing and settling transactions includes providing any back-office functions needed.
A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm? A) Market making B) Clearing agent/carrying agent C) Introducing/fully disclosed D) Full service
Introducing/fully disclosed Explanation A fully disclosed ""introducing"" broker-dealer is what the word implies—it introduces its customer's business to a clearing firm. Clearing firms (often called carrying firms or agents) hold funds and securities and settle transactions (clear and process) for their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office.
Which of the following is TRUE regarding a member firm operating under FINRA membership or the membership of another self-regulatory organization (SRO)? A) Member firms may never incorporate proprietary trading into their business model. B) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals. C) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few. D) Member firms are required to be full-service broker-dealers.
Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options and others, or limit the products they offer to only a few. Explanation Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, and derivatives like options and others (be full service), or limit the products they offer to only a few. They need not adopt proprietary trading into their business model but can if they wish to. Likewise, they need not accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors.
Which of the following are NOT covered by the Federal Deposit Insurance Corporation (FDIC)? A) Certificates of deposit and mutual funds B) Certificates of deposit and self-directed IRAs C) Mutual funds and annuities D) Self-directed IRAs and annuities
Mutual funds and annuities Explanation Investment products that are not deposits are not covered by the FDIC. This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds.
While the MSRB writes the rules and regulations regarding underwriting and trading for municipal securities, it does not enforce those rules. Who does? A) SEC B) OCC C) FINRA D) NYSE
FINRA Explanation While the MSRB has rulemaking authority, it has no authority to enforce those rules. The enforcement of the MSRB rules on broker-dealers has been primarily delegated to FINRA. Bank regulatory agencies, such as the FRB, enforce the MSRB rules on banks who act as municipal dealers.
All of the following SROs function under the SEC's oversight EXCEPT A) FSLIC B) CBOE C) FINRA D) MSRB
FSLIC Explanation Self-regulatory organizations (SROs) function under the SEC's oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction. These include FINRA, MSRB, and the CBOE.
A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A) Market making B) Prime/Executing C) Clearing/carrying D) Introducing/fully disclosed
Introducing/fully disclosed Explanation A fully disclosed ""introducing"" broker-dealer is what the word implies—it introduces its customers to a clearing firm. Clearing firms (often referred to as carrying firms) hold their customer's funds and securities as well as those of their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office. Because the risk associated with holding customer funds and securities is not present, net capital requirements are much lower for introducing firms than they are for self-clearing or carrying broker-dealers.
FINRA staff must submit new rules and await approval from which of the following regulatory bodies prior to becoming effective? A) CBOE B) NYSE C) MSRB D) SEC
SEC Explanation The MSRB, NYSE, and CBOE are deemed self-regulatory organizations (SROs) and are on an equal footing with FINRA. All SROs must first petition the Securities Exchange Commission (SEC) for approval of a new rule.
Broker-dealers that transact securities business with customers or other broker-dealers must apply and be approved for registration with A) FINRA B) SEC C) CBOE D) MSRB
SEC Explanation The Securities and Exchange Commission (SEC) is the securities industry's primary regulatory body. Broker-dealers that transact securities business with customers or with other broker-dealers must apply and be approved for registration with the SEC.
Which of the following companies was created by an act of Congress and provides securities investors limited financial coverage in the event that the investor's servicing broker-dealer fails financially? A) SIPC B) FDIC C) SIC D) OFAC
SIPC Explanation The Securities Investor Protection Corporation (SIPC) was created by Congress to meet customer claims in the event of a broker-dealer bankruptcy.
The primary regulatory body for the securities industry would be which of the following? A) Financial Industry Regulatory Authority (FINRA) B) Federal Reserve Board (FRB) C) Municipal Securities Rule Board (MSRB) D) Securities and Exchange Commission (SEC)
Securities and Exchange Commission (SEC) Explanation Created under the Securities Exchange Act of 1934, the overriding or primary securities industry regulatory body is the Securities and Exchange Commission (SEC).
Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Self-clearing B) Market maker C) Fully disclosed D) Introducing
Self-clearing Explanation A self-clearing (or carrying) firm holds funds and securities of the fully disclosed or introducing firm's customers and performs related functions, such as sending confirmations and statements for them. Those firms for whom the carrying firm performs these services are known as their correspondents.
A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is A) a clearing agent B) a transfer agent C) a broker-dealer D) a depository
a clearing agent Explanation A clearing agent is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties. While some broker-dealers are self-clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent.
All of the following are associated with being a carrying firm EXCEPT A) being a fully disclosed firm B) accepting customer securities C) accepting customer funds D) being able to clear customer transactions
being a fully disclosed firm Explanation A carrying firm has the capability to do trade executions, clear and settle transactions, and take custody of customer funds and securities. A fully disclosed firm is one that introduces its customer business to another firm for the purpose of clearing and settling transactions.
Under the Securities Exchange Act of 1934, registration is required for A) securities B) initial public offerings (IPOs) C) broker-dealers D) foreign securities exchanges
broker-dealers Explanation Under the Securities Exchange Act of 1934, broker-dealers and domestic exchanges are required to register with the SEC. Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act. The SEC does not have authority over foreign exchanges.
A clearing corporation agent or depository for securities transactions A) can be a bank or corporation only if they are also a broker dealer B) can never be a corporation C) must be a broker-dealer D) can be a commercial bank
can be a commercial bank Explanation A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities.
A fully disclosed broker-dealer A) is one that introduces its business to a carrying firm to clear transactions B) is like a clearing agent in that it can take custody of funds and securities C) clears all of its retail customer transactions and those of other BDs D) is also known as a full-service clearing agent able to process and clear transactions
is one that introduces its business to a carrying firm to clear transactions Explanation A fully disclosed broker-dealer is also known as an introducing BD because it introduces its business to a carrying firm that can clear and process transactions for it. Unable to clear transactions themselves, they are not a clearing agent or carrying firm and therefore cannot take custody of funds and securities.
Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is a A) executing for commissions only B) fully disclosed broker dealer C) clearing agent D) market maker
market maker Explanation BDs who incorporate proprietary trading into their business model are known as market makers. As a market maker the BD trades in their own account attempting to profit. A firm making markets may be a carrying firm or a fully disclosed firm. Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is BEST described as a(n) A) holding company B) market maker C) clearing corporation D) direct participation program
market maker Explanation Market makers are broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is BEST described as a(n) A) direct participation program B) clearing corporation C) market maker D) holding company
market maker Explanation Market makers can be individuals or broker-dealers with a line of business to stand ready to buy or sell securities (make markets) with the view of being profitable by buying low and selling high or selling high and buying low (short selling). Market making is risky. Firms that do this must demonstrate to FINRA that they can manage the operational and financial risk.
Carrying firms may NOT A) clear and settle transactions for their customers B) send trade confirmations and statements to customers C) mix customer funds and securities with their own D) execute transactions for their customers
mix customer funds and securities with their own Explanation Carrying firms can do trade executions, clear and settle transactions, and handle all back-office tasks, such as sending trade confirmations and statements. While they can take custody of customer funds and securities, they may not commingle them with those belonging to the firm. Abiding by the rule is known as segregating customer funds and securities.
An individual who purchases securities for a personal account is called a(n) A) market maker B) retail investor C) accredited investor D) institutional investor
retail investor Explanation An individual who makes investments such as the purchase of securities for his or her account rather than for an organization is a retail investor. This investor may be accredited, but there is no way to know for sure given the limited information.
The Depository Trust Company (DTC) A) is a member of the Securities Exchange Commission B) offers demand accounts such as checking C) serves the custody needs of securities industry participants D) offers traditional savings accounts
serves the custody needs of securities industry participants Explanation The DTC serves the custody needs of securities industry participants in the US and a number of foreign countries as well. One cannot open traditional savings or checking accounts there as the DTC is not a part of the retail banking system but instead is a member of the Federal Reserve System.
FINRA regulates all matters related to investment banking, including A) trading in the OTC market B) trading in the futures markets C) trading in fixed annuities D) trading in commodities markets
trading in the OTC market Explanation FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons.
