SIE Part 3

The minimum initial requirement when buying 100 shares at $15 in a new account would be

$1,500 The FINRA minimum initial deposit for a long purchase in a margin account is $2,000 or 100%, whichever is less.

The penalties for trading on inside information include:

- civil penalties up to treble damages. - registered representatives or broker-dealers up to $1 million. - criminal penalties up to $25 million for broker-dealers. - jail time up to 20 years.

ABC currently has the following quotes: Bid Ask Size 10.00 10.50 3 × 2 10.20 10.45 4 × 3 10.25 10.60 3 × 2 What is the inside quote of ABC?

10.25 - 10.45 3 × 3 The inside quote is the highest bid paired with the lowest ask.

Records of original entry must be recorded no later than the next business day and must be kept readily available for

2 years The records must be maintained for a period of six years but must be readily available for two years.

Your firm must provide an account statement to a customer this month if 1. five months have passed since the last activity in his account. 2. there are penny stocks in the account. 3. the account agreement states that statements are provided monthly. 4. some of the securities in the account have lost significant market value this month.

2. there are penny stocks in the account. 3. the account agreement states that statements are provided monthly.

Benjamin Jackson bought 100 shares of XYZ two years ago at $10 per share. The stock paid a $0.50 dividend each year and he sold the stock for $11. What percent was his total return?

20% The formula for total return is dividends plus capital gains divided by amount invested.

Correspondence must be maintained by a member firm for

3 years

The following records must be kept for how many years? - A list of the offices where registered representatives conduct business - Compensation records for registered representatives - The firm's compliance manuals

3 years

The following records would need to be retained how many years? Advertising Customer confirmations Customer order tickets U-5 forms

3 years

Firms must file a SAR within how many days of becoming aware of a suspicious transaction?

30 days, and they are prohibited from notifying the customer involved that a report has been filed

An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33. The order would be executed and the investor would receive a price of

31. Once the stock trades at 30 or lower, the order is elected (triggered) and becomes a live working order. This occurs at 29. The order will then be executed at its limit (30) or better. This occurs at 31.

What is the penalty, if any, for overcontribution to an IRA?

6%

Solicitations may only occur between

8:00 am and 9:00 pm the customers time zone.

What best describes buy back and tender offer?

A buy back is when a company purchases its shares from the secondary market. If a company offers to purchase securities (either its own or from another company) directly from the owners of the security, that is a tender offer.

Your client, Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. What order should she place?

A sell limit order

Subject to market liquidity, which of the following orders is most likely to be executed immediately? A) Market order B) Limit order C) Fill-or-kill order D) All-or-none (AON) order

A) Market order

Who can contribute to an IRA?

Anyone with earned income

Which of the following must be kept for the life of the firm? A) General ledger B) Stock certificate book C) Written customer complaints D) Customer account records

B) Stock certificate book - also known as the stock book or stock ledger, is a permanent record of a corporation's capital stock and is to be held for the life of the corporation. - The general ledger and customer account records are kept for six years; written customer complaints are kept for four years.

All of the following are bullish positions except A) long calls. B) short stock. C) long warrants. D) long stock.

B) short stock.

Which of the following would not require delivery of notice? A) A rights offering B) Payment of a cash dividend C) An interest payment on a corporate bond D) A 2:1 stock split

C) An interest payment on a corporate bond

John and Tara Bourne have two children—Henry and Avery—for whom they want to set up custodial accounts. Which of the registrations of the accounts are allowed? A) John Bourne, custodian for Henry and Avery Bourne B) John and Tara Bourne, custodians for Henry and Avery Bourne C) John Bourne, custodian for Henry Bourne D) John and Tara Bourne, custodians for Avery Bourne

C) John Bourne, custodian for Henry Bourne Only one adult and one minor are allowed on each account.

All of the following may be purchased on margin except A) exchange-listed securities. B) municipal securities. C) call and put contracts. D) Nasdaq listed stocks.

C) call and put contracts.

All of the following are provisions of Regulation S-P except A) the firm has an obligation to protect the privacy of customer information. B) the firm must provide the customer with a privacy notice initially when opening the account and annually thereafter. C) the firm must give the customer the opportunity to opt-out semiannually. D) the firm must give the customer the opportunity to opt-out at the opening of the account.

C) the firm must give the customer the opportunity to opt-out semiannually.

Which of the following are true of qualified plans but not true of nonqualified plans? Contributions are not tax deductible Contributions are tax deductible Plan needs IRS approval Plan does not need IRS approval

Contributions are tax deductible Plan needs IRS approval

As long as it is not restricted in any documentation, margin trading is permissible in what 2 of the following accounts? Corporate IRA Partnership Fiduciary

Corporate and partnership

What is a benefit of 529 plans but not Coverdale Education Saving Accounts?

Coverdale plans have income restrictions.

Which of the following must be signed by a customer wanting to open a margin account?

Credit and hypothecation agreements

What 2 the following records must be kept for only three years? Customer statements Customer new account forms Customer confirmations Customer order tickets

Customer confirmations and Customer order tickets. The buy and sell and quantity information on the order tickets and confirmations statements will show up on the customer's monthly or quarterly statements. Monthly and quarterly statements must be kept for six years.

Your client James Thomas is an active trader and wants to invest in a managed equity portfolio that he can trade intraday. Which of the following should you recommend? A) A mutual fund B) An exchange-traded fund (ETF) C) An exchange-traded note (ETN) D) A closed-end fund

D) A closed-end fund A closed-end fund is actively traded and most of them are equity funds and they trade on the exchanges like stocks.

Which of the following would be recommendations? A) Discussing the pros and cons of noninvestment products and services with a prospective client B) Discussing the pros and cons of a variety of account types and registrations with a prospective client C) Discussing the advantages of your firm over another firm with a prospective client D) Discussing the advantages of day trading with an existing client to generate more business for you and your firm

D) Discussing the advantages of day trading with an existing client to generate more business for you and your firm Suggesting a particular strategy regarding investments with an existing client is recommendation.

A client calls a registered representative and states that she lives in New York City and is looking for a bond that would be triple tax free in New York. The registered representative tells the client that his firm has some bonds in inventory that are from the Albany New York School District that would be triple tax free for the client. Which of the following would be the registered representative's best course of action?

Determine suitability prior to placing the trade and mark the trade solicited. The registered representative is the one who recommended these bonds, making the trade solicited. Suitability must be determined on solicited trades.

A 72-year-old customer has a $30,000 required minimum distribution (RMD) calculated to be taken from an IRA. If the customer is in the 20% income tax bracket and only withdraws $25,000 from the account, how much in taxes and penalties will be owed?

Failure to meet the required minimum distribution (RMD) results in a 50% penalty tax on the shortfall. $5,000 × 50% equals $2,500. Note that the IRS will force the distribution of the RMD shortfall ($5,000). In addition to the penalty, the ordinary income tax on the amount withdrawn must also be paid (20% × $30,000 = $6,000). Total tax liability on this withdrawal equals $8,500 ($2,500 penalty tax plus $6,000 ordinary income tax).

If the beneficiary of a custodian account (minor) dies, the securities in the account pass to

If the beneficiary of a custodial account (minor) dies, the securities in the account must pass to the minor's estate, not to the parents' or custodian's estate.

Which of the following orders need not be immediately filled in their entirety? Immediate or cancel (IOC) Fill or kill (FOK) Market at open All or none (AON)

Immediate or cancel (IOC) All or none (AON) confusing

A FINRA maintenance call will occur in a short margin account if the equity drops below

In a short margin account, equity must be maintained at 30% or $2,000 whichever is greater.

Which of the following accounts can only be opened in a cash account? Individual transfer on death (TOD) account Individual account Individual retirement account (IRA) Individual custodial account

Individual retirement account (IRA) and Individual custodial account. IRAs and custodial accounts prohibit the use of margin, so they must be done in cash accounts.

What is the final stage of money laundering?

Integration - Placement is the first step followed by layering and integration is the last step of the process.

Craig and Judy have just married. It is a second marriage for both of them and they both have kids from a prior marriage. Craig would like his portion of their account to go to his kids when he dies and Judy would like her portion to go to her kids when she dies. As new partners in marriage, while they are both alive they would both like to have full access to the account. What type of account(s) should they set up?

Joint tenants in common (TIC)

What best describes an M&A and spin-off?

M&A is when one company merges with or acquires another company. A spin-off is when one company divests itself of one of its divisions or subsidiaries.

What securities can never be purchased on margin?

Mutual funds can never be purchased on margin.

Under Regulation T, when must a corporate stock transaction be paid for in full in a cash account?

No later than regular ways settlement plus two business days

What is a big advantage Roth IRAs have over traditional IRAs?

Normally distributions are tax free.

Money laundering activities are most easily caught during which phase?

Placement, where the funds first enter the money laundering scheme.

Which of the following best describes the calculation for gains or losses for tax purposes?

Proceeds minus cost basis equals capital gains. The dividends are not part of the calculation for capital gains.

The regulation enacted by the Securities and Exchange Commission (SEC) to protect the privacy of customer information is known as

Regulation S-P.

Your client Mrs. Bourne has owned has owned QRS for a few years but has now turned bearish on QRS. Which transaction would you recommend?

Sell QRS to close

The locate requirement is an element of which of the following transactions?

Sell to open (selling short) When selling short (selling to open), shares must be borrowed from the dealer. The dealer finding those shares that can be loaned to the seller is part of the locate requirement.

A form of market manipulation that attempts to keep the price of the stock from falling is called

Supporting. It is illegal if used to manipulate the market.

By the Securities and Exchange Commission (SEC) definition, when is the latest that payment in full for purchased securities may take place in a cash account?

T + 4 business days

An investor purchased 100 shares of LMN in 2013 at a price of $40 per share. Soon after, the LMN declared a 25% stock dividend. Three years after the shares were purchased, they were sold at $50. What is the adjusted cost basis? Long or short term capital gain?

The adjusted cost basis of the shares is $32. There is a long-term capital gain on all the shares sold.

In a reverse split, what happens to the cost basis and number of shares?

The cost basis goes up and the number of shares goes down

A 40-year-old individual is not covered by a retirement plan at work. What is the maximum contribution this individual can make to a traditional IRA this year? What are the tax implications?

The current maximum allowed by the IRS, which will all be deductible. The catch-up provision only applies to those age 50 or older.

Generally before borrowing from or lending to a customer, a registered representative must advise the firm in writing and receive written permission. What would be an exception to the written notice and approval requirement?

The customer is an immediate family member of the registered representative or the customer is a lending institution and the loan is a standard commercial lending transaction.

Who must reconfirm a good-til-canceled order for it to stay in force more than six months?

The customer who placed the order

Your Client Dana McCann just purchased a 20-year City of Salt Lake School district bond for $800. If the bond has a stated rate of 4%, the current yield (CY) is

The formula for CY is the stated rate (coupon rate) divided by the current market price $40 divided by $800 equals 5%.

A shareholders' meeting for ABC Corporation will take place in eight days. A customer whose stock is being held in street name has not returned the proxy statements. How are the shares used on minor matters?

The member firm may vote the shares as it wishes on minor matters.

Which of the following best describes how a sell stop at 39 order would be filled?

The next available price after the market price falls to 39

John Christensen places a buy limit order at 42 when the market price of the stock is at 45. Which of the following best describes how the order would fill?

The order can only be filled at a price of 42 or lower Buy limit orders are placed below the current market price and fill at the stated price or lower.

Nolan McCann owned 100 shares of LMN at $10 per share when the board of directors declared a 1:4 split. What will happen to the share price and the number of shares?

The share price will go to $40, and he will own 25 shares.

Which of the following choices would a registered representative be able to make for a customer in a nondiscretionary account? The time of execution of the trade Which security to buy How much of the security to buy At what price to execute the trade

The time of execution of the trade At what price to execute the trade

How long does a firm keep U-4 forms for a rep?

U-4 forms must be kept for three years after the rep terminates, so if the rep worked for the firm 30 years, the form would have to be kept for 33 years. All others are three-year records.

Which type of account fee structure is typically better for the moderate to active trader?

With a fee-based account, the customer is charged a fixed fee regardless of the number of trades.

What type of account bills a single fee annually for a group of services that might include asset allocation, portfolio management, and executions?

Wrap account.

Who benefits most from a defined contribution plan?

Younger employees - Younger employees have more time for the money to grow.

SKRAM Corporation is appealing directly to the shareholders of IDNIC Corporation to acquire shares of IDNIC stock. This appeal is best described as

a hostile takeover with IDNIC the target company.

A corporation divests itself of all of the shares of another company it owns. This is known as

a spin-off.

Regarding the potential financial exploitation of seniors, impacted accounts would be those for individuals

age 65 and older, or age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect her own interests.

A buy stop order @ 39 could fill at which of the following prices? 38 39 40 41

any. A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

Recommendations regarding investment strategies under the know your customer (KYC) rule would not apply to recommendations to

buy or sell commodities.

Margin calls can be met with deposits of

cash (100% of the call) or fully paid for marginable securities (twice the amount of the call because securities are only marginable to 50% of their value).

FINRA has three classifications of communication with the public:

correspondence, retail communications, and institutional communication

Caleb McDaniels receives an email from his client, Shelby Bogdin, requesting the year-to-date performance on several of her mutual funds. Caleb immediately looks up the performance and emails her a response. This type of communication would be classified as under Financial Industry Regulatory Authority (FINRA) rules as

correspondence. correspondence is communication to 25 or fewer retail investors in a 30-day period

Current yield (CY) equals

coupon rate (annual income) divided by the current market price.

Under the Telephone Consumer Protection Act of 1991 (TCPA), administered by the Federal Communications Commission (FCC), a telephone solicitation is defined as a telephone call

initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services. This would include products and services offered in the securities industry by broker-dealers.

A broker-dealer is confronted with margin deposit due but not yet received. The broker-dealer can choose to take no action, neither selling out the securities nor requesting an extension, if the amount due is

less than $1,000. for late deposits of less than $1,000, the broker-dealer can choose to take no action.

A customer wishes to sell short 1,000 shares of ABC. Prior to executing the order, the registered representative must

locate shares that can be lent to effect the sale.

Selling shares not yet borrowed or located to be borrowed is known as a

naked short sale and is prohibited.

A member firm believes that financial exploitation of a senior customer is being attempted. While not required to, but allowed to, they put a temporary hold on disbursements of cash and securities from the account. The temporary hold should be

no longer than 15 business days unless a state regulator or agency of jurisdiction extends it longer.

Under the USA PATRIOT Act, financial firms must create and maintain records of wire transfers only

of $3,000 or more

A customer who tries to disguise deposits of more than $10,000 in currency by making multiple smaller deposits in currency is guilty of

structuring.

Suspicious activity reports (SARs) are filed to

the Financial Crimes Enforcement Network (FinCEN) as required by the USA PATRIOT Act.

A party wishing to solicit proxy authority to vote a particular stockholder's shares must register with

the SEC.

For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are made by

the clearing firm.

For each transaction, a customer must be sent or given a written confirmation of the trade at or before the completion of the transaction, the settlement date. Information on that trade confirmation would include: - the markup (markdown) charged on a principal transaction. - the commission charged on an agency transaction. - the number of bonds purchased in a bond trade. - the Committee on Uniform Securities Identification Procedures (CUSIP) number (if any).

the commission charged on an agency transaction. the Committee on Uniform Securities Identification Procedures (CUSIP) number (if any).

Proxy voting allows

the shareholder to vote their shares without attending the annual meeting.

The difference between the bid price and the ask price or offer is called

the spread

What would require the filing of a suspicious activity report (SAR)?

the transaction appears to serve no business or legal and the transaction involves alone or in aggregate at least $5,000.

Because distributions are not taxable on Roth IRAs,

there are no required distributions.

Discretion given to a registered representative to make transactions applies to all of the following except

timing and price. Discretion is defined as the authority to decide, what security, the number of shares or units, and whether to buy or sell.

Your client Mr. Jenson calls and wants to purchase T-bills and wants to know when payment is due. You should inform him

trade date plus one business day. - Regular way settlement is T + 2 for everything except Treasuries, money market securities, and options Treasuries and options settle next business day (T plus 1).

Your client is buying a municipal bond and wants to know when payment is due. You should tell him

trade date plus two business days. Regular way settlement is T + 2 for everything except Treasuries and money market securities and options.

A customer called his registered representative to place a trade to buy 100 shares of ABC. The customer wants to put a limit on the order, but is unsure what would be an appropriate price. At the suggestion of the registered representative, the customer enters the order with a limit of $30. This trade was

unsolicited. - The customer, independent of the registered representative, placed the order, making it unsolicited.

Your firm must provide a privacy notice describing its privacy policies to customers

whenever a new account is opened and annually thereafter.

A registered representative wants to place advertisements in his daughters youth athletic league quarterly sponsorship booklet. He wants to convey in the weekly bulletin at his church that he specializes in retirement planning and 529 plans. Is pre-approval required?

yes. Any piece promoting securities services and/or products intended to be received by more than 25 retail customers within any 30 calendar-day period must be preapproved by a principal before use.