SIE Unit 11
Which of the following are exempt from the requirement to maintain a business continuity plan? A) Investment Advisers B) None of these C) Introducing broker-dealers D) Clearing broker-dealers Explanation
None of these FINRA requires member firms to create and maintain a business continuity plan (BCP) to deal with the possibility of a significant business disruption.
In an effort to safeguard customer information which regulation specifies securing desktop and laptop computers and encrypting email? A) The Securities Exchange Act B) Regulation S-P C) Regulation A+ D) Regulation T
Regulation S-P Safeguard requirements such as securing desktop and laptop computers and encrypting email to protect customer information is an obligation of financial institutions under Regulation S-P.
All of the following would require that updated account information be sent to the customer for confirmation within 30 days except A) the customer informs the firm of a change in investment objectives. B) the account records system has been changed to a new format. C) the account is a newly opened one. D) 36 months have passed since the account was opened.
the account records system has been changed to a new format. Updated account information must be sent to the customer with 30 days for confirmation upon the opening of the account, at least once every 36 months thereafter, and in the event of the customer notifying the firm of changes in any information shown or listed on the account form.
All of the following would be acceptable methods for the customer opting out of allowing the broker-dealer to share their nonpublic personal information except A) opting out electronically. B) checking a box. C) calling a toll-free number. D) writing a letter.
writing a letter. Writing a letter is considered too difficult. The process to opt-out must be virtually effortless.
People who enter trades at or near the same time, in the same security as a person who has inside information, are known as A) tippers. B) tippees. C) contemporaneous traders. D) informers.
contemporaneous traders. The simple definition of contemporaneous is existing, occurring, or originating during the same time. Contemporaneous traders may sue persons that have violated insider trading regulations, and suits may be initiated up to five years after the violation has occurred.
Under Rule 2210 the rules regarding correspondence include all of the following except A) may be reviewed after use (postreview). B) must be in good faith. C) must be to 25 or fewer retail customers or prospects within 30 days. D) preapproval is always required.
preapproval is always required. Correspondence may be either pre-use approval or postuse review; it is the firm's decision. All communication with the public must be in good faith. Correspondence may go to 25 or fewer persons within 30 days. Unlike retail communication, correspondence does not need to be filed with FINRA.
Which of the following would not be allowed under the Conduct Rules without firm approval? A) Borrowing from a customer that is a bank B) Borrowing from a customer who is also a parent C) Borrowing from a customer who lives on the same block D) Borrowing from a customer with whom you have a business relationship
Borrowing from a customer who lives on the same block
All of the following are true of prohibited activities except A) FINRA has published a list of all the prohibited activities. B) the use of fraudulent devices is on FINRA's list of prohibited activities. C) the improper use of customer assets is on FINRA's list of prohibited activities. D) the use of manipulative devices is on FINRA's list of prohibited activities.
FINRA has published a list of all the prohibited activities. There can never be a complete list of all the ways to cheat people. If it looks like lying, cheating, or stealing, don't do it.
Brad is the brother of Chester. Chester is the CFO of Seabird Airlines. Over Sunday dinner, Chester mentions that Seabird is planning to raise its dividend payment significantly. He also tells Brad that the news will not be announced until this coming Tuesday, so keep it quiet. On Monday, Brad buys several hundred shares of Seabird and made a substantial profit. Brad is subject to which of these potential penalties? I. Up to 20 years in prison II. Up to 25 years in prison III. Penalties of up to three times the profit made IV. A maximum penalty of $1 million A) II and IV B) I and III C) II and III D) I and IV
I. Up to 20 years in prison III. Penalties of up to three times the profit made The criminal penalties for an individual are up to 20 years and up to $5 million. The civil penalties are up to three times the profit made or loss avoided. The $1 million minimum civil penalty applies to controlling persons (like an RR or a BD).
A customer leaves the sale proceeds from a recent transaction in the account. This amount would be considered I. a free credit balance. II. a margin debit balance. III. available to the customer at any time. IV. a loan to the broker-dealer, who will pay interest to the customer. A) II and III B) II and IV C) I and III D) I and IV
I. a free credit balance. III. available to the customer at any time. Sale proceeds that are not reinvested and held in the account at the broker-dealer are considered a free credit balance. These funds are available to the customer on demand (freely available).
The penalties for trading on insider information include I. civil penalties up to treble damages. II. up to $1 million for registered representatives or broker-dealers. III. criminal penalties up to $25 million for broker-dealers. IV. jail time up to 30 years. A) I and II B) I, II, and III C) I and IV D) III and IV
I. civil penalties up to treble damages. II. up to $1 million for registered representatives or broker-dealers. III. criminal penalties up to $25 million for broker-dealers. The penalties are stiff. Regulators really don't want people trading on inside information. However, the maximum prison sentence is 20 years, not 30.
The USA PATRIOT Act's required Customer Identification Program is designed chiefly to prevent I. real estate fraud. II. funding of terrorist activities. III. use of insider information. IV. money laundering. A) I and III B) II and III C) II and IV D) I and IV
II. funding of terrorist activities. IV. money laundering. The Customer Identification Program that must be in place at every broker-dealer firm is designed to ensure that all customers are who they say they are. Accurate identification makes it more difficult to fund terrorist activities or launder money for those who might intend to.
IIIFor 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 I. the markup (markdown) charged on a principal transaction. II. the commission charged on an agency transaction. III. the number of bonds purchased in a bond trade. IV. the Committee on Uniform Securities Identification Procedures (CUSIP) number (if any). A) II and III B) II and IV C) I and III D) I and IV
II. the commission charged on an agency transaction. IV. the Committee on Uniform Securities Identification Procedures (CUSIP) number (if any). Commissions for agency transactions are shown on confirms but not markups or markdowns charged in principal transactions. In a bond trade, the par value of the bond purchase (or sale) is confirmed, not the number of bonds. If the security has one, the applicable CUSIP number is included.
Your firm must provide an account statement to a customer this month if I. five months have passed since the last activity in his account. II. there are penny stocks in the account. III. the account agreement states that statements are provided monthly. IV. some of the securities in the account have lost significant market value this month. A) II and III B) II and IV C) I and IV D) I and III
II. there are penny stocks in the account. III. the account agreement states that statements are provided monthly. Financial Industry Regulatory Authority (FINRA) members must send at least quarterly account statements to their account holders. Monthly statements are required as long as the account holds penny stocks. Member firms must abide by the account agreement.
A customer enters several orders in complex securities without concern on the returns or losses. This suspicious activity is most likely the result of which stage of money laundering? A) Layering B) Placement C) Structuring D) Integration
Layering Hiding the illicit nature of funds in money laundering is known as layering. This stage often involved using multiple accounts, countries, and asset types to leave a convoluted and difficult to follow trail on where the money came from. Customers unconcerned about losses can be a red flag for layering.
If a broker-dealer suspects that a transaction involves funds derived from illegal activity, a suspicious activity report (SAR) would be triggered at what threshold? A) More than $5,000 in funds or other assets B) At least $5,000 in funds or other assets C) More than $10,000 in funds or other assets D) At least $10,000 in funds or other assets
More than $5,000 in funds or other assets The threshold for triggering a suspicious activity report (SAR) is at least $5,000 in funds or other assets. Do not confuse this with a Currency Transaction Report (CTR), which is triggered by amounts greater than $10,000.
Trade confirmations must be provided to a customer no later than when? A) Within two days B) Settlement day C) Trade day D) Seven business days
Settlement day Trade confirms must be provide no later than the day the trade settles. Remember that some trades settle T+1, and settlement date is business days, not calendar days.
A client phones his registered representative in September and informs the representative that he will be studying abroad in Europe for the remainder of the year. The client wants the firm to hold his mail. What action should the representative take? A) The representative should temporarily change the client's address to a secure PO box to prevent the theft of his mail. B) The representative should have all mail forwarded directly to the branch to protect against identity theft. C) The representative must instruct the client that the request must be made in writing. D) The representative should send duplicates to Paris since the SEC customer protection rules state mail cannot be held.
The representative must instruct the client that the request must be made in writing. FINRA rules require that all requests to hold mail must be made through written instruction from the customer. The instruction must include the period during which the mail hold is requested. If the requested period included in the instructions is longer than three consecutive months, then the customer's instructions must include an acceptable reason for the request (e.g., safety or security concerns).
If a registered representative is sharing in profits and losses with a customer, all of the following statements apply except A) The representative's expertise must be considered part of the contributions to the account. B) The representative must receive prior written permission from the principal before the arrangement may be made. C) If the customer is an immediate family member of the representative, sharing in gains and losses need not be proportional. D) The representative may share in gains and losses, but only in proportion to the representative's share of the investment money.
The representative's expertise must be considered part of the contributions to the account. A registered representative may share in gains and losses with a customer, provided written permission is first obtained from the representative's principal, the investments take place in a joint account, and the representative's share of the gains and losses is proportional to the representative's share of the investment funds. The representative's knowledge and expertise may not be considered part of the representative's contribution, only what proportion of the investment funds the representative has contributed.
Which of the following is true regarding retail communications? A) They must be filed with the SEC within 10 days of use. B) They must be approved if they are only sent to prospective, not current, customers. C) They must be approved prior to use or filing. D) They may be reviewed after the fact.
They must be approved prior to use or filing. Retail communication must be approved by a principal before use or filing with FINRA (not the SEC).
In what circumstances may a representative personally guarantee the performance of an investment? A) There is no limit on this type of guaranteed B) The representative's guarantee is no more than 50% of historical return C) Under no circumstance D) If the representative has the financial ability to make a guarantee
Under no circumstance
FINRA Rule 2210 on communications with the public would apply for all of the following except A) a voicemail left for a customer. B) a text message. C) a flyer sent to 20 prospects. D) a website.
a voicemail left for a customer. Rule 2210 applies to written communication. Written communication does not require paper, just words made up from letters. If they can read it, it is considered written communication.
The Telephone Consumer Protection Act of 1991 exempts all of these entities except A) not-for-profit companies. B) debt collectors. C) survey takers. D) booking services for commercial enterprises.
booking services for commercial enterprises. If the cold caller is looking to book appointments for a commercial entity, it must abide by the rules. Legitimate efforts made to collect a debt, those taking polling surveys, and charities are exempt from these rules.
A form of market manipulation that attempts to hold the price of the security down is called A) capping. B) free riding. C) churning. D) supporting.
capping. This can be done by shorting the stock to push the price down. It is illegal if it is used to manipulate the market.
A suspicious activity report would be triggered if the broker-dealer suspects a transaction involves funds derived from illegal activity and A) involves more than $5,000 in funds or other assets. B) involves at least $5,000 in funds or other assets. C) involves at least $10,000 in funds or other assets. D) involves more than $10,000 in funds or other assets.
involves at least $5,000 in funds or other assets.
A broker-dealer's customer will be relocating for a position with a higher salary and bonus potential. This requires A) notification to the broker-dealer of the change within 30 days. B) completing a new account application within 30 days. C) opening an account with a broker-dealer in the new location. D) reviewing investment objectives within the next 90 days.
notification to the broker-dealer of the change within 30 days. When there are significant changes to the client's status, such as salary and bonus potential as well as change of address, the client should notify the member firm within 30 days.
Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must A) provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures. B) require that customers wishing to opt out send a written request with signature witnessed by a notary. C) provide reasonable means for customers to opt out of such disclosures only at the time of the account is opened. D) provide notice to customers each time a transaction occurs within the account and provide reasonable means for customers to opt out of such disclosures.
provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures. Regulation S-P requires that if a broker/dealer reserves the right to disclose nonpublic personal information to third nonaffiliated parties, it must notify the customer at the time of the account opening and annually thereafter. Means to opt out of the disclosures must be reasonable and easy. Requiring a written request to opt out would not be considered reasonable means under the regulation.
Lilly Bogdin, a registered representative in the Norristown, PA, branch, creates a flyer for an upcoming seminar that she emails to all of her 150 clients. FINRA would classify this type of communications with the public as A) retail communications. B) advertising. C) an announcement. D) correspondence.
retail communications. Retail communication is sent to more than 25 retail investors in a 30-day period. Announcements and advertising are not classifications of communications with the public. Correspondence is communication directed to 25 or fewer retail investors in a 30-day period.
All of the following would be considered as part of the general standards for all communication with the public except A) balanced statements regarding risk and reward. B) no omission of material facts. C) consideration for the nature of the audience receiving the communication. D) statements that past performance is a good indication of future results.
statements that past performance is a good indication of future results. You can never indicate that past performance will be repeated. The other statements are all elements of fair dealing and good faith, which is required in all communications.
A customer of a broker-dealer purchases 100 shares of XYZ stock at $50 per share on Monday. Later that week, a confirmation arrives electronically indicating that the total cost of the transaction was $5,000. The client is puzzled that there is no additional charge for commission. The most likely reason for that is A) there is a mistake on the confirmation. B) the broker-dealer acted as an agent in the trade. C) XYZ stock probably dropped significantly between the trade date and the sending of the confirmation so the broker/dealer waived the commission. D) the broker-dealer acted as a principal in the trade.
the broker-dealer acted as a principal in the trade. Broker-dealers must always indicate their capacity on the confirmation. If the client had looked, there would have been a statement something to the effect of "we acted as principals in this trade." When the firm does that, there is no commission; there is a markup (in the case of a buy) or a markdown (in the case of a sell). In this instance, the actual price of the stock would have been lower than $50 per share and the broker-dealer marked it up to $50. (e.g., price of $49.50 with a 0.50 markup = $50) When the firm is acting as an agent however, commissions are always disclosed.
All of the following are provisions of FINRA's rules for holding mail for customers except A) the member firm must establish reasonable intervals that the customer's instructions would apply. B) the firm must hold the customer's mail for up to three months if it receives notice in writing that it is for security reasons. C) the firm must receive instructions in writing for the mail to be held more than three months. D) the customer must be made aware of alternative methods for receiving and monitoring account activity.
the firm must hold the customer's mail for up to three months if it receives notice in writing that it is for security reasons. There is no requirement that the firm to agree to hold the customer's mail, but if they do, the other three requirements would be in place.
All of the following are restricted persons under Rule 5130 except A) the father-in-law of a registered representative. B) the spouse of a lawyer for the underwriter. C) a lawyer working for the underwriter. D) the uncle of a registered representative.
the uncle of a registered representative. Restricted persons, those not allowed to purchase shares at the POP, are defined as follows: Member firms (whether or not they are involved in the IPO); Employees of member firms; Finders and fiduciaries acting on behalf of the managing underwriter, including attorneys, accountants, financial consultants, and so on; Portfolio managers, including any person who has the authority to buy or sell securities for a bank, savings and loan association, insurance company, or investment company; and Any person owning 10% or more of a member firm. Further, any immediate family member of any natural person of those listed above are also restricted. Immediate family includes parents, in-laws, spouses, siblings, children, or any other individual to whom the person provides material support.
