Chapter 14 Mastery Progress Exam

Which of the following scenarios would be permitted in a soft-dollar arrangement between an adviser and a broker-dealer?

A broker-dealer pays for the cost of a conference concerning the future of the computer software industry

A Nasdaq-listed stock currently shows an inside market of 15.50 - 15.75, 10 x 10. A broker-dealer that is not a market maker in the stock simultaneously receives orders from two customers, one to buy 500 shares of the stock at the market, the other to sell 500 shares at the market. Rather than send the orders to a market maker for execution, the broker-dealer matches the two orders with one another at 15.625, and charges each client a commission. This transaction is:

A cross trade, which must be specifically disclosed on the confirmation to each customer

Regarding variable annuities, which of the following statements is TRUE?

A registered principal is required to review and approve a transaction in a variable annuity

Broker-Dealer X receives an order from a customer who wants to buy 2,000 shares of a Nasdaq stock. X does not make a market in the stock. To fill the order, X buys 2,000 shares from a market maker that is at the inside offer price on Nasdaq and immediately sells the stock to the customer, charging a markup. This type of transaction would be considered:

A riskless principal transaction

Confirmations on regular-way transactions must be sent to customers no later than the:

Completion of the transaction

Which of the following statements is TRUE regarding Class B shares of a mutual fund?

Contingent deferred sales charges are assessed, but typically decline to zero after six years

Which of the following characteristics is NOT associated with a variable annuity?

Call risk

Confirmations for transactions must be sent in:

Either written or electronic form

If a member firm brokers a customer purchase of a security, the member firm must disclose: I. The amount of commission charged on the transaction II. Either the name of the person who sold the security or the fact that such information will be furnished on request III. Either the time when the transaction took place or the fact that such information will be furnished on request IV. The fact that the member acted as broker for the selling party, if that is the case

I, II, III, and IV

A municipal securities broker-dealer has a control relationship with an issuer. When selling the bonds subject to the control relationship, the broker-dealer must disclose this relationship to customers: I. Prior to the trade II. In writing at or prior to settlement III. For discretionary accounts only IV. For all accounts and for all types of transactions

I, II, and IV only

Under the provisions of Rule 10b-10, a confirmation sent to a customer must disclose which of the following? I. The time of the transaction, or a statement that the time of the transaction will be furnished on request II. The capacity in which the member acted, as either agent or principal III. Unusual expenses incurred that will justify a higher markup IV. The amount of markup charged on a Nasdaq principal transaction

I, II, and IV only

A customer is NOT required to obtain approval to trade penny stocks in his account if the: I. Trade is solicited II. Trade is unsolicited III. Account is established IV. Account is new

II and III only

The correct order for the transfer of an account from one firm to another is: I. The carrying firm validates the transfer instructions II. The customer is informed of any nontransferable securities III. The carrying firm sends the customer's securities to the receiving firm IV. The customer provides a written transfer request to the receiving firm

IV, I, II, III

What capacity is reported by a member firm that has conducted a net basis transaction?

Principal

Which of the following situations BEST describes acting in a net basis capacity?

Prior to filling a customer's buy order, a dealer buys stock into inventory and resells it to the customer at a higher price

A broker-dealer acting for a customer purchases stock from a market maker at $25 and sells it to a customer at $25 plus commission. The broker-dealer:

Must disclose the amount of its commission

If a temporary hold has been placed on a customer's account, the firm:

Must provide notice to the account owner and the trusted contact person

A broker-dealer is preparing a client's monthly statement and realizes that, due to market volatility, the account shows a significant decline in value. The market has corrected itself and the account values have appreciated significantly. The firm would like to delay sending the statement in order to reflect the appreciated value. This practice is:

Not permitted because the broker-dealer is withholding sending the monthly statement

When a carrying firm receives a transfer request from the Automated Customer Account Transfer Service (ACATS) system, it must validate or protest the transfer within:

One business day

Which of the following organizations administers the Automated Customer Account Transfer Service?

The NSCC

One of an RR's clients is an elderly investor who seems disoriented, confused, and possibly experiencing dementia. What's the best course of action for the RR to take?

Recommend for the customer to bring a close family friend or relative to a meeting

The confirmations that broker-dealers provide to customers must include all the following information, EXCEPT the firm's:

Tax identification number

An investor is considering the possibility of purchasing mutual fund shares. Which of the following considerations should NOT be of concern to the investor when choosing whether to purchase Class A, B, or C shares?

The experience of the fund advisory staff

The penny stock rules apply under which of the following circumstances?

The stock is quoted on the OTC Bulletin Board

The penny stock rules apply under which of the following circumstances?

The transaction is recommended by the broker-dealer.

A market maker, holding a customer buy order, purchases 6,000 shares of a Nasdaq security for $26.25 from another broker-dealer. The customer is charged a price of $26.35 and no disclosure of markup or commission appears on the confirmation. Which of the following statements is TRUE?

This is acceptable if the broker-dealer has executed a net transaction

A registered representative is looking to sell a client Class B shares with a 7-year contingent deferred sales charge (CDSC). Which of the following representations is appropriate?

"All of your money goes to work since there is no up-front sales charge."

A member firm has decided to send all client account statements on a quarterly basis. The practice would:

Be permitted

A person who has been granted power of attorney over a customer's account contacts the RR and indicates that she wants to start receiving the trade confirmations. For the RR, what is the BEST action to take?

Contact the customer and receive written approval to send the confirms to the person who has power of attorney and provide duplicate copies to the customer

Mr. Jones has a margin account in which there is activity each month. The firm sends Mr. Jones an account statement:

Each month when there is activity during the month

A registered representative (RR) has changed broker-dealers. The RR is in the process of implementing the Automated Customer Account Transfer Service (ACATS) for all of the clients he has done business with over the past five years. The previous employer may NOT take which of the following actions?

Execute the balance of a partially executed GTC order in a validated account

If a firm places a temporary hold on a customer's account:

It applies to either the entire account or specific disbursements

May a brokerage firm place a temporary hold on a securities transaction?

No, since this is beyond the scope of SRO rules.

According to industry rules, all of the following are requirements for firms executing net basis trades, EXCEPT:

Noninstitutional customers must sign a blanket consent letter to permit dealers to act in a net basis capacity

When the U.S. dollar is strong, it's more likely that there will be an increase in:

Orders for products from other countries

Upon the death of the insured, the proceeds of a variable life policy:

Pass to the beneficiary free from federal income tax

Which action is NOT taken by the receiving firm when processing an Automated Customer Account Transfer Service (ACATS) request?

Submission of the asset input data

In a soft-dollar arrangement between an investment adviser and a broker-dealer, the broker-dealer is permitted to pay:

The cost of a conference concerning the future of the computer software industry

When selling a security for a customer, all of the following items MUST be included on the sell ticket, EXCEPT:

The customer's Social Security number

A client has requested that his account be transferred to another firm. If the request is validated, the account must be transferred within:

Three business days

Once an Automated Customer Account Transfer Service (ACATS) transfer request has been validated, depository-eligible securities should be transferred within:

Three business days

Under the provisions of Rule 10b-10, a confirmation sent to a customer must disclose all of the following items, EXCEPT:

Unusual expenses incurred that will justify a higher markup

May a brokerage firm place a temporary hold on the transfer of securities?

Yes, for the account of a senior investor.

The name of a trusted contact person should be requested for which of the following accounts?

An account for a senior investor

Which of the following choices is a valid reason for a carrying broker to protest an account transfer request?

An account title mismatch

A firm may place a temporary hold on funds that are being sent out of which of the following customers?

Any customer who is over the age of 18 and has a mental or physical impairment

An investor purchases a fund that has a contingent deferred sales charge. The customer has traditionally purchased load funds in which the sales charge is deducted up front. In order to clarify the sales charge procedure, the customer should be told:

By means of a written disclosure: "On selling your shares you may pay a sales charge. For the charge and other fees, see the prospectus"

A soft-dollar arrangement should benefit the:

Customer

A broker who transacts an order for a customer must send a confirmation disclosing all of the following information, EXCEPT:

If it acted as principal and that it prepares research on the security

In a soft-dollar arrangement, which of the following is not acceptable?

Providing office supplies

Which of the following is NOT acceptable under a soft-dollar relationship?

Providing software for accounting services

Broker-dealers are required to send account statements to customers no less frequently than:

Quarterly

The term that defines an arrangement in which an investment manager receives research or brokerage services in exchange for placing orders through that broker-dealer is called:

Soft-dollars

Which of the following statements is TRUE concerning a customer who would like to transfer an account held by a broker-dealer?

The customer is not required to use ACATS.

A customer sells 1,000 shares of stock and asks for the actual time of the execution. For a branch office manager, what is the appropriate action?

To state that the firm is able to provide this information on written request

All of the following information must be disclosed to a customer on a confirmation, EXCEPT:

Whether the order was solicited or unsolicited