Custom Exam Misses, Section 3
D. As long as the charge is reasonable and does not unfairly discriminate between customers A broker-dealer may charge customers for services such as safekeeping of securities and transfer of securities, but these charges must be reasonable and cannot unfairly discriminate between customers.
A broker-dealer may charge customers for services such as safekeeping of securities and transfer of securities: QID: 1809493 Mark For Review A. Under no circumstances B. As long as the charge is not more than 5% of the account value C. As long as the charge is not more than 1% of the account value D. As long as the charge is reasonable and does not unfairly discriminate between customers
C. Securities quoted on Nasdaq The 5% Markup Policy does not apply when a security is being issued with a prospectus or for municipal securities. In this example, a prospectus would be required for a primary distribution as well as a registered secondary distribution. Securities quoted on Nasdaq would be the only choice given for which the 5% guideline would apply.
The 5% Markup Policy applies to: QID: 1809431 Mark For Review A. A primary distribution (new issue) B. A registered secondary distribution requiring a prospectus C. Securities quoted on Nasdaq D. Municipal securities
D. Proceeds transaction The 5% markup policy does not apply to any trade requiring a prospectus (new issues, registered secondaries, and mutual funds) or a transaction involving an exempt security (municipal bond). The 5% policy applies to secondary market trades, which include proceeds transactions (using sale proceeds to buy another security) and riskless or simultaneous transactions.
The 5% markup policy applies to a: QID: 1813173 Mark For Review A. New issue of common stock B. Municipal bond trade C. Purchase of mutual fund shares D. Proceeds transaction
B. Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount If earnings are withdrawn from an IRA for any of the allowable exceptions, the individual avoids the 10% tax penalty; however, the amount withdrawn is subject to ordinary income taxes.
Premature withdrawals of earnings from an IRA that qualify for an exception are subject to: QID: 1813136 Mark For Review A. Neither a 10% tax penalty on the amount withdrawn nor ordinary income taxes on that same amount B. Ordinary income taxes on the amount withdrawn, but not a 10% tax penalty on that same amount C. A 10% tax penalty on the amount withdrawn, but not ordinary income taxes on that same amount D. A 10% tax penalty plus ordinary income taxes on the amount withdrawn
D. Execute any limit order to buy at $30 per share that it's currently holding for a customer A broker-dealer is in violation of FINRA rules if it accepts and holds a customer order (either market or limit) for an equity security and executes a trade involving that security for its own account at the same price and on the same side of the market (buy or sell). If the firm buys stock at $30 per share for its own account, it has an obligation (within 60 seconds) to fill any order that it's currently holding from a customer to buy at $30 or better. The firm is permitted to execute a customer's order below $30, but it's not required to do so.
A brokerage firm buys stock for its own account at $30 per share. The firm is required to take which of the following actions? QID: 1809460 Mark For Review A. Execute any limit orders that it's currently holding for a customer B. Execute any limit order to buy at a price below $30 per share that it's currently holding for a customer C. Execute any limit order to sell at higher than $30 per share that it's currently holding for a customer D. Execute any limit order to buy at $30 per share that it's currently holding for a customer
A. Principal capacity and charged the client a markup A broker-dealer that is always willing to buy and/or sell shares of stock is considered a market maker. A market maker will normally act in a principal capacity and charge the client a markup or markdown. When acting in an agency capacity, the broker-dealer will normally charge the client a commission.
A client purchased 1,500 shares of stock from a broker-dealer, a registered market maker in this stock. The broker-dealer acted in a(n): QID: 1809422 Mark For Review A. Principal capacity and charged the client a markup B. Agency capacity and charged the client a commission C. Principal capacity and charged the client a commission D. Agency capacity and charged the client a markup
D. 8.3% To find the current yield of the bonds, divide the yearly interest paid on the bonds by the current market value of the bonds. The yearly interest is $80. The market value of a bond is $960. Therefore, the current yield equals 8.3% ($80 divided by $960 equals 8.3%). The fact that these are convertible bonds is not relevant.
A company has $50,000,000 par value convertible bonds outstanding. The coupon rate is 8%. The bonds are currently selling at 96. What is the current yield? QID: 1809055 Mark For Review A. 7.0% B. 7.5% C. 8.0% D. 8.3%
D. 3,000 Since there's no minimum set on the tender offer and the company hasn't reached the maximum of 5 million shares, the company will buy all 3,000 shares from the investor. If the tender had a minimum threshold and the minimum had not yet been reached, the company would not buy any of the investor's shares (i.e., 0 shares). If the tender was oversubscribed (i.e., shareholders wanted to sell more than 5 million), then the investor would've been able to sell a pro rata or proportionate number of her shares back to the company.
A company wants to buy back some of its shares from existing shareholders through a tender offer. The company offers to buy up to a maximum of 5 million shares at $15 per share, but sets no minimum number of shares to purchase. A shareholder wants to sell 3,000 shares. If 4.9 million shares have been tendered, how many of the investor's shares will the company buy? QID: 1808993 Mark For Review A. 45,000 B. 0 C. 2,940 D. 3,000
C. Execute at the most reasonable price available Market orders are executed immediately after being received. Broker-dealers must use reasonable diligence to execute market orders at the best price at the time they are received. For an order to be executed at a specific price or better, it must be entered as a limit order.
A customer has placed a market order with a broker-dealer. The broker-dealer must: QID: 1809591 Mark For Review A. Execute at the closing price B. Execute at the quoted price or better C. Execute at the most reasonable price available D. Execute at a price no higher than the last executed price
D. Liquidating the stock at $65 and using the sale proceeds to pay for the original purchase The customer would not be permitted to liquidate the stock and use the sale proceeds to pay for the original transaction. This prohibited practice is known as freeriding. To satisfy the $55,000 requirement in the cash account, the customer may deposit the full amount in cash. There is no violation if the customer deposits more than the amount required
A customer purchases 1,000 shares of stock at $55 in a cash account. On the payment date, the stock is selling at $65 per share but the customer has not paid for the transaction. Which of the following actions would be considered freeriding? QID: 1809554 Mark For Review A. Depositing $55,000 to pay for the purchase B. Depositing $55,000 cash into the account and then liquidating the shares at $65 C. Depositing $65,000 into the account and then liquidating the shares at $65 D. Liquidating the stock at $65 and using the sale proceeds to pay for the original purchase
D. Ensure that her employing firm's guidelines are being followed when trading securities Employees of broker-dealers who intend to open outside brokerage accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. Once the employees obtain the written consent of their employers, they must ensure that their firms' guidelines are being followed when trading securities.
A registered person of a broker-dealer has an existing account at another firm and has followed the proper procedures to open the account. The current responsibility of the registered person is to: QID: 1809556 Mark For Review A. Obtain her employing firm's prior written consent in order to purchase any securities in the account B. Obtain her employing firm's prior verbal consent in order to purchase any securities in the account C. Notify her clients that she has an existing account at another member firm to trade securities D. Ensure that her employing firm's guidelines are being followed when trading securities
A. It is considered correspondence and subject to review by a principal. It is considered correspondence and subject to review by a principal. Correspondence is defined as any written or electronic message that a member firm distributes or makes available to 25 or fewer retail investors within a 30-calendar-day period. On the other hand, retail communication is defined as any written or electronic communication that a member firm distributes or makes available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Retail communications are generally subject to pre-approval; however, correspondence and institutional communications are subject to review and supervision.
A registered representative is sending an email to five clients. Which of the following statements is TRUE? QID: 1809012 Mark For Review A. It is considered correspondence and subject to review by a principal. B. It is considered correspondence and subject to pre-approval by a principal. C. It is considered retail communication and subject to review by a principal. D. It is considered retail communication and subject to pre-approval by a principal.
A. A discount Bonds may be quoted based on their yield-to-maturity, which in this example is 6.35 (basis and YTM are synonymous). Since the bonds has a nominal yield (coupon rate) of 6.15%, which is lower than the 6.35% YTM, the bond is selling at a price that is below the par value of $1,000 (i.e., a discount). On the other hand, if the yield-to-maturity was lower than the nominal yield, the bond would be selling at a premium.
If a bond has a basis of 6.35 and a coupon rate of 6.15%, the bond is selling at: QID: 1809452 Mark For Review A. A discount B. Par value C. A premium D. A price that cannot be determined from the information given
A. By executing both transactions in a margin account and depositing the required cash for both transactions. Payment must be made for both transactions. The purchase could be made in either a cash or margin account, but the short sale must be executed in a margin account. The proceeds of the short sale cannot be used to pay for the purchase of the stock. (17556)
If a customer purchases shares of one stock and sells short shares of another stock, how can she settle these transactions? QID: 1809674 Mark For Review A. By executing both transactions in a margin account and depositing the required cash for both transactions. B. By depositing the required cash for both transactions in a cash account. C. By executing the purchase in a cash account and the short sale in a margin account, and using the proceeds of the short sale to pay for the purchase of the stock. D. By executing both trades in a margin account and using the proceeds of the short sale to pay for the purchase of the stock.
A. A seller's option may be requested and implemented if the buyer agrees A seller's option may be requested and implemented if the buyer agrees. This accommodation must be requested prior to the trade execution.
If a seller knows she requires additional time to settle due to legal issues with the stock certificate, which of the following is TRUE? QID: 1809230 Mark For Review A. A seller's option may be requested and implemented if the buyer agrees B. A seller's option may be requested and implemented and only requires the seller's consent C. Transactions can only settle regular-way no exception may be made D. Transactions can only settle regular-way or same day no other exception may be made
B. The stock power must be signed by all of the owners When selling stock, it's often recommended to send unsigned certificates separately from the signed stock powers to avoid theft. If the stock is owned in a joint account, all of the owners must sign either the stock power or the stock certificate to be considered good delivery. (17559)
In order for the sale of stock from a joint account to be considered good delivery: QID: 1809424 Mark For Review A. The stock power must be signed by at least one owner B. The stock power must be signed by all of the owners C. Only the stock certificate must be signed by all of the owners D. The stock power and each stock certificate must be signed by all of the owners
D. Whether the broker-dealer is also an investment banker for the issuer of the security The customer confirmation must disclose whether the brokerage firm acted as a principal or agent. If it acted as agent, the amount of the commission must be disclosed. Also, the broker-dealer must disclose or offer to disclose the time that the trade was executed. Whether the broker-dealer is also an investment banker for the issuer of the security is disclosed in a research report, but is not required on a confirmation.
On a confirmation to a customer, a FINRA member must disclose all of the following , EXCEPT: QID: 1809630 Mark For Review A. Whether the member acted as agent or principal B. If acting as agent, the amount of the commission C. The time of execution (or an offer to reveal it upon request) D. Whether the broker-dealer is also an investment banker for the issuer of the security
D. FINRA fines Insider traders face SEC civil penalties of up to three times the amount gained or loss avoided (treble damages). Criminal penalties for individuals can be as much as a $5,000,000 fine and 20 years in prison. In addition, private individuals who believe their investments were harmed by the actions of an insider trader may file a civil lawsuit to recover damages. However, FINRA fines may be assessed only against FINRA members and their associated persons. FINRA has jurisdiction only over members while anyone can be held civilly or criminally liable for insider trading. FINRA may not take action against someone who is not a FINRA member.
Persons who violate federal insider trading regulations are subject to all of the following penalties, EXCEPT: QID: 1809210 Mark For Review A. Treble damages B. Prison terms C. Return any profits made D. FINRA fines
C. Two business days following regular-way settlement Regulation T requires payment from a customer in two business days following regular-way settlement.
Regulation T requires payment from a customer in how many days? QID: 1809033 Mark For Review A. By settlement date B. One business days following regular-way settlement C. Two business days following regular-way settlement D. Three business days following regular-way settlement
B. Mutual funds Employees of broker-dealers who intend to open outside accounts for the purpose of executing securities transactions are required to obtain the prior written consent of their firm. However, the requirements of this rule do not apply to accounts that are limited to transactions involving redeemable investment company securities (mutual fund shares), unit investment trusts, variable contracts, or 529 plans.
The guidelines regarding brokerage employees opening personal accounts with other brokerage firms do not apply if the transactions in the account involve which of the following securities? QID: 1809462 Mark For Review A. Municipal debt B. Mutual funds C. Exchange-traded funds D. Treasury debt
A. If one partner dies, his interest in the account will pass to his estate An account that is established under the JTWROS, the interest of a deceased owner will pass to the surviving owners of the account. If the account had been opened under the Tenants-in-Common form of ownership, the deceased partner's portion would flow to their estate. (31756)
Three business partners have opened a brokerage account as Joint Tenants with Right of Survivorship (JTWROS). All of the following statements are TRUE, EXCEPT: QID: 1808991 Mark For Review A. If one partner dies, his interest in the account will pass to his estate B. The firm may accept an order from any of the partners C. Checks that are issued by the firm from the account must be in the name of all of the owners D. When opening the account, the firm must obtain Social Security numbers from all three owners
A. A broker-dealer failing to honor a firm quote Backing away is a prohibited practice in which a broker-dealer fails to honor a firm quote that it put into the market. Marking-the-close is prohibited and is an attempt to influence the closing price, either up or down. Interpositioning involves the insertion of a third party in a trade with a customer and is generally prohibited. Also, a broker-dealer must refrain from trading ahead of customer orders.
What's the definition of backing away? QID: 1809626 Mark For Review A. A broker-dealer failing to honor a firm quote B. A series of trades that are executed at or near the close which are designed to increase or decrease the stock price C. Inserting a third party between a customer and the best price D. Refraining from executing a proprietary order until a customer trade has been executed
D. The short seller will receive any dividends that are paid while she is short the stock. The short seller will NOT receive any dividends that are paid while she is short the stock. In fact, the short seller is required to pay the dividend to the lender of the stock. Each of the other statements are true. Shorting stock must be done in a margin account, the broker-dealer loans the stock to the customer, and there is no set time by which the shares must be repurchased (as long as the client maintains sufficient equity in the margin account).
Which of the following statements is NOT TRUE about selling stock short? QID: 1809629 Mark For Review A. It must be done in a margin account. B. The broker-dealer loans the stock to the customer. C. There is no set time by which the shares must be repurchased. D. The short seller will receive any dividends that are paid while she is short the stock.
B. The maximum loss is limited A customer executing a short sale is anticipating a decrease in the market value of a security. This is known as a bearish strategy, and the customer is hoping to buy back the security or cover the short sale at a lower price. The maximum loss is not limited, i.e., it is unlimited since the customer would have a loss if the market value of the security increased, and there is no limit as to how high the price can rise. Short selling is considered a speculative strategy. The maximum gain is limited since the price of the stock cannot fall below zero.
Which of the following statements is NOT TRUE concerning a customer who is short a security? QID: 1809584 Mark For Review A. The maximum gain is limited B. The maximum loss is limited C. The customer is bearish D. It is considered a speculative strategy
C. Orders must be approved verbally by the customer prior to execution When transacting business for a discretionary account, the registered representative must have written power of attorney authorizing her to act for the customer. Each order in which the registered representative exercises discretion must be marked discretionary. The registered representative should not enter orders that are excessive in size or frequency (in order to churn the account to generate commissions). The registered representative makes the investment decisions and does not need to receive the customer's approval for each order being executed.
Which of the following statements is NOT TRUE regarding discretionary accounts? QID: 1809243 Mark For Review A. . All discretionary orders must be marked discretionary BA written power of attorney must be on file C. Orders must be approved verbally by the customer prior to execution D. Orders must not be excessive in terms of size or frequency
A. The statement must include a disclosure that clients should promptly notify the broker-dealer if they discover a discrepancy. The statement must include a disclosure that clients should promptly notify the broker-dealer if they discover a discrepancy. Account statements must be sent to clients at least quarterly; however, most firms send monthly statements for active accounts. Statements show transactions for the period, not the entire year. Trade confirmations (not account statements) must be sent at or prior to the settlement of a trade.
Which of the following statements is TRUE concerning an account statement? QID: 1813186 Mark For Review A. The statement must include a disclosure that clients should promptly notify the broker-dealer if they discover a discrepancy. B. The statement shows all activity in the account for the entire year. C. The statement must be delivered at or prior to the settlement of a transaction. D. Customers who provide discretionary authority to a broker-dealer do not receive an account statement.
B. The disclosure is required for an unsolicited transaction. In addition to the best execution rule for municipal securities, a municipal securities dealer is required to disclose to a client all material information that's either known or reasonably accessible to the market. These time of trade disclosures are required to be made at or prior to the time of the trade and can be made either verbally or in writing. The main purpose of this rule is to require dealers to disclose to clients all of the relevant information concerning the securities that they're considering purchasing or selling. Many municipal securities have unique features and characteristics that should be disclosed to a client.
Which of the following statements is TRUE concerning time of trade disclosures regarding municipal securities? QID: 1809292 Mark For Review A. The disclosures are only required if the execution occurred in the primary market. B. The disclosure is required for an unsolicited transaction. C. The disclosure is not required if the transaction was recommended. D. The disclosure would apply only for a trade executed in a principal transaction.
C. It must be filed at the end of an issuer's fiscal year. A Form 10-K must be filed within 60 days of a company's fiscal year-end. A Form 10-Q (not a Form 10-K) is filed within 40 days of the end of a firm's fiscal quarter. Proxies contain information about corporate elections and must be sent to owners before a vote is conducted.
Which of the following statements is TRUE regarding Form 10-K? QID: 1809067 Mark For Review A. It must be filed at the end of an issuer's fiscal quarter. B. It contains voting information and must be sent to shareholders before a corporate election. C. It must be filed at the end of an issuer's fiscal year. D. It must be offered to shareholders on a monthly basis.
D. 125 shares at $96 As the result of a stock dividend, an investor will own more shares of the company. In this question, the investor will receive 25 additional shares, which brings the total to 125 shares (100 x 25% = 25 new shares + 100 original shares). Since the number of shares owned increases, the investor's value per share will fall. An important concept of a stock dividend is that stockholders will neither make nor lose money. In other words, the investor's overall ownership position will not change. For that reason, the new price per shares is $96 (100 shares x $120 = $12,000 investment before the dividend, and $12,000 ÷ 125 shares after the dividend = $96).
XYZ company is paying a 25% stock dividend to its common stockholders. If an investor owns 100 shares at $120.00 before the stock dividend, how many shares will the investor own and at what price per share after the dividend is paid? QID: 1809198 Mark For Review A. 75 shares at $160 B. 100 shares at $96 C. 125 shares at $120 D. 125 shares at $96
