Financial Industry Regulatory Authority (FINRA)
The over-the-counter market could be characterized as what type of market?
The OTC market is an inter-dealer market
If a member firm is notified by FINRA that it must begin tape-recording the phone calls of its assistant representatives and registered representatives to existing and potential customers, it must do so within how many days of notification?
A firm has 60 days to secure the equipment and begin recording
A change to which of the following items requires amending the Form U-4?
A home address change requires an amendment to Form U-4. A change to the member firm's address requires the firm to amend its Form BD, but not the representative's Form U-4. Marital status and vacation home address are not items of information on Form U-4.
To which of the following persons may a broker/dealer pay commissions under a continuing commission contract?
A FINRA member firm may continue to pay commissions to either a retired employee or a former employee's widowed spouse if a prior written contract exists. Commissions may be paid only on business generated while employed.
Firm commitment underwriting
A firm commitment underwriting requires the underwriters to purchase all of the securities being offered for resale to the public
A prospectus must accompany or precede which of the following
A mutual fund sales presentation held in person at the representative's office. Any offer or advertisement of mutual fund shares must be preceded or accompanied by a prospectus. However, generic advertisements, such as those permitted under Rule 482, or purely informational material are exempted from this requirement. A prospectus must be given to all seminar attendees when they arrive, not when the invitations are mailed. The face-to-face meeting between the representative and the prospect is considered an offer and must be accompanied by a prospectus.
A preliminary prospectus
A preliminary prospectus, or red herring, is prepared after the filing of a registration statement with the SEC. It is the only item allowed to be given to prospective investors while gathering indications of interest during the cooling off period. Sales literature may accompany a final prospectus but may not accompany a red herring.
Which of the following activities are characteristic of a primary offering?
A primary offering involves the sale of previously unissued securities. The issuing company receives the proceeds from the sale; once the securities are sold, more securities will be outstanding.
Which of the following would NOT necessarily be considered an accredited investor?
A registered representative. Corporate insiders, institutional investors like mutual fund managers, and individuals with at least $1 million in assets are all considered to be accredited investors. A registered representative is not.
Standby underwriting
A standby underwriting allows a corporation to sell as much of a new issue to current stockholders as possible, backed by the underwriter's promise to purchase any unsold rights. Remember that a standby underwriting agreement is associated with a rights offering.
Which of the following terms describe a third market transaction
A third market trade takes place when listed securities are traded over-the-counter.
Tombstone
A tombstone is an announcement of a new issue that includes the name of the issuer, the price of the security, and the name of the underwriter from whom it can be purchased
Which of the following will NOT be found in a final prospectus?
Agreement among underwriters. The final prospectus will include information that is material to investors in order for them to make an informed decision. The agreement among underwriters is a separate document that is between the members of the underwriting syndicate. Investors do not require knowledge of what is contained in this agreement.
True statements regarding branch offices.
Activities will be reviewed by an office of supervisory jurisdiction. The branch offices will be registered with FINRA. Retail orders are accepted there.
Reegulation D Private Placement.
Advertising is allowed if only accredited investors may purchase the securities If selling to nonaccredited investors, general solicitation is not allowed The private placement sells to any nonaccredited investors (with the maximum number being 35) no advertising or general solicitation is allowed. If the sale is exclusively to accredited investors, the private placement may advertise.
If a registered representative left her member firm 3 years ago to care for a child and is now ready to return to the securities industry, which of the following statements is NOT true?
After a leave of absence of more than 2 years, a registered representative must re-qualify by examination. When the representative left the old firm, the firm would file a Form U-5. If no U4 is filed within two years of the U-5 filing, registration is cancelled. When a new firm hires the representative, she must reapply for registration on a Form U-4. There are exceptions for those called up to active military duty.
Regarding offices of FINRA member firms, which of the following statements is CORRECT
All member firms must have at least one OSJ, managed by at least one resident principal. All branch offices must be registered with FINRA and may be managed by a principal or qualified registered rep.
Which of the following changes to a U-4 form must be communicated to the registered representative's broker/dealer and to FINRA?
Bankruptcy The broker/dealer and FINRA must be notified if a registered representative files for bankruptcy; the other occurrences listed do not require FINRA notification
All of the following statements regarding branch offices are true EXCEPT
Branch offices need not have a resident principal; they may use a qualified registered representative to serve as branch manager.
A registered representative with ABC Securities, a FINRA member broker/dealer, terminates his registration and affiliates with XYZ Securities, another FINRA member broker/dealer. Which of the following statements is CORRECT?
Continuing commissions on clients remaining with ABC can be paid to the registered representative if it is in the representative's contract. As long as the new affiliation takes place within two years of the termination, there would not be a requirement to re-qualify by examination. Continuing commissions may be paid on business that "continues" to accrue at the initial B/D as long as it is in the employee's contract. There is a two-year limit on re-registering without need to re-take the exam. It would be a prohibited practice to remove files from the office and there is nothing to stop the representative's clients from changing their B/D of record to the new firm
Which of the following statements is TRUE concerning compliance meetings?
FINRA rules require that all registered personnel participate in an annual compliance review
Which of the following actions are the responsibility of an investment bank?
Distributing large blocks of stock to the public and to institutions Raising long-term capital for corporations by underwriting new issues of securities An investment banker buys previously unissued securities from an issuer and sells them to the public. It does not lend money to corporate customers that require debt financing. Commercial bankers lend money; investment bankers help issuers raise money through securities offerings
FINRA Rule 5130 states that each of the following is considered immediate family
FINRA Rule 5130 defines Restricted persons under FINRA Rule 5130 include FINRA member firms and their associated persons, plus immediate family members as spouses, parents, brothers, sisters, in-laws, and children. Aunts and uncles are among those excluded. An exception is made for those who work for limited business broker/dealers, such as those that sell only investment company offerings and variable contracts.
FINRA fees paid by a member firm are based on which of the following
FINRA fees are determined by the number of registered representatives, principals, and branch offices registered with FINRA.
If a FINRA member firm suspends a registered representative, the firm must report the suspension to:
FINRA. The firm must report the suspension to its designated examining authority (DEA), in this case, the Financial Industry Regulatory Authority (FINRA).
If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of the
Final prospectus No literature may accompany a preliminary prospectus or red herring. All such information may only be used with a final or statutory prospectus
Bob's Series 6 registration with FINRA was placed in a specifically designated inactive status while in military service for three years. Upon his release from service Bob would like to resume his career with a different broker/dealer than the one he was with prior to his service. Which of the following events are necessary in order for Bob to work for another broker/dealer
If returning from military service to work for a different broker/dealer, notification to FINRA is required in order to become active and a new U-4 must be completed. The two-year license expiration period will be placed on hold beginning on the date the person enters active military service and will end 90 days after that person's completion of active service.
A registered representative was recently involved in a Code of Arbitration dispute with a customer and would like the resulting decision removed from FINRA's CRD system. In order for this to happen, what must occur?
Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
Which of the following statements about FINRA are TRUE?
It has authority to regulate the OTC market in nonexempt securities. All branch offices of a member broker/dealer must be registered with FINRA. Firms transacting business in the over-the-counter market and/or members of the New York Stock Exchange must register with the SEC and are eligible for membership in FINRA. If a broker/dealer is a member, each branch office of the broker/dealer must be registered with FINRA. Not all broker/dealers are required to be FINRA members, and they may also hold membership in other exchanges.
Where must the SEC's no-approval clause appear in a prospectus?
On the cover The SEC wants investors to know that it does not approve or disapprove new issues. The disclaimer statement must appear on the cover of all prospectuses.
Which of the following is NOT a basic responsibility of an investment banker?
Providing a secondary market for securities that have been issued. An investment banker's main functions are raising intermediate and long-term capital for corporations through the distribution of securities, buying securities from an issuer and reselling them to the public, distributing large blocks of stock, and advising corporations on the best way to raise long-term capital. It is not the investment banker's responsibility to provide a continuing secondary market for securities once they have been issued.
The Conduct Rules apply to a transaction
The Conduct Rules apply directly to all transactions between FINRA member firms and members of the public.
To which securities market does the Securities Act of 1933 apply?
The Securities Act of 1933 covers the registration and disclosure requirements regarding new issues, or the primary market. The secondary markets are covered under the Securities Exchange Act of 1934
All or None underwriting
The all or none underwriting is unique in that it requires that the entire issue be subscribed to or the deal is called off. It is a type of best efforts underwriting, but all or none is clearly the more accurate answer.
Which of the following are among the purposes and objectives of FINRA
To promote self-discipline among members To investigate and adjust grievances between members. FINRA is the self-regulatory organization (SRO) for the over-the-counter markets and for NYSE members. It enforces the Conduct Rules, provides mediation and arbitration services, and promotes self-discipline among members, all with the end in view of protecting the investing public
An individual was convicted of embezzlement from a bank several years ago and is, therefore, subject to statutory disqualification. Which of these statements reflects FINRA's position?
The person is statutorily disqualified until ten years has passed since the conviction. This must be reported on the Form U-4 when applying for registration. Because the conviction was for a money-related incident, even if it was treated as a misdemeanor, it still would lead to statutory disqualification. Under most circumstances, that would prevent a person from becoming employed by a FINRA member for ten years from conviction. Registration is filed on Form U-4.
Who prepare the Prospectus
The prospectus and the preliminary prospectus are prepared by the issuer of a new security, not the broker/dealer who will sell it.
A meeting between the issuer and underwriter to ensure that the prospectus is true and accurate is called:
The final meeting before the end of the cooling-off period is known as a due diligence meeting and is always held before the effective date of the new offering.
If the SEC has cleared an issue, which of the following statements is TRUE?
The issuer has filed a standard registration statement The SEC does not approve, disapprove, endorse, or guarantee a registration statement's accuracy.
Al Alberts, CLU, has several clients for whom mutual funds would be suitable investments. Al contacts Bill Billings, a registered representative with CALCO Investments, a FINRA member broker/dealer. Al suggests that it would be mutually beneficial to refer to each other. Al would handle the client's insurance needs and Bill would take care of their investment requirements. They enter into a contract where each will receive a commission split with the other for these referrals. Under FINRA rules this is:
The only individuals who can receive compensation for the sale of securities, directly or indirectly (as in Al's case), are those with a proper securities license. FINRA rules do not require that commission sharing be done only amongst those with the same or affiliated members.
Types od underwritings
The term closed end refers to a type of management company defined in the Investment Company Act of 1940. A best efforts underwriting is when an underwriter will do its best to sell the entire new issue but will not guarantee success. In a firm commitment underwriting, the underwriter will guarantee to sell the entire issue or purchase unsold shares. A standby agreement applies when a corporation will try to sell the new issue itself through a rights offering but will have an underwriter standing by to purchase unused rights and use them to buy the unsold shares for resale to the public.
Which of the following statements are TRUE concerning compliance meetings?
They may have other items on the agenda. They may be held in conjunction with another meeting. FINRA rules require that all registered personnel, representatives and principals, participate in an annual compliance review. The presentation must be interactive meaning a video that can be viewed at one's convenience is generally not going to qualify. This compliance review can be held in conjunction with another meeting and, therefore, may have other items on the agenda.
Under FINRA rules, carrying firms must advise their customers of the BrokerCheck phone number or Web address
Under FINRA rules on investor education and protection, carrying firms must advise their customers of the phone number or web address for BrokerCheck. This disclosure must be made at least once every calendar year. BrokerCheck allows customers to access licensing information as well as check on customer complaints and the disciplinary history of registered persons.
A registered representative with GEMCO securities, a FINRA member firm, receives a very attractive offer to affiliate with KAPCO Investments, also a FINRA member firm. The registered representative accepts the offer and switches firms. Which of the following statements are CORRECT?
When a registered person terminates, the member firm files a Form U-5 with the CRD. When a person affiliates in a registered capacity with a member firm, the person completes the Form U-4 which is then filed by the firm with the CRD. All records of customer accounts are the property of the firm and may not be removed.
When a member firm terminates a registered representative, the terminating firm must
Whenever a registered representative leaves a member firm, a U-5 form must be submitted to FINRA.
A representative with a Series 6 license assisted an investor in the purchase of a closed-end fund IPO. The client is interested purchasing additional shares that are now being sold on an exchange. The registered rep:
may not assist in the purchase Individuals who hold Series 6 licenses are permitted to sell investment company products, which include unit investment trusts, face-amount certificates, open-end company shares, and primary offerings of closed-end company shares (not secondary market offerings)
During the cooling off period of a securities registration, the underwriters will generally distribute a preliminary prospectus. This document:
may contain incomplete information. will not contain the effective date. A preliminary prospectus is frequently referred to as a red herring. This is due to the statement, printed in red ink, that says that information contained therein may undergo change, completion or amendment. The effective date is found in the final prospectus only. No payment of any kind may be accepted from potential investors, and special research reports or other promotional material on the new issue are prohibited.
FINRA was established to
encourage just and equitable principles of trade. adopt and enforce its Conduct Rules among brokers and dealers.
If the SEC has released a security for sale, then the SEC has:
not approved the security but has cleared its sale to the public. When the SEC releases a security for sale, it allows the sale of the security but does not approve or disapprove of it as a suitable investment. The SEC also does not rule on the accuracy or adequacy of the information included in the prospectus.
If XYZ Corporation intends to offer stock in a public offering, it must do all of the following EXCEPT
publish a tombstone advertisement Tombstones are advertisements often appearing in business newspapers to publicize new issues and are generally placed by a syndicate manager. They are not required.
A registered representative has been called into active overseas military duty. Under FINRA rules, all of the following statements are true EXCEPT
the representative's license will be placed on special active status When called into active military service, that person will be placed in a specifically designated inactive status. Therefore, that person may not perform any of the duties normally performed by registered persons. Furthermore, while the person is on active military duty, all CE requirements are waived. In addition, firms may make arrangements with another representative to have the accounts of that person serviced and to provide for a sharing of commissions.
The primary difference between an underwriting syndicate and a selling group is:
the syndicate assumes liability for unsold shares; the selling group does not The underwriting syndicate makes a financial commitment to bring a new issue to market and to take liability for unsold shares. A member of a selling group only agrees to provide a sales service for a certain number of shares in exchange for a commission on shares it sells. It has no responsibility for any unsold shares.
Series 6 reps May only sell
unit investment trusts, face-amount certificates, open-end company shares, and primary offerings of closed-end company shares (not secondary market offerings).
An agent may deliver a preliminary prospectus for an IPO:
while the issue is in registration. A preliminary prospectus, or red herring, may be distributed during the registration period for a new security. It is only for the purpose of obtaining indications of interest, not soliciting sales. It is not a final sale document.