Regulations
Under Rule 144, a customer wishing to sell must file the 144 "Notice of Sale" with the SEC: A 10 business days prior to the placement of the sell order B at, or prior to, the placement of the sell order C 10 business days after the placement of the sell order D 90 days after the placement of the sell order
The best answer is B. The Form 144 is simply a notification to the SEC that stock will be sold in compliance with the Rule - the SEC does not approve of the sale. The Form must be filed by the seller at, or prior to, with the placement of the sell order.
Standards for options advertising that is not preceded by delivery of the ODD (Options Disclosure Document) allow all of the following EXCEPT: A making reference to the Options Clearing Corporation B using a corporate logo C referring to a specific options exchange D referring to a specific option contract
The best answer is D. The recommendation or reference to specific options contracts is prohibited in any options communication that is not accompanied or preceded by delivery of the ODD. However, advertising can mention the functions of the Options Clearing Corporation, can include the broker-dealer's name and logo; and can explain the functions of the options exchanges.
All of the following would be considered a "control" relationship to be disclosed to customers EXCEPT the: A municipal broker-dealer always makes a market in the municipality's securities that are being recommended B Treasurer of the township, whose bonds the firm is offering on an agency basis, is on the Board of Directors of the municipal firm C Municipal principal in a municipal securities firm is the supervisor of the school board whose bonds the firm is trading D Treasurer of the township, whose bonds the firm is offering on a principal basis, is on the Board of Directors of the municipal firm
The best answer is A. Any control relationship, wherein a person at the municipal securities firm is in a position to influence a municipal issuer whose securities are being traded by that firm, must be disclosed. Choice A would not be considered to be a control relationship because the broker-dealer is not involved in a relationship with the issuer - rather the firm is simply trading the bonds in the secondary market.
The President of PDQ Corporation donates restricted PDQ shares to the United Way after holding them for 3 years fully paid. United Way can sell the stock without restriction: A immediately B after holding the securities for 90 days C after holding the securities for 2 years D after holding the securities for 3 years
The best answer is A. As long as the 6-month holding period requirement has been met on the restricted shares (the officer held them 3 years) when they are donated, the charity can sell them immediately. There is no requirement that another 6-month holding period be met.
Customer securities held in margin accounts: A can be commingled with other customer margin securities and used as collateral for a loan by the brokerage firm B can be commingled with fully paid customer securities and used as collateral for a loan by the brokerage firm C must be held in custody of the customer D must be segregated and placed in safekeeping
The best answer is A. Brokerage firms can hold fully paid customer securities as long as the positions are segregated from other margin securities and are kept in safekeeping. Customer margin securities are pledged as collateral for the margin loan. The broker is permitted to commingle ("mix-up") these securities with those of other margin customers (but not with fully paid customer securities), and it is these margin securities that may be pledged to a bank for a loan.
All of the following statements are true about listed securities EXCEPT: A listed securities trade in the Second Market B under Regulation T, all listed securities are marginable C listed securities are subject to Regulation SHO D listed companies must be registered with, and report their results to, the SEC
The best answer is A. Listed securities (those listed on an exchange) are marginable under Regulation T. Under the Exchange Act of 1934, Regulation SHO requires that before any equity security (either listed or unlisted) can be sold short, the member firm must affirmatively determine that the security can be borrowed and delivered on settlement. This is called the "locate" requirement. Listed securities trade in the first (exchanges), third (OTC trading of exchange listed securities) and fourth (direct trades between institutions via ECNs) markets. The second market is trading of unlisted securities over-the-counter. These are OTCBB and Pink Sheet issues. Listed companies must register with, and report their results to, the SEC.
Municipal market participants are subject to which of the following rules? A Anti-fraud Rule 10b-5 under the Securities Exchange Act of 1934 B Prospectus delivery rules under the Securities Act of 1933 C Issuer reporting requirements under the Securities Exchange Act of 1934 D Indenture requirements of the Trust Indenture Act of 1939
The best answer is A. Municipal bonds are "exempt" securities and thus are not subject to the provisions of the Securities Acts with the exception of the "anti-fraud" provisions. Municipal bonds do not have to provide a trust indenture; municipalities do not report to the SEC; no prospectus is required when selling a new municipal issue. However, fraudulent activities in the municipal market are covered by the Act of 1934.
A registered representative is a 5% participant in an investment club formed by members of the local Elks Club. The Elks Club investment club has opened a securities account at ABC Brokerage. The account wishes to buy an IPO being offered by an underwriter. Which statement is TRUE? A The account can buy the issue without restriction B The account can buy the issue if the branch manager approves C The account can buy the issue if the registered representative agrees not to share in the profit on the position D The account is prohibited from buying the new issue
The best answer is A. Registered representatives are prohibited from buying new issues from underwriters. This is true for any account in which registered representatives or other restricted persons have a greater than 10% participation as well. Thus, this account would NOT be prohibited from buying the IPO.
How does restricted stock differ from control stock in a Rule 144 sale? A Restricted stock must be held fully paid for a minimum of 6 months prior to sale while control stock can be sold immediately B Control stock must be held fully paid for a minimum of 6 months prior to sale while restricted stock can be sold immediately C Restricted stock is subject to the Rule 144 quarterly sales limitation while control stock is not D Control stock is subject to the Rule 144 quarterly sales limitation while restricted stock is not
The best answer is A. Rule 144 covers resales of both restricted and control stock in the public market. Restricted stock is private placement stock that is not registered. It cannot be sold in the public market unless the company has gone public; it must have been held for a minimum of 6 months fully paid prior to sale; and it can only be sold over 3-month windows with limits placed on the maximum sale amount each quarter (no more than 1% of the outstanding shares, or the weekly average of the prior 4 weeks' trading volume). In contrast, control stock is registered stock owned by top-level officers of the company. To be registered, the company must be publicly trading. Sale of control stock is not subject to the minimum 6 month holding period requirement, but is still subject to the quarterly sales volume restrictions.
All of the following statements are true about margin on securities EXCEPT: A the FRB sets margins for exempt securities B the FRB sets margins for non-exempt securities C FINRA sets margins for exempt securities D FINRA sets margins for non-exempt securities
The best answer is A. The Federal Reserve Board (FRB) only has the power to set margins for non-exempt issues. It has no power to set margins for exempt issues under the Securities Exchange Act of 1934. However, FINRA sets minimum margins for both exempt and non-exempt issues. For example, there is no Regulation T margin for corporate bond positions (a non-exempt security), but FINRA sets the minimum at the greater of 7% of face or 20% of market value. For example, there is no Regulation T margin for municipal bond positions (an exempt security), but FINRA sets the minimum at the greater of 7% of face or 15% of market value.
A registered representative completes a standard options worksheet for a customer. Which of the following statements are TRUE? I The customer must have received an Options Disclosure Document at or prior to receiving the options worksheet II The customer must have received an Options Agreement at or prior to receiving the options worksheet III Prior to its first use, the options worksheet must have been approved by the firm's designated Registered Options Principal IV Prior to its first use, the options worksheet must have been approved by the CBOE A I and III B I and IV C II and III D II and IV
The best answer is A. The firm's "standard options worksheet" is a pre-printed form for a specific options strategy, that is "filled in" by the registered representative to show a customer maximum gain, loss, and breakeven for a particular options strategy recommended to that customer. Before standard forms can be used, they must be approved by the firm's designated Registered Options Principal. Once these standard forms have been approved by the designated ROP, they can be completed and used with Branch Manager approval. However, the customer must receive the latest Options Disclosure Document at or prior to receipt of the completed standard options worksheet, since these include a performance projection. There is no filing with, or approval by, the CBOE, since options sales literature is accompanied or preceded by the ODD. Only communications that are not accompanied or preceded by the ODD (basically options advertising) must be pre-filed with the CBOE.
The Chief Executive Officer of PDQ Company is married and has a husband who owns 5% of the common equity of PDQ. Which of the following statements are TRUE regarding the husband and his PDQ stock holdings? I The husband is considered to be an "affiliate" under Rule 144 II The husband is not considered to be an "affiliate" under Rule 144 III To sell PDQ securities, the husband must file a Form 144 IV To sell PDQ securities, the husband is not required to file a Form 144 A I and III B I and IV C II and III D II and IV
The best answer is A. The provisions of Rule 144 apply to not only insiders but also "affiliates" who are individuals "related" to someone who is an insider. The husband of the Chief Executive Officer of PDQ Corporation is an "affiliate," and sales of PDQ stock by the husband are subject to Rule 144.
The Chief Executive Officer of PDQ Company is married and has a husband who owns 5% of the common equity of PDQ. Which of the following statements are TRUE regarding the husband and his PDQ stock holdings? I The husband is considered to be an "affiliate" under Rule 144 II The husband is not considered to be an "affiliate" under Rule 144 III To sell PDQ securities, the husband must file a Form 144 IV To sell PDQ securities, the husband is not required to file a Form 144 A I and III B I and IV C II and III D II and IV
The best answer is A. The provisions of Rule 144 apply to not only insiders but also "affiliates" who are individuals "related" to someone who is an insider. The husband of the Chief Executive Officer of PDQ Corporation is an "affiliate," and sales of PDQ stock by the husband are subject to Rule 144.
A PIPE transaction under Regulation D: A permits the flow through of both gain and loss to accredited investors under conduit tax treatment B is when an accredited investor makes a private Regulation D investment in a company that is publicly trading C is limited to a maximum of 35 non-accredited investors under Regulation D D is only available for issuers that intend to go public within the upcoming year
The best answer is B. A PIPE transaction (Private Investment in Public Equity) is a way for a company that is already public to raise additional capital quickly, without having to take the time and expense of registering securities with the SEC. Large institutional investors who are accredited agree to quickly make an investment and get discounted private placement stock of the company in return. The company agrees to file a shelf registration with the SEC for those shares, so the institutional investors can "cash out" anytime they want (and if they want) over the next 3 years (the life of the shelf registration). If the investor wishes to maintain its investment longer than 3 years (because the stock has been performing well), then the company will renew the shelf registration for another 3 years, and so on. The basic advantage for the company is that it gets a quick injection of money. The advantage for the accredited institutional investor is that it gets to invest at a discounted price and can "cash out" by selling those shares to the public at any time thereafter under the shelf registration.
Which of the following are violations of FINRA rules? I Sharing in the profits and losses of a customer's account without contributing proportional capital II Selling exempted securities to a customer with a written agreement to buy back the securities at a later date III Orally guaranteeing to buy back customer securities at a preset price A I only B I and III C II and III D I, II, III
The best answer is B. A registered representative cannot guarantee a customer's account against loss nor share in the account unless he or she opens a joint account with the customer; contributes capital proportional to any sharing agreement; and obtains the approval of a principal for the account. Selling exempted securities such as U.S. Governments with a written agreement to buy them back at a later date is a "repurchase" agreement, and is allowed (however, such repurchase agreements are typically for very large amounts, and are entered into by U.S. Government securities dealers).
A customer who lives in New York has an account with a broker-dealer and sales representative that are both registered in the State of New York. The customer moves to the State of Georgia, a state where the broker-dealer and the sales representative are not registered. Which statement is TRUE? A Orders may be solicited from this customer under an "existing customer" exemption without the agent or broker-dealer having to register in the State of Georgia B The firm must cease doing business with the customer until it and the agent register in the State of Georgia C Only unsolicited orders may be accepted from this customer D The customer must place any orders with the firm in writing; telephone orders cannot be accepted
The best answer is B. Because the broker-dealer and sales representative are not registered in the State of Georgia, they cannot solicit the purchase of securities in the State of Georgia (to do so requires registration in the state - there is no such thing as an "existing customer" exemption). Under State law, there is an "unsolicited transaction exemption" that gives an exemption from State registration to any security involved in an unsolicited transaction.However, it does NOT give an exemption from registration to the agent involved in the transaction! In order for the agent to deal with a customer in Georgia (either solicited or unsolicited), the agent and broker-dealer must be registered in Georgia as well!
If a broker-dealer holds fully paid customer securities, which of the following statements are TRUE? I The securities must be segregated and held in safekeeping II The securities do not have to be segregated and held in safekeeping III The securities can be rehypothecated to a bank IV The securities cannot be rehypothecated to a bank A I and III B I and IV C II and III D II and IV
The best answer is B. Broker-dealers are obligated to segregate fully paid customer securities and hold them in safekeeping under the 1934 Act. These securities cannot be rehypothecated to a bank.
A 13D notice would be filed when a(n): A corporation has a change in its Board of Directors B investor accumulates a 5% or greater position in the common stock of an issuer C corporation reports its annual results to the Securities and Exchange Commission D investor wishes to sell shares of restricted stock in the public market
The best answer is B. Investors who accumulate a 5% or greater position in the common stock of one registered issuer are required to file a 13D notice with the SEC within 10 business days of date that the 5% threshold was passed. This information is made public (and is of great interest to the management of the company, since the new large stockholder will probably want a say in how the company is being run!). Choice A would require the filing of an 8K by the corporation. Choice C would require the filing of a 10K by the corporation. Choice D would require the filing of a Form 144 by the seller.
Under MSRB rules, if a customer requests, the dealer: I must disclose the order priority provisions on a new issue II does not have to disclose the order priority provisions on a new issue III must disclose the underwriter's spread in a competitive bid new issue IV does not have to disclose the underwriter's spread in a competitive bid new issue A I and III B I and IV C II and III D II and IV
The best answer is B. MSRB rules requires that if a customer requests, the dealer must disclose the order priority provisions on a new issue (the usual priority is Pre-Sale; Group Net; Designated; Member Takedown). There is no requirement to disclose to a customer the underwriter's spread in a competitive bid issue (that is true for negotiated issues only). There is no required spread disclosure for competitive bid issues because the spread is very thin on such offerings.
Under MSRB rules, if a customer requests, the dealer:I must disclose the order priority provisions on a new issueII does not have to disclose the order priority provisions on a new issueIII must disclose the underwriter's spread in a competitive bid new issueIV does not have to disclose the underwriter's spread in a competitive bid new issue A I and III B I and IV C II and III D II and IV
The best answer is B. MSRB rules requires that if a customer requests, the dealer must disclose the order priority provisions on a new issue (the usual priority is Pre-Sale; Group Net; Designated; Member Takedown). There is no requirement to disclose to a customer the underwriter's spread in a competitive bid issue (that is true for negotiated issues only). There is no required spread disclosure for competitive bid issues because the spread is very thin on such offerings.
Under MSRB rules, municipal securities traders that participate in secondary market joint accounts: A can only act as agent in the transactions and cannot carry positions overnight B cannot disseminate quotes severally for the securities held by the account; any quote can only indicate that one market exists C cannot place orders to buy bonds for an accumulation account sponsored by a dealer participating in the joint account D cannot effect customer transactions and can only deal with other municipal broker-dealers
The best answer is B. Municipal secondary market joint accounts are formed by municipal firms to purchase or sell large blocks of bonds in the trading market. Any quotes disseminated on those bonds must appear as one quote; it cannot appear that there are multiple markets for the bonds when in fact there is only one (the joint account).
Under Rule 144, how much of the issuer's outstanding shares can be sold every 90 days? A 1% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is less B 1% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is greater C 10% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is less D 10% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is greater
The best answer is B. Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is higher) to be sold every 90 days.
What risk is the greatest concern in a Rule 144A transaction? A Inflation risk B Marketability risk C Interest rate risk D Credit risk
The best answer is B. Rule 144A issues are private placement securities sold in minimum $500,000 blocks only to QIBs - Qualified Institutional Buyers (institutions with at least $100MM of assets available for investment). Whereas normal private placements cannot be traded, these can be traded from QIB to QIB. The market for this is PORTAL, but trading activity is thin in this market, especially as compared to the market for publicly traded securities.
Under Rule 147, intrastate offerings cannot be resold out of state for how long following completion of the initial offering? A 3 months B 6 months C 12 months D 24 months
The best answer is B. Rule 147 requires that resale of securities sold under the intrastate exemption be restricted to intrastate only for 6 months following completion of the initial offering. Thereafter, they can be resold interstate. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."
Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue: I that occur 5 business days prior to the effective date II that occur 20 business days prior to the effective date III can only be effected on an upbid IV cannot be covered by purchasing the issue from the syndicate A I and III B I and IV C II and III D II and IV
The best answer is B. SEC Regulation M (Rules 101-105) covers secondary market activities related to registered public offerings, and addresses such items as prohibitions or limits on syndicate members buying the stock in the secondary market during the 20-day cooling off period (this is for add-on offerings); stabilization rules (because stabilizing bids are placed in the secondary market); and also, under Rule 105, addresses a rather nasty market manipulation that occurred in secondary offerings. Prior to the adoption of this rule, a common trading practice was for overly aggressive independent traders to short that stock in the market - pushing the price down during the 20-day cooling off period. The fall in the market price would force the underwriters to lower the Public Offering Price of the issue. Thus, when registration became effective, the independent trading firms could buy the issue from the underwriters at the lower P.O.P., cover their short positions, and have a nice profit. The problem was, however, that this activity was clearly manipulative. The SEC took a dim view of this activity, and under Rule 105, prohibits broker-dealers from purchasing shares of stock from the underwriters at the offering price to cover short positions established within 5 business days of the effective date.
SEC Rule 10b-5-1: A is the "catch all" fraud rule that makes any deceptive or manipulative practice in connection with the sale of a security potentially fraudulent under the Securities Exchange Act of 1934 B gives officers of publicly held companies a safe harbor from being charged with an insider trading violation if they establish a pre-arranged trading plan for that issuer's securities C prohibits the purchase or sale of an issuer's securities based on material nonpublic information in breach of duty of trust owed to the issuer or shareholders of that security D prohibits any person, in connection with a tender offer for securities, to bid for or purchase the security which is subject of the tender offer through any means other than via the offer
The best answer is B. SEC Rule 10b-5-1 allows officers of publicly held companies (statutory insiders) to establish "pre-arranged trading plans" that set future transaction dates and amounts of that issuer's securities; or that specify algorithms that establish the transaction dates and amounts. As long as the officer does not deviate from the plan, the officer is given a "safe harbor" from being accused of insider trading based on those trades.
The "penny stock rule" applies to customer purchases of securities that are not exchange listed which are priced below: A $10 per share B $5 per share C $2 per share D $1 per share
The best answer is B. The "penny stock rule" (Rules 15g-1 through 15g-6) requires that new customers who receive a recommendation and purchase non-exchange listed securities (meaning OTCBB or Pink Sheet issues) priced under $5 per share sign and return a suitability statement before sale can be confirmed. This rule is intended to stop "boiler room" high pressure phone sales of speculative penny stocks.
FINRA's 5% Policy applies to which of the following? I Commissions charged on transactions effected over-the-counter II Commissions charged on transactions effected on stock exchanges III Underwriting spreads charged on new issue offerings effected over-the-counter IV Sales charges imposed on mutual fund offerings A I only B I and II only C III and IV only D I, II, III, IV
The best answer is B. The 5% Policy applies to over-the-counter and exchange transactions that do not involve a prospectus. Thus, it does not apply to new issue offerings, nor to mutual fund offerings, since both require a prospectus
Which of the following statements are TRUE regarding the Federal Telephone Consumer Protection Act of 1991? I The Act applies to for-profit organizations II The Act does not apply to for-profit organizations III The Act applies to not-for-profit organizations IV The Act does not apply to not-for-profit organizations A I and III B I and IV C II and III D II and IV
The best answer is B. The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited "commercial" phone calls. Charitable (not-for-profit) institutions are exempt from the Act's provisions.
Stabilization rules for new issues are set forth under the: A Securities Act of 1933 B Securities Exchange Act of 1934 C Trust Indenture Act of 1939 D Investment Company Act of 1940
The best answer is B. The Securities Exchange Act of 1934 prohibits market manipulation - with one exception. Stabilization of new issues is permitted as long as the stabilizing trades (which take place in the secondary market) conform to the requirements of the 1934 Act.
The Trust Indenture Act of 1939 protects: A municipal bondholders from being taken advantage of by the issuing municipality B corporate bondholders from being taken advantage of by the issuing corporation C government bondholders from being taken advantage of by the issuing governmental unit D all bondholders from being taken advantage of by the issuing entity
The best answer is B. The Trust Indenture Act of 1939 protects corporate bondholders from being taken advantage of by the issuing corporation. It provides for the appointment of a substantial independent trustee to protect the interests of the bondholders. Since we tend to trust our government (plus, the legislators write the laws!), issues of governments and municipalities are exempt from this Act.
Which of the following statements are TRUE regarding the Securities Exchange Act of 1934? I The general provisions of the Act apply to non-exempt securities only II The general provisions of the Act apply to both exempt and non-exempt securities III The anti-fraud provisions of the Act apply to non-exempt securities only IV The anti-fraud provisions of the Act apply to both exempt and non-exempt securities A I and III B I and IV C II and III D II and IV
The best answer is B. The general provisions of the Securities Exchange Act of 1934 apply to non-exempt securities only. For example, holders of municipal bonds (an exempt security) cannot be considered to be "insiders" while a holder of corporate stock (a non-exempt security) can be an "insider." However, the anti-fraud provisions of the Act apply to both exempt and non-exempt securities. Thus, if a person fraudulently trades municipal bonds (an exempt security), this person is in violation of the Act.
Which offering of securities under Regulation A is subject to purchase limitations? A Tier 1 offerings (Regulation A) B Tier 2 offerings (Regulation A+) C Both Tier 1 and Tier 2 offerings D Neither Tier 1 nor Tier 2 offerings
The best answer is B. There are no purchase limitations on Tier 1 (up to $20 million) Regulation A offerings. However, Tier 2 offerings (up to $50 million, also known as Regulation A+) are subject to purchase limitations only for non-accredited purchasers. (Regulation D - the private placement exemption - sets the requirements for "accredited" investors - these are wealthy individuals.) Non-accredited investors buying a Tier 2 Regulation A offering cannot invest an amount that is the greater of 10% of that person's annual income or net worth. Note that there is no similar limitation on Tier 1 purchases.
A municipal securities firm based in California places the following advertisement in the local newspaper: "State of California bonds are a great investmentfor your IRA or 401(k) plan" Which statement is TRUE regarding this advertising claim? A This is prohibited under MSRB rules because claims about retirement plans are prohibited B This is prohibited under MSRB rules because the statement is materially untrue C This is prohibited under MSRB rules because the advertisement must be approved by the MSRB prior to use D This is permitted under MSRB rules without restriction
The best answer is B. This advertisement is misleading because, tax free municipal bonds are not good investment choices for tax deferred retirement accounts. Because municipal interest is free from federal income tax, the bonds have a lower yield than similar quality taxable investments. Since there is no tax in a tax deferred account, why would a retirement plan investor want these? The MSRB does not require any filing of advertising, and advertisements can be placed in any medium. However, statements made in advertising cannot be fraudulent.
All of the following are exempt securities under Securities Act of 1933 EXCEPT: A U.S. Government Bonds B U.S. Government Bond Trusts C Municipal Bonds D Small Business Investment Companies
The best answer is B. U.S. Government Bond Trusts are an investment company whose shares (actually, these are termed "units") must be registered with the SEC under the Securities Act of 1933. Government bonds, municipal bonds, and Small Business Investment Company issues are all exempt securities under the 1933 Act.
A registered representative solicits a new customer to purchase a "penny stock." Prior to effecting the transaction, which procedure is required? A Have the customer sign a letter of intent B Prepare and have the customer sign a suitability statement C Have the branch manager approve the initial order and then fill the order in the same manner as with any other security D No special procedures are required
The best answer is B. Under the SEC's "penny stock rule" (Rules 15g-1 through 15g-6), if a registered representative solicits a new customer to buy a non-NASDAQ over-the-counter stock priced under $5 (translated, this is an OTCBB or Pink Sheet stock under $5), the registered representative must complete a detailed suitability statement for the customer, and the customer must sign this statement before the order can be confirmed. This rule is expected to curb unethical sales practices of so-called "penny stocks."
Which of the following statements are TRUE regarding options sales literature that includes a recommendation? I It must be approved prior to use by the designated Registered Options Principal II It must be accompanied or preceded by a copy of the latest Options Disclosure Document III Showing past or projected performance is permitted IV It must be pre-filed with the exchange A I and II only B III and IV only C I, II, III D I, II, III, IV
The best answer is C. All options communications with the public must be approved by the designated ROP (main office compliance ROP) - not the Branch Manager. Any communication that shows past performance; makes a performance projection; or that makes a recommendation; must be accompanied or preceded by the ODD (Options Disclosure Document). Options sales literature usually falls under these rules. Only options communications that are NOT accompanied by the ODD must be filed with the Exchange 10 days in advance of use. These are basically advertisements seen by the general public.
A registered representative services the brokerage account of her father-in-law at her broker-dealer. The father-in-law has asked the registered representative to act as the trustee in a trust account for her spouse and children. The following assets are being donated by the father-in-law into the trust: Office Building:$15,500,000 Construction Company:$20,000,000 Construction Equipment:$ 2,000,000 The registered representative has agreed not to charge a trustee's fee to do this. Which statement is TRUE about this? A The registered representative is prohibited from acting as trustee B The registered representative can do this without further action required because she is not being compensated C The registered representative must get permission of her firm and must amend her U4 filing for this D The representative can do this without further action required because the assets involved are not securities
The best answer is C. Any "OBA" - Outside Business Activity - must be reported to the firm and must be approved by the firm. Furthermore, it must be reported on that registered representative's U4 Form and is disclosed in that individual's BrokerCheck report. Remember that an individual does not have to be paid for an OBA to exist. If the representative is in the position to steer investment activities of the outside business entity - that makes it an OBA. The fact that the registered representative, as trustee, would get to oversee the activities of an office building and a construction company - and both of these entities could have operating and investment accounts - makes this an OBA.
All of the following would be considered to be a "retail communication" EXCEPT a(n): A direct mailing sent to 30 existing retail clients B password-protected website maintained by a broker-dealer C institutional communication D internet bulletin board
The best answer is C. FINRA defines communications with the public as either: Correspondence: A communication made available to 25 or fewer existing or prospective retail clients Retail Communication: A communication made available to more than 25 existing or prospective retail clients Retail communications must be approved by a principal prior to use and can be required to be filed with FINRA. In contrast, correspondence is only subject to "post use review and approval" as long as the firm has appropriate supervisory procedures in place and cannot be required to be filed with FINRA. A "Retail Communication" is a very broad definition that includes advertising (seen by the general public) and sales literature (seen by a specific audience). A direct mailing to more than 25 existing or retail clients is a retail communication that is sales literature. A password protected website is a retail communication that is sales literature, since it is seen by a specific audience. An internet bulletin board is a retail communication that is advertising, since it is seen by the general public. Institutional communications are excluded from the "retail communications" definition, approval and filing rules because institutions are sophisticated investors who know what they are doing.
Which of the following is NOT defined as an Outside Business Activity by FINRA? A A registered representative who helps out in his or her family's restaurant at night, only earning tips B A registered representative who is elected to the Board of Directors of her cooperative apartment house C A registered representative who volunteers to make solicitations of contributions to her church D A registered representative who teaches a course on financial literacy at a local community college
The best answer is C. FINRA requires that associated persons give written notice to their employer and receive written approval from their employer, to serve as an officer, director, partner or employee of another business organization. In addition, such an OBA (Outside Business Activity) must be reported on that individual's U-4 Form. This information then flows into that registered representative's BrokerCheck report and shows as an OBA on the report.The intent of the OBA disclosure in BrokerCheck is that a potential customer can assess how much time a representative is devoting to his or her business as a representative, as opposed to how much time the representative is devoting to Outside Business Activities.Being compensated is not the sole determinant of whether an activity is an OBA. If the activity can reasonably be expected to lead to additional business for that representative, it is an OBA. Teaching a course in night school at a college could be a way to get new client leads, and hence is an OBA. Being on the Board of Directors of a cooperative apartment house, while not compensated, puts the representative in a position to "steer" the Board when it makes a decision as to investing the coop's reserve and operating funds, so it is an OBA. Working in the family restaurant for tips is clearly an OBA. Note that volunteer charitable work, where there is no "quid pro quo" arrangement, is not an OBA. Rather, it is simply doing a good thing!
A registered representative is employed by a broker-dealer that is a subsidiary of a publicly traded company, listed on the New York Stock Exchange. Which statements are TRUE?I The registered representative may recommend the purchase of the parent company's common stockII The registered representative cannot recommend the purchase of the parent company's common stockIII The registered representative may accept unsolicited orders for the parent company's common stockIV The registered representative may not accept any orders - solicited or unsolicited - for the parent company's common stock A I and III B I and IV C II and III D II and IV
The best answer is C. If a registered representative is employed by a publicly traded member firm (say Raymond James), generally speaking he or she cannot recommend the purchase of that company's shares; nor can he solicit customers to buy the shares. This is not an explicit SEC or FINRA regulation; rather it is industry practice that ensures compliance with FINRA's "suitability" requirements; and the requirement to disclose control relationships at or prior to confirmation. However, it is permitted to accept unsolicited customer orders for the shares.
A registered individual leaves the industry. The individual's license(s) will expire if that person remains unaffiliated with a brokerage firm for how long? A 6 months B 1 year C 2 years D 10 years
The best answer is C. If an individual leaves the industry and remains unaffiliated with a member firm for 2 years, all licenses lapse.
All of the following options orders to sell calls are permitted EXCEPT a(n): A individual selling naked calls in a discretionary account B investment company selling calls against securities in its portfolio C corporation selling calls against its underlying stock D custodian selling calls against securities in a custodial account
The best answer is C. Issuers are prohibited from selling call options against their underlying stock. If they were exercised, they could simply issue more shares to deliver on the exercise notice, diluting existing stockholders' equity. Furthermore, the issuance of the new shares would require a registration with the SEC. Thus, issuers are prohibited from selling calls against their own stock. There is no prohibition on investment companies selling calls against stocks held in their portfolios - this is a very popular strategy for enhancing income. Custodians can also sell covered calls against securities held in the custodial account to increase income. In a discretionary account, all orders are permitted as long as a written power of attorney is received from the customer and the trades are suitable for the account.
Under MSRB rules, any claim, dispute, or controversy shall be submitted to arbitration at the instance of all of the following EXCEPT a: A clearing corporation against a broker-dealer B broker-dealer against a customer who has previously signed an arbitration agreement C broker-dealer against a customer who has not previously signed an arbitration agreement D broker-dealer against another broker-dealer
The best answer is C. MSRB rules require that arbitration be used to settle disputes where a claim is initiated from broker-dealer to another broker-dealer; or clearing corporation to broker-dealer (Choices A and D). If a dispute exists where a broker-dealer has a claim against a customer and that customer has signed an arbitration agreement, then the matter must be resolved by arbitration (Choice B). On the other hand, if a broker-dealer initiates a claim against a customer and the customer has not signed an arbitration agreement, then the customer cannot be forced to arbitration (Choice C).
New corporate bond issues in excess of $50,000,000 are: I exempt securities under the Securities Act of 1933 II non-exempt securities under the Securities Act of 1933 III subject to the Trust Indenture Act of 1939 IV exempt from the Trust Indenture Act of 1939 A I and III B I and IV C II and III D II and IV
The best answer is C. New corporate bond issues are non-exempt securities under the Securities Act of 1933 and thus must be registered and sold under a prospectus. In addition, corporate bond offerings in excess of $50,000,000 fall under the Trust Indenture Act of 1939, requiring that the bonds be sold under a Trust Indenture.
A company has filed a registration statement with the SEC that uses a method that is only available to seasoned issuers. This registration statement is good for: A 1 year B 2 years C 3 years D 4 years
The best answer is C. SEC Rule 415, the "shelf registration rule" allows "seasoned issuers" to file a blanket registration statement with the SEC, covering a period of 3 years, for any securities that the issuer may wish to sell. It is only available to "seasoned" companies that already have completed a registered IPO, that have been registered for 1 year, and that have a minimum market captialization of $75 million. If the seasoned issuer wishes to sell any securities during this 3 year period, it simply files a notification with the SEC that it is selling under that registration statement. This procedure avoids the "20 day cooling" off period, and allows seasoned issuers to enter the market quickly (such as when interest rates have dipped) to sell their securities.
Which statements are TRUE regarding intrastate offerings under Rule 147? I Resale of the securities is permitted within that state immediately following the initial offering II Resale of the securities is permitted outside that state immediately following the initial offering III Resale of the securities is not permitted within that state for 6 months following the initial offering IV Resale of the securities is not permitted outside that state for 6 months following the initial offering A I and II B III and IV C I and IV D II and III
The best answer is C. Securities that are sold under a Rule 147 exemption (intrastate exemption) cannot be resold outside that state for 6 months following the initial offering. There is no restriction on resales within that state. Note, however, that because these securities were never registered with the SEC, they cannot be publicly traded. The only way to resell them is in a "private transaction."
The FINRA 5% Policy applies to which of the following transactions?I Over-the-counter agency tradesII Over-the-counter principal tradesIII Trades of listed securities on an exchange floorIV Mutual fund purchases A I and II only B III and IV only C I, II, III D I, II, III, IV
The best answer is C. The FINRA 5% Policy applies to all over-the counter and exchange transactions EXCEPT those requiring a prospectus. Thus, it does not apply to mutual fund (prospectus) offerings.
A non-MFP (non-Municipal Finance Professional) contributes $500 to an elected official's campaign in which he is entitled to vote. Which statement is TRUE about this? A This action will result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the amount exceeded $250 B This action will result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the individual was not entitled to vote C This action will not result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the MSRB rule only applies to MFPs D This action will not result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the amount involved is under the "de minimis" exemption
The best answer is C. The MSRB political contribution rule only applies to contributions made to elected officials' campaigns by "MFPs" - Municipal Finance Professionals. MFPs are registered individuals in municipal finance departments and their supervisors. If a non-MFP, such as a typical registered representative, gives a political contribution of any amount to an elected official's campaign in which he or she is, or is not, entitled to vote, this will not trigger a ban! Non-MFPs are not in a position to use campaign contributions as "payment" to an issuer official in return for getting future underwritings or financial advisory work from that municipality - so the rule does not apply.
A non-MFP (non-Municipal Finance Professional) contributes $300 to an elected official's campaign in which he is not entitled to vote. Which statement is TRUE about this? A This action will result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the amount exceeded $250 B This action will result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the individual was not entitled to vote C This action will not result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the MSRB rule only applies to MFPs D This action will not result in a 2-year ban on the municipal broker-dealer conducting municipal securities business with that issuer because the amount involved is under the "de minimis" exemption
The best answer is C. The MSRB political contribution rule only applies to contributions made to elected officials' campaigns by "MFPs" - Municipal Finance Professionals. MFPs are registered individuals in municipal finance departments and their supervisors. If a non-MFP, such as a typical registered representative, gives a political contribution of any amount to an elected official's campaign in which he or she is, or is not, entitled to vote, this will not trigger a ban!
Once an individual has completed the SIE exam, he or she: A is only permitted to accept unsolicited trades from clients B is only permitted to report completed trades to clients C will become licensed upon passing the appropriate representative qualification exam D will become licensed upon being hired by a registered broker-dealer
The best answer is C. The SIE is a "corequisite exam." In order to be licensed as a registered representative, the SIE must be passed; and the appropriate representative qualification exam must be passed (e.g., Series 6 or Series 7). Note that being hired by a registered broker-dealer does not make one registered. To be registered, that individual must complete a U4 application and pass the appropriate licensing exam.
The Securities Exchange Act of 1934 regulates trading of which of the following? I Corporate Stock II Corporate Bonds III Options IV Commodities Futures? A I only B II only C I, II, III D I, II, III, IV
The best answer is C. The Securities Exchange Act of 1934 regulates trading of all non-exempt securities, including common stocks, preferred stocks, corporate bonds, options on securities, etc. It does not regulate the trading of commodities, since these are not securities, and thus, are not regulated under the Securities Acts. Rather, futures (commodities) are regulated by the CFTC - the Commodities Futures Trading Commission. Please note, also, that the Securities Exchange Act of 1934 states that manipulation is fraud under the Act, whether the manipulation involves either non-exempt or exempt securities.
Under the provisions of the Securities Exchange Act of 1934, which of the following must be registered? I The exchanges that trade securities II Member firms III Sales employees of member firms IV Clerical employees of member firms A III only B I and II only C I, II, III D I, II, III, IV
The best answer is C. The Securities Exchange Act of 1934 requires the registration of each securities exchange, so that it now becomes a "self-regulatory organization" (SRO), subject to SEC oversight. In addition, FINRA and the MSRB are SROs. The Act requires that member firms register with FINRA; that their officers register; and that their sales employees (you!) register. There is no requirement for clerical employees to register.
A registered representative has a wealthy client who has placed $1 million under management with the representative. The client has recently been elected to his town's Board of Estimate and Taxation, and the municipal securities firm that employs the representative has done underwritings in the past for the town. The representative wishes to take the client out to dinner, which is expected to cost $250. Which statement is TRUE about doing this? A Taking this individual to dinner violates the MSRB $100 gift limit B Taking this individual to dinner is permitted because it has a de minimis value under the MSRB Political Contribution rule C Taking this individual to dinner is permitted because this is business entertainment D This individual cannot be taken to dinner because it is a conflict of interest
The best answer is C. This question is trying to confuse the MSRB gift limit with the MSRB Political Contribution Rule - and neither one applies in this scenario! The Political Contribution rule prohibits MFPs (Municipal Finance Professionals) from making a contribution of more than $250 to an elected official's campaign in which the MFP is entitled to vote. If this occurs, the municipal firm is banned from doing municipal securities business with that municipal issuer for 2 years. This situation is not a campaign contribution - rather, it is taking a client to dinner. The MSRB gift limit of $100 does not apply to business entertainment - which is what this is. The requirement here is that the registered representative be with the client during the period of entertainment (which is the case here) and the entertainment can not be too excessive nor too frequent. Finally, the entertainment must comply with the firm's policies and procedures.
If an individual joins a broker-dealer to sell wrap accounts, under uniform state law, this person: A must register and pass the Series 63 examination B must register and pass the Series 65 examination C both of the above D neither of the above
The best answer is C. Uniform state law, in most states, requires individuals who sell securities in a state to register as an agent and pass the Series 63 examination. In addition, most states define managed accounts as "investment advisers" and individuals who sell these accounts must register as "investment adviser representatives" and pass the Series 65 examination.
Which of the following statements are TRUE about a tender offer for common shares: I The offer must remain open for at least 20 business days II Each "sweetening" of the offer must extend the offer for an additional 10 business days III During the life of the offer, the issuer can buy the stock in the market in addition to buying shares via the offer IV During the life of the offer, any subscribing investors' shares that are tendered are held in escrow pending the outcome of the offer A I and II only B III and IV only C I, II and IV D I, II, III, IV
The best answer is C. When a tender offer is made for the common shares of an issuer, the maker of the offer is attempting to buy a majority stake in the company. To attract shareholders to tender, the maker usually prices the offer at a premium to the current market price. Such offers are typically contingent on a minimum number of shares being tendered. If the minimum number is not met, the maker might "sweeten" the offer by raising the tender price, or could simply cancel the offer and return the tendered shares to the subscribing shareholders. Note that an escrow agent is used to hold the tendered shares, pending the outcome of the offer. During the life of the offer, the maker of the offer and its agents are treated as "insiders," since they have information on how the tender offer is progressing that the general public does not know about. This means that, during the offer, they are prohibited from buying the stock in the market. The initial offer must be held out for a minimum of 20 business days under SEC rules. Each sweetening of the offer must extend the life of the offer by another 10 business days.
Which statements are TRUE about the use of a "red herring" preliminary prospectus?I A preliminary prospectus may be sent to a prospective customer before the issue has entered into the 20 day cooling off periodII A preliminary prospectus may be sent to a prospective customer once the issue has entered into the 20 day cooling off periodIII The use of the preliminary prospectus constitutes an offer to sell under the Securities Act of 1933IV The use of the preliminary prospectus does not constitute an offer to sell under the Securities Act of 1933 A I and III B I and IV C II and III D II and IV
The best answer is D. A "red herring"/preliminary prospectus may be sent to any prospective purchaser of that new issue once the issue has entered into the "20 day cooling off" period that commences upon filing of the registration statement with the SEC. Prior to the "20 day cooling off period," the filing had not been made, so nothing can be done that involves contacting the public about that issue. The use of the "preliminary prospectus" does not constitute an "offer" under the 1933 Act, and the red ink statement on the cover of the preliminary prospectus states this (hence the name "red herring").
A registered representative with a FINRA member firm is opening a new cash account for a customer who lives in another state. The customer explains that he wishes to place a trade today. To accommodate the customer's wish, the registered representative gets the customer's permission to sign the customer's name to the arbitration agreement. This action by the registered representative is: A permitted if a branch manager approves B permitted if the customer's verbal permission has been tape recorded C permitted if the customer follows up with written permission within 48 hours D prohibited
The best answer is D. A customer's signature cannot be forged, even if the customer were to give permission to do so. Legally, the customer's signature is required in order to have a binding contractual agreement that will have standing in a court of law.
Which of the following statements are TRUE regarding options sales literature that is accompanied or preceded by delivery of the ODD (Options Disclosure Document)? I It must be approved prior to use by the designated Registered Options Principal II It can recommend a specific options contract III The use of recommendations, or of past or projected performance, is permitted IV The illustration of annualized rates of return achieved from various options strategies is permitted A I and II only B III and IV only C I, II, III D I, II, III, IV
The best answer is D. All options communications with the public must be approved be the designated ROP (main office compliance ROP). Any communication that shows past performance; makes a performance projection; or that makes a recommendation; must be accompanied or preceded by the ODD (Options Disclosure Document). Options sales literature usually falls under these rules.
Which of the following statements are TRUE regarding indications of interest received during the "cooling off" period for a registered initial public offering? I The indication is binding on the customer II The indication is not binding on the customer III The indication is binding on the underwriter IV The indication is not binding on the underwriter A I and III B I and IV C II and III D II and IV
The best answer is D. An indication of interest is taken during the 20 day cooling off period before a new issue's registration is effective. The issue may never "go effective" and the indication can be canceled by the underwriter. Thus, the underwriter can cancel or change the indication. Similarly, the customer can also cancel or change his indication. These are not binding because the issue cannot be legally "offered or sold" until the effective date.
Under MSRB rules, confirmation disclosure for bonds sold at a discount or premium must include all of the following EXCEPT: A the yield at which the transaction was effected and the resulting dollar price B whether the securities are callable C capacity in which the broker-dealer acted D The rating assigned to the bond by a national ratings agency
The best answer is D. Confirmation information that must be shown for municipal bonds traded at a discount or premium from par includes the yield at which the transaction was effected (which will differ from the stated rate of interest because the bonds were not traded at par) and the resulting dollar price; whether the securities are callable, with disclosure of "in-whole" call dates; the capacity in which the broker-dealer acted (either as "agent" or "principal"); and the total dollar amount of the transaction. There is no requirement to disclose the bond's rating on the confirmation.
A registered representative explains to each of his customers that "Day trading of stock index options to profit from intra-day market swings is a safe and highly profitable strategy." This statement is: A truthful B only permitted for those customers who have previously signed an options agreement C only permitted for those customers who effected at least 10 options trades in the past year D unethical
The best answer is D. Day trading of stock index options is hardly safe; and while it may be profitable in some cases, it's just as likely to be unprofitable in others. This is a highly unethical statement.
Fines assessed for convictions involving violations of insider trading laws are paid to the: A Department of Justice B Securities and Exchange Commission C Securities Investor Protection Corporation D Department of Treasury
The best answer is D. Fines assessed for insider trading convictions are paid to the Department of Treasury. The fines are not paid to the SEC. If they were, then the SEC might be tempted to "go crazy" prosecuting insider trading cases to pump up its operating budget (raises for everyone!)
An officer of a company has been invited by a large mutual fund company to give a talk to the fund company's analysts about its business plans and prospects. At the talk, the officer inadvertently discloses material information that could affect the stock's price. Which statement is FALSE? A The officer is considered to be a "tipper" B The analysts are considered to be "tippees" C The company must make an immediate public disclosure of the information to avoid insider trading liability D The company must file a 10K with the SEC disclosing the information to avoid insider trading liability
The best answer is D. If an officer of a company makes an accidental disclosure of material non-public information at a presentation to analysts, Regulation FD considers the officer to be a tipper and the analysts to be tippees. To avoid insider trading liability, the company can either make an immediate public disclosure of the information or can file an 8K Report (a special report of significant events with the SEC, which makes the information public). A 10K is the corporation's annual audited financial statements and has nothing to do with Regulation FD.
A foreign broker-dealer that is not SEC registered is permitted to deal with clients in the United States: A under no circumstances B only if the clients are accredited investors C only if the clients are sophisticated D only if the clients are major institutional investors
The best answer is D. In order for a broker-dealer to solicit in the U.S., it must be registered with the SEC. For foreign broker-dealers, this means setting up an SEC-registered U.S. subsidiary. However, recognizing the increasingly global nature of the world's securities markets, the SEC adopted Rule 15a-6, which is intended to permit foreign broker-dealers to engage in limited activities in the U.S. without registering with the SEC. Under Rule 15a-6, foreign broker-dealers that are not SEC registered are permitted to:effect trades for U.S. persons that contact them on an unsolicited basis;solicit business from and provide research reports to Major Institutional Investors (an investor with at least $100 million of investments) and Institutional Investors (investment companies, insurance companies, banks, etc.) andconduct business with foreign nationals temporarily present in the U.S.
Which of the following options communications must be approved by the designated Registered Options Principal prior to use? I Advertising II Sales literature III Independently prepared reprints A I only B I and II C II and III D I, II, III
The best answer is D. Options communications that are distributed to more than 25 existing or prospective clients must be approved in writing prior to use by the designated Registered Options Principal (main office compliance ROP). Retail communications include advertising, sales literature and independently prepared reprints distributed to more than 25 existing or prospective clients. Options institutional sales literature and public appearances are the 2 public communications that do not require designated ROP approval. However, they are subject to the firm's policies and procedures. Options correspondence is a communication to up to 25 existing or prospective clients. It is subject to "post use review and approval" by a branch manager or ROP.
Under Regulation D regarding private placements, how many accredited investors are allowed to invest in the offering? A 10 B 35 C 50 D An unlimited number
The best answer is D. Regulation D permits a private placement to be sold to a maximum of 35 non-accredited investors and an unlimited number of accredited (wealthy and institutional) investors.
Under Regulation M, Tier 1 securities are those with a minimum: I daily trading volume of $100,000 II daily trading volume of $1,000,000 III market float of $25,000,000 IV market float of $150,000,000 A I and III B I and IV C II and III D II and IV
The best answer is D. Rule 101 of Regulation M covers syndicate members who are not market makers in that stock that are in an underwriting group for an "add on" stock offering. The intent is to make sure that they do not try and manipulate the price of the security upwards prior to the effective date, so that a higher POP could be set. They are subject to a restricted period for secondary offerings, of either 1 business day or 5 business days prior to the effective date, where they are prohibited from purchasing, making a bid for, or inducing the purchase of, the underwritten security. If the security is very actively traded, there is no restricted period. Note that they can accept unsolicited orders to buy the security. The rule states that: Tier 1 Issue - if the security is actively traded (average daily trading volume of $1,000,000 or more and public float of at least $150,000,000), there are no restrictions placed on market makers trading the issue prior to the distribution. The idea here is that this issue is too big for the price to be manipulated. This is called a "Tier 1" issue.Tier 2 Issue - if the security has an average daily trading volume of $100,000 and a public float of at least $25,000,000 the restricted period is the business day prior to the effective date. This is called a "Tier 2" issue.Tier 3 Issue - any other security not meeting these minimums is a "Tier 3" issue and is subject to a restricted period of 5 business days prior to the effective date.
On December 1st, an officer of MNO Corporation wishes to sell stock under Rule 144. MNO has 60,000,000 shares outstanding. The previous weeks' trading volumes are: Week EndingVolumeNov 28Nov 21Nov 14Nov 7Oct 31515,000 shares500,000 shares525,000 shares485,000 shares450,000 shares The maximum permitted sale under Rule 144 is: A 490,000 shares B 500,000 shares C 506,250 shares D 600,000 shares
The best answer is D. Rule 144 allows the sale of the greater of 1% of the outstanding shares or the weekly average of the preceding 4 weeks trading volume every 90 days. 1% of 60,000,000 shares = 600,000 shares. 515,000 shares500,000 shares525,000 shares485,000 shares2,025,000 shares/ 4 weeks = 506,250 share average The greater amount is 1% of outstanding shares, or 600,000 shares.
The director of a public corporation wishes to sell stock of that company in compliance with Rule 144. Which statements are TRUE? I Registered control stock must be held for 6 months, fully paid, before it can be sold II Unregistered restricted stock must be held for 6 months, fully paid, before it can be sold III If the sale is for 5,000 shares or less, worth $50,000 or less, no SEC filing is required IV Any short swing profits (within 6 months) from trading the stock must be returned to the corporation A I and II B II and III C I, III, IV D II, III, IV
The best answer is D. Rule 144 requires that unregistered shares be held fully paid for 6 months before they can be sold under the rule. Registered shares held by officers can be sold without meeting the holding period requirement, but are subject to the other provisions of the rule. No filing is required if 5,000 shares or less, worth $50,000 or less, are sold every 3 months. Under the Securities Exchange Act of 1934, any short swing profits (achieved within a 6-month time frame) that officers derive from trading that company's stock must be repaid to the company.
Which statements are TRUE?I Rule 144A issues trade on the NYSE, AMEX and NASDAQII Rule 144A issues trade on PORTALIII The general public can trade Rule 144A issuesIV Only QIBs can trade Rule 144A issues A I and III B I and IV C II and III D II and IV
The best answer is D. Rule 144A issues are private placement securities sold in minimum $500,000 blocks only to QIBs - Qualified Institutional Buyers (institutions with at least $100MM of assets available for investment). Whereas normal private placements cannot be traded, these can be traded from QIB to QIB. The market for this is PORTAL, but trading activity is thin in this market, especially as compared to the market for publicly traded securities
A registered representative has prepared a research report about a new issue that is "in registration." Which statement is TRUE? A The research report may be sent to any customer expressing an "indication of interest" B The research report may be sent to any customer if it is accompanied by a preliminary prospectus C The research report may only be sent to customers who have bought new issues within the preceding 12 months D The research report may not be sent
The best answer is D. Since this issue is "in registration," it is in the 20-day cooling off period. The only permitted written communications during this period are the red herring preliminary prospectus, and a tombstone announcement (which, in reality, is not published until the effective date). This research report cannot be sent, since it would be considered to be a prohibited "offer to sell" the securities
A new issue municipal bond investor seeking information about an issuer's financial condition would examine the: A Bond Resolution B Official Notice Of Sale C Trust Indenture D Official Statement
The best answer is D. The Official Statement is the disclosure document, similar to a Prospectus, for new municipal issues. There is no legal requirement for issuers to prepare an Official Statement, but underwriters require them from issuers in order to perform due diligence on the issue; and to have a disclosure document that can be given to potential investors.
