Regulations quiz
Options sales literature that makes a recommendation: I must be preceded or accompanied by the Options Disclosure Document II must be approved in writing by the designated ROP prior to use III must be filed with the exchange 10 days before use IV cannot include projections or show past performance Correct answer A. You chose this answer A I and II only Incorrect answer B. You did not choose this answer. B III and IV only Incorrect answer C. You did not choose this answer. C I, II, III Incorrect answer D. You did not choose this answer. D I, II, III, IV
The best answer is A. 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 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 Correct answer A. You did not choose this answer. A I and III Incorrect answer B. You chose this answer. B I and IV Incorrect answer C. You did not choose this answer. C II and III Incorrect answer D. You did not choose this answer. 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.
A registered representative has written discretionary authorization from a customer. Specific customer approval is needed for the registered representative to effect which of the following transactions in the customer's account? I Sell naked calls II Sell covered calls III Purchase a municipal bond where the broker-dealer has a control relationship with the issuer Correct answer A. You did not choose this answer. A III only Incorrect answer B. You did not choose this answer. B I and II Incorrect answer C. You chose this answer. C II and III Incorrect answer D. You did not choose this answer. D I, II, III
The best answer is A. Under MSRB rules, if a control relationship exists between a brokerage firm and the security being recommended, this security cannot be purchased in discretionary accounts unless the specific authorization of the customer is obtained first. The issue here is that there can be an inherent conflict of interest when such a relationship exists. For example, a municipal control relationship might exist if the president of the broker-dealer is also a political official of the town whose bonds are being recommended. Such a broker-dealer, if it were unscrupulous, would have an incentive to "support" the price of the issue in the aftermarket, making it more likely that the municipality would use that firm for future underwritings. It could do this by making purchases of that issue in its discretionary accounts. No specific authorization is required to sell naked or covered calls in discretionary accounts. The only requirement is that discretionary trades executed be consistent with the customer's investment objective; must not be too frequent; and must not be excessively large in size.
A long time customer has purchased securities in a margin account and is experiencing a temporary cash shortfall. The customer tells the registered representative that he cannot pay on settlement; and the registered representative offers to lend the customer the necessary funds. This action is: Correct answer A. You chose this answer A prohibited Incorrect answer B. You did not choose this answer. B allowed with the permission of the branch manager Incorrect answer C. You did not choose this answer. C allowed only if the loan will be repaid within 30 days Incorrect answer D. You did not choose this answer. D allowed without restriction
The best answer is A. FINRA prohibits registered representatives from either lending money personally to a customer or borrowing money personally from a customer. There are certain exceptions to the prohibition if the customer is a spouse, "significant other" or family member, but this is not the case here.
Blue Sky Laws require registration of all of the following EXCEPT: Correct answer A. You chose this answer A exempt issues Incorrect answer B. You did not choose this answer. B non-exempt issues Incorrect answer C. You did not choose this answer. C broker-dealers Incorrect answer D. You did not choose this answer. D sales representatives
The best answer is A. State blue sky laws are independent of the Federal Securities Acts. As a general rule, securities exempt from Federal registration are also exempt from state registration. Blue sky laws require registration of broker-dealers, sales representatives, and non-exempt issues in that state. Under these laws, states have the power to suspend or expel individuals or issues from registration.
Under the Securities Act of 1933, new issues are not marginable until how many days have elapsed from the effective date? Correct answer A. You chose this answer A 30 days Incorrect answer B. You did not choose this answer. B 45 days Incorrect answer C. You did not choose this answer. C 60 days Incorrect answer D. You did not choose this answer. D 90 days
The best answer is A. Under the Securities Act of 1933, new issues are not marginable until 30 days have elapsed from the issue (effective) date.
An issuer making a tender offer for its non-convertible bonds and later increases the price being offered by 10%. Which statement is TRUE? Incorrect answer A. You did not choose this answer. A The increase in the tender price has no effect on the life of the offer Correct answer B. You chose this answer B The increase in the tender price increases the life of the offer by another 5 business days Incorrect answer C. You did not choose this answer. C The increase in the tender price increases the life of the offer by another 10 business days Incorrect answer D. You did not choose this answer. D The increase in the tender price increases the life of the offer by another 20 business days
The best answer is B. An issuer would consider tendering for its outstanding bonds when it has debt outstanding that is not callable, but it has excess funds that it believes would be best used to reduce the amount of debt outstanding. A tender offer is made to the bondholders, who have the choice of tendering or not. Unlike stock tender offers, where the initial offer must be held out for 20 business days, here the initial life of the offer is only 5 business days. (The life is shorter because this tender offer is being made by the issuer, not an outsider.) Unlike stock tender offers, where there is typically a contingency that a minimum number of shares be tendered, these are "any and all offers" - so if a bondholder tenders, he or she will receive the tender price for the bonds. If the issuer does not get enough bonds tendered, the issuer can "sweeten" the offer. This extends the offer by another 5 business days, and the sweetened price is given to all bonds tendered. (While the initial offer specifies a price to be paid, or a price based on a spread to a benchmark debt security, the actual price paid on the tendered bonds is not set until that last business day of the offer).
As long as the firm has written policies and procedures covering borrowing from customers, a registered representative can borrow money without getting the firm's prior approval from a customer who is (a): Incorrect answer A. You did not choose this answer. A accredited Correct answer B. You chose this answer B relative Incorrect answer C. You did not choose this answer. C roommate Incorrect answer D. You did not choose this answer. D neighbor
The best answer is B. As a general rule, registered representatives can neither lend money to, nor borrow money from, customers. However, as long as the firm has written policies and procedures covering this, a representative can borrow money from, or lend money to, an immediate family member who is a customer without having to give prior notice to the firm and get the firm's prior approval. For purposes of this rule, "immediate family" means parents, grandparents, mother-in-law or father-in-law, husband or wife, brother or sister, brother-in-law or sister-in-law, son-in law or daughter-in-law, children, grandchildren, cousin, aunt or uncle, or niece or nephew, and any other person whom the registered person supports, directly or indirectly, to a material extent. Reviewing All Questions
A password protected website maintained by a member firm is considered to be: Incorrect answer A. You did not choose this answer. A advertising Correct answer B. You chose this answer B sales literature Incorrect answer C. You did not choose this answer. C public forum Incorrect answer D. You did not choose this answer. D correspondence
The best answer is B. 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). Advertising: TV, radio, newsprint, billboards, websites, internet bulletin boards Sales Literature: Research reports, market letters or form letters delivered to more than 25 existing or prospective retail clients, scripted speeches delivered to more than 25 existing or prospective retail clients, password-protected websites
A 13D notice would be filed when a(n): Incorrect answer A. You did not choose this answer. A corporation has a change in its Board of Directors Correct answer B. You chose this answer B investor accumulates a 5% or greater position in the common stock of an issuer Incorrect answer C. You did not choose this answer. C corporation reports its annual results to the Securities and Exchange Commission Incorrect answer D. You did not choose this answer. 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.
The Securities Exchange Act of 1934 established "self regulatory organizations" (SROs) and empowered these organizations to do all of the following EXCEPT: Incorrect answer A. You did not choose this answer. A set guidelines for fair dealing with the public Correct answer B. You chose this answer B establish commission rates to be charged to the public Incorrect answer C. You did not choose this answer. C take administrative action against broker-dealers that violate industry regulations Incorrect answer D. You did not choose this answer. D establish arbitration procedures to settle intra-industry disputes
The best answer is B. Originally, the exchanges, such as the NYSE and NASD (National Association of Securities Dealers) were both marketplaces and regulators of their member firms. This changed when FINRA was created in 2006. Each exchange now only regulates its trading operation; and FINRA regulates the broker-dealer member firms and is its own SRO (Self Regulatory Organization). FINRA sets guidelines for fair dealing with the public with its Conduct Rules; it handles complaints against broker-dealers for securities law violations under the Code of Procedure; it can take administrative action against broker-dealers that violate industry regulations; and it establishes arbitration procedures to settle intra-industry disputes. Fixed commission rates are prohibited under the Securities Exchange Act of 1934 - these are set by the member firms.
Regulation AC requires that research analysts at member firms MUST give a: I written certification on each published research reportII written certification on each week's published research reportsIII must give a blanket certification to all appearances made each monthIV must give a blanket certification to all appearances made each quarter Incorrect answer A. You did not choose this answer. A I and III Correct answer B. You chose this answer B I and IV Incorrect answer C. You did not choose this answer. C II and III Incorrect answer D. You did not choose this answer. D II and IV
The best answer is B. Regulation AC (Analyst Certification) requires research analysts to certify each published research report; and to make a quarterly certification covering all public appearances made during that quarter. The certification basically states that the analyst gave his or her honest view at that time; and that the analyst's compensation was not tied to the recommendation or views expressed. If an analyst fails to make the required certification, FINRA must be notified; and for the next 120 days, any research reports authored by that analyst must include the disclosure that the analyst did not provide the required certification.
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 Incorrect answer A. You did not choose this answer. A I and III Correct answer B. You chose this answer B I and IV Incorrect answer C. You did not choose this answer. C II and III Incorrect answer D. You did not choose this answer. 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.
A sales representative is registered as an agent in the State of California. She wishes to prospect customers in the State of New York, in which she is not registered. Which statement is TRUE? Incorrect answer A. You did not choose this answer. A Prospecting is permitted in any State once an individual has been registered in one State Correct answer B. You chose this answer B The individual must be registered in the State of New York before contacting potential customers in that State Incorrect answer C. You did not choose this answer. C The individual must be registered in the State of New York before writing orders from that State Incorrect answer D. You did not choose this answer. D The individual must be registered in the State of New York before any orders can be confirmed to customers in that State
The best answer is B. Before any offer can be directed into a state for a non-exempt security, the registered representative making that offer must be registered in that state. There are some exemptions allowed, but they are very limited.
A registered representative has a dispute with his firm. Under FINRA rules, this will be settled by: Incorrect answer A. You did not choose this answer. A litigation Correct answer B. You chose this answer B arbitration Incorrect answer C. You did not choose this answer. C mediation Incorrect answer D. You did not choose this answer. D negotiation
The best answer is B. Disputes between registered representatives and brokerage firms are handled by binding (non-appealable) arbitration.
Registered representatives are required to attend a compliance meeting at their firm: Incorrect answer A. You did not choose this answer. A Semi-annually Correct answer B. You chose this answer B Annually Incorrect answer C. You did not choose this answer. C Every 2 years Incorrect answer D. You did not choose this answer. D Every 3 years
The best answer is B. Every member firm must hold an annual compliance meeting with each registered employee, covering compliance issues that have arisen over the past year, and the procedures and policies that have been put in place to address those issues.
Fines assessed for convictions involving violations of insider trading laws are paid to the: Incorrect answer A. You did not choose this answer. A Internal Revenue Service Correct answer B. You chose this answer B Department of Treasury Incorrect answer C. You did not choose this answer. C Securities and Exchange Commission Incorrect answer D. You did not choose this answer. D Department of Justice
The best answer is B. 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!)
If a brokerage firm receives a written customer complaint, then: Incorrect answer A. You did not choose this answer. A the complaint must be forwarded to the firm's self regulatory organization (SRO) for resolution Correct answer B. You chose this answer B the firm must resolve the complaint and keep a separate file of the complaints, with action taken, for inspection by the SRO Incorrect answer C. You did not choose this answer. C the registered representative is responsible for resolving the customer complaint and keeping the records of actions taken Incorrect answer D. You did not choose this answer. D no action need be taken unless the customer has also complained directly to the self regulatory organization
The best answer is B. If a firm receives a written customer complaint, it must be resolved under the supervision of a principal and a file of the complaint with actions taken must be maintained by the firm for inspection by the self regulatory organization (FINRA).
A primary offering of $200,000,000 of ACME Corporation 10% debentures with a 20 year maturity would be regulated under the: I Securities Act of 1933 II Securities Exchange Act of 1934 III Trust Indenture Act of 1939 IV Investment Company Act of 1940 Incorrect answer A. You did not choose this answer. A I only Correct answer B. You chose this answer B I and III Incorrect answer C. You did not choose this answer. C II and IV Incorrect answer D. You did not choose this answer. D I, II, III, IV
The best answer is B. 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. The Securities Exchange Act of 1934 regulates the trading markets (secondary market) - not the primary market. Investment companies fall under the Investment Company Act of 1940; regular corporate securities are not subject to this Act.
What risk is the greatest concern in a Rule 144A transaction? Incorrect answer A. You chose this answer. A Inflation risk Correct answer B. You did not choose this answer. B Marketability risk Incorrect answer C. You did not choose this answer. C Interest rate risk Incorrect answer D. You did not choose this answer. 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.
The Federal Telephone Consumer Protection Act of 1991 prohibits unsolicited calls from being made: I before 8:00 AM in the time zone of the recipientII after 8:00 AM in the time zone of the recipientIII before 9:00 PM in the time zone of the recipientIV after 9:00 PM in the time zone of the recipient Incorrect answer A. You did not choose this answer. A I and III Correct answer B. You did not choose this answer. B I and IV Incorrect answer C. You chose this answer. C II and III Incorrect answer D. You did not choose this answer. D II and IV
The best answer is B. The Federal Telephone Consumer Protection Act of 1991 does not allow unsolicited calls to be made before 8:00 AM, nor after 9:00 PM, in the time zone of the recipient. Thus, unsolicited calls may be made after 8:00 AM, but not after 9:00 PM in the time zone of the recipient.
Under Rule 144, the Form 144 is filed: I by the seller of the restricted shares II by the buyer of the restricted shares III 10 business days prior of the placement of the order IV at, or prior to, the placement of the order Incorrect answer A. You chose this answer. A I and III Correct answer B. You did not choose this answer. B I and IV Incorrect answer C. You did not choose this answer. C II and III Incorrect answer D. You did not choose this answer. D II and IV
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.
If the Mayor of Little Rock, Arkansas is also a director of a Little Rock municipal securities dealer, which of the following statements are TRUE regarding the municipal securities dealer recommending the purchase of Little Rock G.O. bonds? I A control relationship exists II A control relationship does not exist III Recommendation of the securities is prohibited IV Recommendation of the securities must be accompanied by a disclosure of the nature of the relationship Incorrect answer A. You did not choose this answer. A I and III Correct answer B. You chose this answer B I and IV Incorrect answer C. You did not choose this answer. C II and III Incorrect answer D. You did not choose this answer. D II and IV
The best answer is B. The MSRB requires that if a control relationship exists between a municipal securities dealer and the issuer whose bonds are recommended by that dealer, the nature of the relationship must be disclosed to the customer. Here, the Mayor of Little Rock is a director of a Little Rock broker-dealer and a control relationship exists. If the dealer recommends the purchase of Little Rock bonds, the nature of the control relationship must be disclosed to the customer.
A municipal securities dealer is participating in a joint underwriting account for a new issue of general obligation bonds. During the order period, the dealer places a net order with the manager for 200M of the bonds of 2039. The bonds are to be placed in an accumulation account for a municipal unit investment trust that the dealer is sponsoring. Which statement is TRUE? Incorrect answer A. You did not choose this answer. A The dealer must disclose that the order is being placed for a related portfolio and the order will be accordedpre-salestatus Correct answer B. You chose this answer B The dealer must disclose that the order is being placed for a related portfolio and the order will be accordedmemberstatus Incorrect answer C. You did not choose this answer. C No disclosure is required from the dealer placing the order and the order will be accordedgroupstatus Incorrect answer D. You did not choose this answer. D No disclosure is required from the dealer placing the order and the order will be accordeddesignatedstatus
The best answer is B. When an order for a new municipal issue is for an "accumulation account," those bonds are not being sold to the general public. Instead, they are being placed into a municipal unit investment trust run by the member placing the order. This must be disclosed to the manager at the time the order is placed and this order is filled last by the manager (receiving member status), since the bonds are not going to the general public.
Under MSRB rules, any claim, dispute, or controversy shall be submitted to arbitration at the instance of all of the following EXCEPT a: Incorrect answer A. You did not choose this answer. A clearing corporation against a broker-dealer Incorrect answer B. You did not choose this answer. B broker-dealer against a customer who has previously signed an arbitration agreement Correct answer C. You chose this answer C broker-dealer against a customer who has not previously signed an arbitration agreement Incorrect answer D. You did not choose this answer. 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).
A registered representative works in the municipal finance department of a municipal securities firm in a large city and is defined as a Municipal Finance Professional (MFP). The firm recently completed a $100 million underwriting for the city and the firm is hosting a dinner to celebrate the closing of the deal. The event is expected to cost $300 per person, including the cost of a cocktail reception, dinner, and the cost transporting the group to and from the venue where the event is being held. The representative wishes to invite one of the town officials with whom he worked on the underwriting to the event. Which statement is TRUE about doing this? Incorrect answer A. You did not choose this answer. A Taking this individual to dinner violates the MSRB $100 gift limit Incorrect answer B. You did not choose this answer. B Taking this individual to dinner is a violation because the $300 value exceeds the MSRB Political Contribution rule limit Correct answer C. You chose this answer C Taking this individual to dinner is permitted because this is business entertainment Incorrect answer D. You did not choose this answer. 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.
Regarding options sales literature, which statement is TRUE? Incorrect answer A. You did not choose this answer. A Options sales literature is prohibited from containing specific recommendations Incorrect answer B. You did not choose this answer. B Options sales literature must be accompanied by complete documentation that supports any claims Correct answer C. You chose this answer C Options sales literature that shows performance must be accompanied or preceded by the latestOptions Disclosure Document Incorrect answer D. You did not choose this answer. D Options sales literature is prohibited from containing annualized yield calculations
The best answer is C. A customer who receives any options communication that makes a recommendation; shows past performance; or includes a performance projection; must get the latest Options Disclosure Document (ODD) at or prior to the receipt of the material.
Which of the following securities are exempt from the Securities Act of 1933? I Benevolent Association issues II Small Business Investment Company issues III Common Carrier issues IV Industrial Company issues Incorrect answer A. You did not choose this answer. A I and III Incorrect answer B. You did not choose this answer. B II and IV Correct answer C. You chose this answer C I, II, III Incorrect answer D. You did not choose this answer. D I, II, III, IV
The best answer is C. Benevolent association, small business investment company, and common carrier issues are all exempt under the Securities Act of 1933. Industrial companies are not exempt - their securities must be registered and sold with a prospectus.
Registered representatives may NOT be compensated based on: Incorrect answer A. You did not choose this answer. A trading commissions paid by the customer to the brokerage firm Incorrect answer B. You did not choose this answer. B salary paid by the brokerage firm to the representative Correct answer C. You chose this answer C trading commissions paid by the customer to the representative Incorrect answer D. You did not choose this answer. D asset based fees paid by the customer to the brokerage firm
The best answer is C. Compensation cannot be paid by the customer to the registered representative. Only the broker-dealer may pay compensation to the registered representative.
If an individual is found guilty of insider trading, the civil penalty imposed can be how many times the profit achieved or loss avoided? Incorrect answer A. You did not choose this answer. A 1X Incorrect answer B. You did not choose this answer. B 2X Correct answer C. You chose this answer C 3X Incorrect answer D. You did not choose this answer. D 4X
The best answer is C. If an individual is found guilty of insider trading, he or she must pay back the profit achieved or loss avoided, and in addition must pay a penalty equal to 3 times that amount. This is called "treble damages."
Under FINRA rules, if an institutional communication is distributed to retail clients: I it is considered to be an institutional communication II it is considered to be a retail communication III it must be approved by a principal prior to distribution IV it is subject to post use review and approval by a principal Incorrect answer A. You did not choose this answer. A I and III Incorrect answer B. You did not choose this answer. B I and IV Correct answer C. You chose this answer C II and III Incorrect answer D. You did not choose this answer. D II and IV
The best answer is C. If an institutional communication is distributed to any number of retail clients, it is considered to be a "retail communication." This means that instead of being subject to "post use review and approval," it must be approved by a principal prior to distribution.
To make a public offering of a Direct Participation Program, which statement is TRUE? Incorrect answer A. You did not choose this answer. A No registration is required because the security is exempt Incorrect answer B. You did not choose this answer. B The issue must be registered with FINRA Correct answer C. You chose this answer C The issue must be registered with the SEC Incorrect answer D. You did not choose this answer. D The issue must be registered with the MSRB
The best answer is C. Public offerings of direct participation programs are "non-exempt" offerings under the Securities Act of 1933, and must be registered. The MSRB has no jurisdiction over direct participation program offerings, since these are not municipal securities. DPP offerings are regulated by FINRA, but they are not registered with FINRA.
Which of the following actions taken by a fiduciary would NOT be consistent with the obligations imposed under the "Prudent Man Rule"? Incorrect answer A. You did not choose this answer. A Diversifying a fixed income portfolio with securities of varying maturities Incorrect answer B. You did not choose this answer. B Selecting AA rated corporate convertible bond investments to meet an investment objective of both income and capital gains Correct answer C. You chose this answer C Investing in small capitalization unlisted new issue investments for long term growth Incorrect answer D. You did not choose this answer. D Writing covered calls against securities positions held in the account to increase income
The best answer is C. The "prudent man rule" is part of Uniform State Law, and it requires fiduciaries to make investments for accounts under their control as would a "prudent man." This makes sense, since fiduciaries are investing for the benefit of others, and the investments are supposed to provide a long term future benefit to these persons. Investing in unproven, speculative new issues would not be consistent with the "prudent man rule." Diversifying a portfolio, investing in AA rated convertible bonds to meet an objective of both income and growth, and writing covered calls against stock positions are all proven, prudent investment strategies.
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? Incorrect answer A. You did not choose this answer. A This action will result in a 2-year ban on the municipalbroker-dealerconducting municipal securities business with that issuer because the amount exceeded $250 Incorrect answer B. You did not choose this answer. B This action will result in a 2-year ban on the municipalbroker-dealerconducting municipal securities business with that issuer because the individual was not entitled to vote Correct answer C. You chose this answer C This action will not result in a 2-year ban on the municipalbroker-dealerconducting municipal securities business with that issuer because the MSRB rule only applies to MFPs Incorrect answer D. You did not choose this answer. D This action will not result in a 2-year ban on the municipalbroker-dealerconducting 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!
The Securities Exchange Act of 1934 is MOST concerned with: Incorrect answer A. You did not choose this answer. A full and fair disclosure to investors on new issues Incorrect answer B. You did not choose this answer. B prevention of manipulation and fraud in theprimary market Correct answer C. You chose this answer C prevention of manipulation and fraud in thesecondary market Incorrect answer D. You did not choose this answer. D assuring that an efficient trading market exists characterized by broad investor participation
The best answer is C. The primary purpose of the Securities Acts was to curb speculation and fraud in the markets. The Securities Act of 1933 regulates the primary (new issue) market and requires full disclosure to investors on non-exempt new issues. The Securities Exchange Act of 1934 regulates the secondary (trading market) and consists of a variety of rules primarily intended to prevent manipulation and fraud. While having an efficient trading market is certainly a good thing, it is not the principal concern of the Securities Exchange Act of 1934.
Under Regulation D, which of the following statements are TRUE? I A Prospectus must be delivered to all purchasers II An Offering Memorandum must be delivered to all purchasers III Full disclosure must be made to investors IV No disclosure is required to investors Incorrect answer A. You did not choose this answer. A I and III Incorrect answer B. You did not choose this answer. B I and IV Correct answer C. You chose this answer C II and III Incorrect answer D. You did not choose this answer. D II and IV
The best answer is C. Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum."
If an unsolicited facsimile is sent to a potential client, all of the following information must be included EXCEPT the: Incorrect answer A. You did not choose this answer. A identity of sender Incorrect answer B. You did not choose this answer. B time, place and address from which sent Correct answer C. You chose this answer C date and number of sheets Incorrect answer D. You did not choose this answer. D phone number from which sent
The best answer is C. Unsolicited phone calls, even by fax, come under the Federal Telephone Consumer Protection Act of 1991. This Act requires that the caller identify his name, the firm name, and phone number or address from which the communication is being sent. There is no legal requirement to give the date and number of sheets on a fax transmission (though this is commonly done).
A partner in a law firm renders investment advice to a customer as part of an overall estate plan being prepared by that firm. Which statement is TRUE? Incorrect answer A. You did not choose this answer. A The lawyer must be registered with the Securities and Exchange Commission (SEC) as an investment adviser Incorrect answer B. You did not choose this answer. B The lawyer must be registered with FINRA as a representative Incorrect answer C. You did not choose this answer. C The lawyer must be registered with both the SEC as an investment adviser and with FINRA as a representative Correct answer D. You chose this answer D The lawyer is not required to be registered with the SEC as an investment adviser nor with FINRA as a representative
The best answer is D. Anyone who renders investment advice in the normal course of business for a fee is considered to be an investment adviser. An exemption is granted if a lawyer or other professional renders investment advice that is solely incidental to the regular business of that person. Thus, a lawyer who renders investment advice as part of an overall estate tax plan would be exempt from registration as an adviser. If the lawyer charged separately for giving advice about investing, then the lawyer would be defined as an investment adviser that must register. Registration with the SEC is required as a federal covered adviser if the adviser has $100 million or more of assets under management. If it does not meet the threshold, then it must register in the State and not with the SEC.
Which disclosure is required when advertising a CMO Tranche? Incorrect answer A. You did not choose this answer. A Minimum Denomination Incorrect answer B. You chose this answer. B Credit Rating Incorrect answer C. You did not choose this answer. C Payment Frequency Correct answer D. You did not choose this answer. D Average Life Of Investment
The best answer is D. FINRA sets minimum disclosure requirements when advertising a CMO tranche. It requires disclosure of the: Coupon Anticipated Yield and Average Life Specific Tranche ID - Number and Class Final Maturity Date Underlying Collateral In addition, FINRA requires the following statement: "The yield and average life shown above consider prepayment assumptions that may or may not be met. Changes in payments may significantly affect yield and average life. Please contact your representative for information on CMOs and how they react to different market conditions." Then FINRA states that the following disclosures are optional: Minimum Denomination Rating Agency / Government Backing Income Payment Structure Generic Description of Tranche (e.g., PAC, Companion) Yield to maturity of CMOs Offered at Par
The maximum permitted offering amount under Regulation A+ is: Incorrect answer A. You did not choose this answer. A $20,000,000 Incorrect answer B. You did not choose this answer. B $30,000,000 Incorrect answer C. You did not choose this answer. C $40,000,000 Correct answer D. You chose this answer D $50,000,000
The best answer is D. Regulation A gives an exemption from registration for small $ offerings. Regulation A has 2 levels - commonly known as Regulation A, and Regulation A+. Regulation A gives an exemption for offerings of up to $20,000,000. There is no prospectus (instead the offering document is an offering circular) and no audited financials are required. These cannot be listed on an exchange. Regulation A+ gives an exemption for offerings of up to $50,000,000. Again, the disclosure document is an offering circular, but Regulation A+ offerings require audited financials, can be listed on an exchange and are required to file financial statements with the SEC.
Which of the following statements are TRUE about a Regulation D private placement? I The offering may be made to a maximum of 35 accredited investors II The offering may be made to a maximum of 35 non-accredited investors III The offering may be made to an unlimited number of accredited investors IV The offering may be made to an unlimited number of non-accredited investors Incorrect answer A. You did not choose this answer. A I and II Incorrect answer B. You did not choose this answer. B III and IV Incorrect answer C. You did not choose this answer. C I and IV Correct answer D. You chose this answer D II and III
The best answer is D. A private placement is an offering of securities to a maximum of 35 "non-accredited investors" and an unlimited number of accredited (wealthy or institutional) investors.
All of the following statements are true if the SEC sends a deficiency letter to the issuer regarding an issue in registration EXCEPT: Incorrect answer A. You did not choose this answer. A disclosure in the registration documents is not complete Incorrect answer B. You did not choose this answer. B the issuer must file an amendment with the SEC to cure the deficiency Incorrect answer C. You did not choose this answer. C the 20-daycooling offperiod starts again once the amendment is filed Correct answer D. You chose this answer D the effective date of the issue is unaffected by the deficiency notice
The best answer is D. An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective. Once the amendment is filed, the 20-day cooling off period starts counting again from the beginning. If the SEC finds that there is not adequate disclosure after the amendment is filed, it can issue subsequent deficiency letters. Thus, the registration for the issue may never "go effective."
Which of the following are provided to shareholders in the annual reports of registered corporations? I Income Statement II Balance Sheet III Statement of Changes in Stockholders' Equity IV Sources and Uses of Cash Statement Incorrect answer A. You did not choose this answer. A I only Incorrect answer B. You did not choose this answer. B II and III only Incorrect answer C. You did not choose this answer. C I, II, III Correct answer D. You chose this answer D I, II, III, IV
The best answer is D. Corporate annual reports contain the following audited financial statements - Income Statement; Balance Sheet; Statement of Changes to Retained Earnings (this shows earnings added for the year and dividends paid from retained earnings for that year); and Statement of Sources and Uses of Cash (this shows cash received that year from income earned; stock and bond offerings; and disposals of equipment; and cash paid that year for equipment purchases, pay-down of debt; dividends, etc.)
Which of the following activities are prohibited during the "cooling off" period? I Sale of the issue to the publicII Acceptance of an indication of interestIII Distribution of a preliminary prospectusIV Distribution of an advertisement Incorrect answer A. You did not choose this answer. A I and II only Incorrect answer B. You did not choose this answer. B III and IV only Incorrect answer C. You did not choose this answer. C II and III only Correct answer D. You chose this answer D I and IV only
The best answer is D. During the cooling off period, an offer or sale of the issue is prohibited, as are recommendations of the issue or the advertising of the issue. Sending a preliminary prospectus or accepting an indication of interest does not constitute an "offer" under the Securities Act of 1933 and thus is permitted.
A registered representative is employed by a broker-dealer that is a publicly traded company, listed on the New York Stock Exchange. Which statement is TRUE? The registered representative may: Incorrect answer A. You did not choose this answer. A recommend the purchase of his employer's stock to existing customers Incorrect answer B. You did not choose this answer. B solicit new customers to buy his employer's stock Incorrect answer C. You did not choose this answer. C write and distribute a research report recommending the purchase of the employer's stock Correct answer D. You chose this answer D accept unsolicited orders for his employer's stock; but cannot solicit orders for, nor recommend the security
The best answer is D. 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.
Under MSRB rules, all of the following are prohibited activities EXCEPT: Incorrect answer A. You did not choose this answer. A agreeing to repurchase bonds from a customer personally at a preset price Incorrect answer B. You chose this answer. B sharing in the gain or loss in a customer's account that is not proportionate to the amount of capital contributed Incorrect answer C. You did not choose this answer. C guaranteeing a customer account against loss Correct answer D. You did not choose this answer. D recommending the purchase of a put option to the customer as protection against loss
The best answer is D. It is prohibited to agree to repurchase bonds from a customer personally at a preset price since this is a guarantee against loss to the customer that is prohibited. Sharing in the gain or loss of a customer's account is prohibited unless the principal approves and the sharing is proportionate to the capital amount contributed. Guaranteeing a customer's account against loss is prohibited. Recommending the use of put options or repurchase agreements to protect against loss are both valid strategies and are permitted under MSRB rules.
A corporate executive holds a meeting with a select group of high-producing registered representatives and gives information about the company's expected revenue and income for the upcoming quarter that is extremely positive. The representatives are permitted to: Incorrect answer A. You did not choose this answer. A buy the stock for their personal accounts only Incorrect answer B. You did not choose this answer. B recommend that their customers buy the stock Incorrect answer C. You did not choose this answer. C recommend that their family members buy the stock Correct answer D. You chose this answer D do nothing with the information and should report the situation to the firm's compliance department
The best answer is D. Regulation FD (Fair Disclosure), passed in 2000, is basically an elaboration of the insider trading rules. It prohibits issuers from making selective disclosure of non-public information to research analysts, mutual fund managers, and other industry professionals, unless at the same time, the information is broadly disseminated to the public If such selective disclosure is made and trades result, the corporate officers giving the information become "tippers" and the recipients become "tippees."
A customer has a cash account and a margin account at a brokerage firm. In a liquidation under SIPC: Incorrect answer A. You did not choose this answer. A only the equity in the margin account is covered Incorrect answer B. You did not choose this answer. B only the cash account value is covered Incorrect answer C. You did not choose this answer. C each account is covered separately up to $500,000 total coverage per account Correct answer D. You chose this answer D both accounts are treated as one account with coverage limited to $500,000
The best answer is D. SIPC coverage limits are applied by customer name; thus if John Jones has both a cash account and a margin account at a firm, they are treated as one account under SIPC. If John and Mary Jones also have a joint cash account and a joint margin account, these are lumped together and considered to be one account under SIPC rules.
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 Officers of member firms IV Sales employees of member firms Incorrect answer A. You did not choose this answer. A IV only Incorrect answer B. You did not choose this answer. B I and II Incorrect answer C. You did not choose this answer. C III and IV Correct answer D. You chose this answer D I, II, III, IV
The best answer is D. 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.
