Series 24
A public reporting company is looking to offer securities privately under a safe harbor exemption found in Regulation D Section 506(b). Which of the following statements is most accurate regarding this planned offering There is no limit to the number of nonaccredited investors who may participate. "Bad actors" may not rely on the safe harbor. General solicitation is acceptable.
"Bad actors" may not rely on the safe harbor. Felons and other bad actors may not rely on the Rule 506 safe harbor. In 2013, the SEC adopted the bad actor disqualification for Rule 506 of Regulation D under the Securities Act of 1933. A bad actor may not rely on either Rule 506(b) or 506(c) of Regulation D if the issuer or any other person covered by the rule has a relevant criminal conviction.
A customer has a cash account and a margin account at a NYSE member firm. The cash account has securities worth $320,000. The margin account has a long market value of $280,000 and a debit balance of $150,000. If the broker-dealer carrying these accounts were to file for bankruptcy protection, the customer would be covered for $500,000. $600,000. $470,000. $450,000.
$450,000. Coverage is per separate customer, not per separate account. Therefore, these accounts would be combined for coverage purposes. In a margin account, the equity is considered the securities coverage. The equity in the margin account is $130,000 which, when combined with the $320,000 of value in the cash account, results in coverage of $450,000.
An established introducing firm that receives customer securities for prompt forwarding to its clearing agent has a minimum net capital requirement of $5,000 or 1/8 of AI, whichever is greater. $5,000 or 1/15 of AI, whichever is greater. $50,000 or 1/15 of AI, whichever is greater. $50,000 or 1/8 of AI, whichever is greater.
$50,000 or 1/15 of AI, whichever is greater. An introducing firm that receives (but does not hold) customer securities has a minimum capital requirement of $50,000. As the firm in this question is established, it cannot let its AI-to-NC ratio exceed 15:1. Therefore, its minimum net capital requirement is $50,000 or 1/15 of AI, whichever is greater.
Under Rule 144, which of the following sales are subject to volume limitations? Control person selling registered stock held for one year Control person selling restricted stock held for two year Nonaffiliate selling registered stock held for one year Nonaffiliate selling restricted stock held for two year
1 and 2 Control persons are always subject to volume limitations.
Which of the following statements are true regarding registration under the Act of 1933? Rights must be registered with the SEC prior to public sale. Rights need not be registered with the SEC prior to public sale. Warrants must be registered with the SEC prior to public sale. Warrants need not be registered with the SEC prior to public sale
1 and 3 All nonexempt securities must be registered with the SEC prior to public sale.
Which of the following statements regarding red herrings are true? They may be used to obtain indications of interest. They must be filed with FINRA. They contain the final offering price. Their use ends when the offering becomes effective.
1 and 4 A preliminary prospectus, or red herring, is used only during the cooling-off period. The red herring does not contain the final price; offerings are priced immediately before the effective date.
Which of the following statements regarding temporary subordinated loans are true? Firms are permitted no more than 3 per year. Firms are permitted no more than 4 per year. The maximum duration is 30 days. The maximum duration is 45 days.
1 and 4 Member firms are permitted no more than three temporary subordinated loans per year. The maximum duration of these loans is 45 days.
Form 3, attesting to the ownership of the common stock of an issuer, must be filed with the SEC within how many days of becoming an officer or director of that issuer? 2 5 10 3
10 Sarbanes-Oxley requires that within 10 days of becoming an officer or director of a publicly traded issuer, such person must file with the SEC a statement as to his ownership of the common stock of the issuer. The initial statement of ownership is done on Form 3. Subsequent changes are made on Form 4 within two business days.
According to FINRA's Corporate Financing Department, stock acquired as compensation will not be considered unreasonable if the amount does not exceed what percentage of the total offering? 10 percent 5 percent 15 percent
10% The Corporate Financing Department considers shares acquired by an underwriter in excess of 10% of the total offering to be unreasonable compensation.
If a registered representative is given additional responsibilities requiring registration with FINRA as a principal, registration must be made within how many days? 120 60 180 90
120 If qualification as a principal is not made within 120 days of assuming additional duties requiring a principal license, both the individual and the firm become subject to sanctions.
Which of the following individuals associated with a member firm must be registered as principals? Branch office managers Managers of offices of supervisory jurisdiction Officers with active roles in the investment banking or securities business of a member firm Clerical employees handling cash or securities
2 and 3 All managers of OSJs and all officers of a member firm must be registered as principals. Not all branch office managers (BOMs) need to be registered as principals.
A registered representative works at a branch office that has no satellite offices under supervision. This office must be inspected at least annually. at least once every three years. by a supervisor not directly involved in the branch's operations. by the resident branch office manager.
2 and 3 Nonsupervisory branch offices must be inspected at least once every three years by an arm's-length supervisor.
During the waiting period for an IPO of common stock, a member firm in the underwriting group is permitted to do which of the following? Mail a research report on the subject company to customers Accept indications of interest Recommend convertible securities of the issuer Recommend nonconvertible securities of the issuer
2 and 4 During the waiting period, the only document that can be used in offering the securities is the preliminary prospectus, which is used to solicit indications of interest. Unless an exemption is available, recommending the subject security during this period is also prohibited. Rule 138 also prohibits recommending securities convertible into the subject security. This rule does allow the recommendation of nonconvertible securities of the same issuer.
Which of the following are true statements? Investment bankers may supervise research analysts. Investment bankers may not supervise research analysts. Investment bankers may approve research reports. Investment bankers may not approve research reports.
2 and 4 Investment bankers may neither supervise research analysts nor approve research reports.
OTC trading practices in corporate equity securities are regulated by the CFTC. the SEC. the NYSE. FINRA.
2 and 4 The Securities and Exchange Commission (SEC) is responsible for regulating securities trading throughout the United States. FINRA is the authorized SRO for the OTC markets, and they have been contracted to enforce the rules of several exchanges.
If a member firm fails to pay a monetary award resulting from an arbitration decision, within 30 days of the decision date, which of the following statements will be true? FINRA can immediately suspend the firm's membership. FINRA can suspend the firm's membership only after giving 21 days written notification. FINRA can immediately revoke the firm's membership. FINRA can revoke the firm's membership only after giving 21 days written notification.
2 and 4 after giving 21 days written notice, FINRA may suspend or revoke the membership of any member in arrears in the payment of fees, dues, assessments, or other charges. This includes failure to honor an arbitration award.
Regulation A requires an underwriting broker-dealer to furnish an offering circular to purchasers concurrently with the mailing of the customer confirmation. 24 hours before the confirmation. 24 hours before the confirmation.
24 hours before the confirmation. Regulation A requires that an offering circular be provided to purchasers at least 48 hours in advance of sales.
Copies of message traffic resulting from the use of instant messaging must be retained for one year. six years. two year. three years.
3 years Like other forms of communication with the public, copies of IM traffic must be retained for three years. Members are permitted to use IM as long as they have software in place to monitor, capture, and retrieve message traffic.
Under FINRA rules, routine amendments to Form U4 must be made within how many days of any change? 30 15 60
30 Routine amendments to Form U4 must be made promptly but no later than 30 days after any change. If the change is not routine (i.e., it might affect a firm's membership), the filing must be done within 10 days
For an additional issue offering where the subject security is quoted by the OTC Markets Group, the prospectus delivery requirement period is 90 days 60 days 40 days 25 days
40 The prospectus delivery requirement periods in the aftermarket are as follows: for IPOs, 90 days if the security is non-Nasdaq and 25 days if the security is to be listed or quoted over Nasdaq. For additional issues, there is no requirement to deliver a prospectus in the secondary market if the security is listed NYSE or Nasdaq. Once the distribution is complete, there is no further obligation to deliver a prospectus. If the security is non-Nasdaq OTC, the prospectus delivery requirement period is 40 days.
Under SEC rules, the minimum net capital requirement for an introducing firm that accepts customer securities for prompt forwarding to the clearing firm is $25,000. $50,000. $100,000. $5,000.
50000 For introducing firms, the minimum net capital requirement is either $5,000 or $50,000. If a firm accepts customer securities, the higher minimum applies.
Under SEC rules, a well-known seasoned issuer is one which has a common equity market capitalization of at least 1 billion 700 million 800 million 500 million
700 million A well-known seasoned issuer must have a market capitalization of at least $700 million held by nonaffiliates. Alternatively, an issuer may qualify if, during the preceding three years, it issued in the aggregate $1 billion or more of nonconvertible securities other than common equity.
Under Sec 17a-11, a member is in violation of the net capital rule if its debt-to-equity ratio exceeds 70% for a period of more than how many days? 60 90 30
90 If a firm's debt-to-equity ratio (subordinated debt to total available capital) exceeds 70% for a period of more than 90 days, immediate notification to the regulatory authorities is required.
An experienced representative was made the person-in-charge of a small branch and assigned supervisory duties over certain registered and nonregistered persons at a branch location. Which of the following statements regarding this situation is true? All outside business activities and private securities transaction are not permitted for supervisory personnel. Supervisors must pass an appropriate principal exam within 180 days of appointment. A firm that receives indications that a supervisor is having difficulty performing his or her supervisory functions has an obligation to investigate. Supervisors who show signs of ineffectual leadership must be reported to the appropriate district office of FINRA.
A firm that receives indications that a supervisor is having difficulty performing his or her supervisory functions has an obligation to investigate. FINRA member firms are obligated to determine that their supervisors are experienced and qualified to carry out their supervisory responsibilities. When senior leadership at the firm sees indications that a supervisor is having difficulty performing his supervisory functions, it has an obligation to investigate. This is especially true when a Series 7-qualified person is placed in a supervisory position, such as person in charge
Which of the following would not likely be deemed violative actions or behavior of an associate person or a member firm? Recommending and effecting ill-suited transactions in customer accounts by over-concentrating their assets in illiquid non-traded REITS Paying transaction-based compensation that is due to an unregistered offshore firm Failing to identify all outside business on a firm compliance questionnaire An appropriately qualified principal supervising more than one OSJ
An appropriately qualified principal supervising more than one OSJ FINRA presumes that a principal will not be designated as the on-site principal for more than one OSJ, but if the firm chooses to do so and can demonstrate that the on-site principal is qualified by virtue of experience and training, that the principal has the time to supervise at more than one location, and the locations are in close proximity (in other words, it is carefully thought through), FINRA would likely find this acceptable. Each of the other actions is more likely to be violative.
Following an internal examination, several concerns were elevated by the firm's compliance department to serious. Which of the following requires member firms to notify FINRA promptly? A registered representative soliciting plausibly unsuitable long and short positions in penny stocks An registered representative initiating a loan against a life insurance policy of an immediate family member, endorsing the loan proceeds check "pay to the order of," and depositing the funds into the representative's bank account A registered representative maybe having submitted an unauthorized trade A registered representative failing more than once to adhere to an approved sales presentation script
An registered representative initiating a loan against a life insurance policy of an immediate family member, endorsing the loan proceeds check "pay to the order of," and depositing the funds into the representative's bank account Although each of these is a cause for concern, if a member identifies activity that could reasonably construed as theft, misappropriation of customer assets, or forgery, or any violation that is a possible statutory disqualifying event, the member must promptly, but in any event not later than 30 calendar days of learning of the possible infraction, notify FINRA.
Which of the advertising or sales promotion activities described below would be permitted in conjunction with a Rule 506(b) private placement Blanket mailing of a magazine reprint sent by a broker-dealer to all of the firm's customers that is highly favorable to the issuing corporation Announcement of a private placement and invitation to attend an investment information meeting sent to a select group of institutional investors
Announcement of a private placement and invitation to attend an investment information meeting sent to a select group of institutional investors The SEC's rule centers on keeping private placements out of the general public's view. Any advertisement or promotion that solicits buying interest in private placement securities and can be freely seen or read by average investors violates SEC rules governing the terms under which these distributions are permitted.
Which of the following brokerage records must be kept for six years? Customer correspondence and order tickets Bank statements and trial balances Blotters and general ledgers Articles of incorporation or partnership agreements
Blotters and general ledgers Five main brokerage records must be retained for six years: blotters, general ledgers, customer ledgers, stock records, and customer account records.
The annual certification filed with FINRA stating that the firm has processes in place to review, test, and modify its supervisory procedures must be signed by the chief operations officer. chief financial officer. chief compliance officer. chief executive officer.
CEO The CEO must certify annually that the firm has processes in place to monitor its supervisory procedures. The CEO must also conduct one or more meetings with the chief compliance officer during the 12 months preceding certification
Which of the following statements regarding carrying agreements is true? Carrying agreements are only required if a carrying firm clears transactions on a fully disclosed basis. Carrying agreements are only necessary if an introducing firm operates as a best-efforts underwriter. Carrying agreements for fully disclosed and omnibus accounts are submitted to FINRA before becoming effective.
Carrying agreements for fully disclosed and omnibus accounts are submitted to FINRA before becoming effective. A carrying firm must submit to FINRA for approval any agreement for the carrying of accounts, whether on an omnibus or fully disclosed basis, before an agreement may become effective
Which of the following phrases most closely matches the idea behind deposits being made into a qualified financial institution for an all-or-none offering? Escrow of customer checks in contingent offerings Hypothecation of customer securities Custody of customer securities Notification of customer free credit balances
Escrow of customer checks in contingent offerings SEC 15c2-4 requires that customer checks subscribing to contingent offerings be placed in an escrow account at a qualified financial institution (QFI) pending completion or cancellation of the underwriting.
Which of the following statements regarding the Green Shoe clause in an underwriting is true? If effective, the syndicate members can sell to the public below the POP. if effective, passive market making activity is not permitted. It allows the issuer to release up to an additional 15% of shares because of overallotments.
It allows the issuer to release up to an additional 15% of shares because of overallotments. if agreed to by the issuer, the underwriters may demand-and the issuer must provide-up to 15% more shares than registered with the SEC.
Which of the following statements regarding delivery of a final prospectus is not true? It may be delivered with other materials of the firm. It must be delivered at or before confirmation of sale. It must be delivered under separate cover. Delivery may be satisfied electronically.
It must be delivered under separate cover. A final prospectus must be delivered under separate cover.
Ms. Potter, a longtime client, sends a text message to a supervising manager of a firm complaining that a registered representative has not deposited checks she submitted this past week and that she has come to believe the representative is stealing. What is the first thing the manager must do? Inform law enforcement agencies of the criminal activity Submit the complaint with FINRA promptly but no later than 30 calendar days Suspend the registered representative immediately and launch an investigation Launch and internal investigation into what may have happened
Launch and internal investigation into what may have happened Any form of written communication, including text messages and tweets received from customers complaining about the firm or its APs, is subject to reporting under FINRA Rule 4530. That rule requires the member firm to submit a report within 30 calendar days after the firm knows or should have known that it or a representative is the subject of any written customer complaint alleging theft or forgery. The rule also requires member firms to report quarterly summaries of written complaints received by the firm. The first thing however for a manager to do is to launch an investigation to determine the facts
Which of the following records need not be maintained for six years? Records reflecting clearance dates for each long and short security Manuals describing the firm's policies and practices with respect to compliance and supervision Blotters for all purchases and sales Records listing each principal responsible for compliance with applicable federal books and records requirements
Manuals describing the firm's policies and practices with respect to compliance and supervision Blotters of all purchases and sales, the principal designation record, and records reflecting clearance dates for each long and short security must be maintained for six years (two years in a readily accessible place). Manuals describing the firm's policies and practices regarding compliance and supervision need only be retained for three years after the termination of their use.
An associated person places an order for a customer. It comes to the attention of the AP that the shares were erroneously placed in his account. In order to correct this situation, which of the following would be the best course of action? Forward a standard cancel/rebill form, which will generate one confirmation and need not have principal approval for trades of common stock of 5,000 shares or less. Cancel and rebill the erroneous trade only if the price moves down. Move the trade to the customer's account and note the reason for the move in the branch's cancel/rebill blotter. The BOM must submit the cancel/rebill form to the operations department no later than the settlement date.
Move the trade to the customer's account and note the reason for the move in the branch's cancel/rebill blotter If a trade is executed and the trade is posted to the wrong account, the error is corrected through a cancel and rebill. Posting the trade to a wrong account or wrong account type such as cash or margin are common errors. The cancel and rebill of the trade will generate confirmations for both accounts and all corrections must be approved by a principal. Cancelling and rebilling profitable trades between accounts is a fraudulent practice known as cherry-picking.
When member firms discover or are notified by their independent public accountant that there exists a material inadequacy or weakness in their accounting or safekeeping systems, processes, and procedures, all member firms must do which of the following? Stop accepting new accounts and promptly distribute customer free credit balances and certificated securities Notify the DEA and SEC immediately Notify regulatory authorities within 24 hours and follow up by transmitting a report within 48 hours of the notice, stating the steps taken or that will be taken to correct the situation
Notify regulatory authorities within 24 hours and follow up by transmitting a report within 48 hours of the notice, stating the steps taken or that will be taken to correct the situation Material inadequacies and weaknesses in a member's accounting or safekeeping procedures and processes must be reported to the regulatory authorities within 24 hours. The member must also transmit a report within 48 hours detailing the steps being taken to correct the situation.
Which of the following statements regarding the firm's written supervisory procedures is true? Registered representatives do not ordinarily obtain access to the comprehensive set of the firm's WSPs but rather a summary pertaining to the specific lines of business the representative engages in. Past versions of WSPs must be discarded promptly to avoid confusion. Procedures for review of all securities transactions may be risk-based. Procedures must provide for the review of all email. The review cannot be risk-based.
Procedures for review of all securities transactions may be risk-based. The review of securities transactions at a broker-dealer may be risk-based. If the firm chooses to use a risk-based method, the firm must be able to identify and prioritize those trades that pose the greatest chance of a rule violation. Supervisors are obligated to make certain their representatives understand how their transactions are going to be reviewed.
Offshore distributions of securities by U.S. issuers are exempt from the registration provisions of the Act of 1933 under Regulation S. Regulation FD. Regulation A
Regulation S. Regulation S allows offers and sales by U.S. issuers that are made outside the United States to be exempt from the registration provisions of the Act of 1933. To avoid registration, the offer and sale must be made in an offshore transaction, and there can be no directed selling efforts in the United States in connection with the offering.
Reports concerning lost or stolen municipal securities are filed with MSRB. FINRA. SEC. SIC.
SIC
A broker-dealer selling a block of restricted securities for an insider pursuant to Rule 144 may engage in which of the following activities? Showing the stock to any customers who have indicated buying interest in the securities within the preceding 10 business days Soliciting buyers for the stock without restriction but filling all orders as an agent none of these
Showing the stock to any customers who have indicated buying interest in the securities within the preceding 10 business days An exception to the general ban on soliciting for Rule 144 sales for insiders occurs when customers have called indicating interest within the last 10 business days or when other broker-dealers have called indicating interest within the last 60 calendar days.
A registered representative is a personal friend of the branch office manager (BOM). The representative is found by the BOM to have violated a number of the firm's written policies that would ordinarily require separation from the firm with cause and prompt notification to FINRA. The representative asks the BOM if it would be possible to allow him to resign voluntarily. Which of the following is most correct? The BOM may choose to subject the assistant BOM to disciplinary action including fines up to $2,500. The firm would be required to file a full Form U5 disclosing the reasons for the separation. The BOM may suspend the assistant but would be obligated to retrain and remove supervisory duties for a minimum of two years. The BOM has discretionary authority and may choose to retain the assistant BOM as long as he files a partial Form U5 to remove supervisory authority.
The firm would be required to file a full Form U5 disclosing the reasons for the separation. A violation that was odious enough to require the representative to be let go and to require notification to FINRA promptly is serious. The most likely correct answer would be to file the Form U5. In doing so, the firm is obligated to disclose the reasons for the representative's departure. To not file a complete and truthful Form U5 would be a violation of a number of FINRA rules that could likely cause the firm and/or the supervisor who made the decision to file an incomplete Form U5 to be sanctioned severely by FINRA.
A representative in your firm has been called into active military service. Which of the following statements regarding applicable FINRA rules is not true? CE requirements are waived. The person may not perform any of the duties normally associated with registered persons. The person's license will expire if service extends beyond two years. The person may continue to receive commissions on his book.
The person's license will expire if service extends beyond two years. Once called into military service, a person is placed in a specially designated inactive status. In addition, the two-year license expiration period will be tolled beginning on the date that the person enters active military service and will end 90 days after completion of active service. All of the other statements are true.
Which of the following securities is not subject to an undue concentration haircut? U.S. Treasury bonds Preferred stock Corporate bonds Common stock in a non-U.S. company
U.S. Treasury bonds Treasury securities are never subject to an undue concentration haircut.
A location held out to the public as a place where a member conducts securities business is defined as a main office. a branch office. a satellite office. an office of supervisory jurisdiction.
a branch office The location where a member conducts securities business is defined as a branch office. A satellite office does not meet the definition of a branch. For example, a registered representative's home could be considered a satellite location (i.e., a nonbranch location).
A Tier 1 securities offering under Regulation A facilitates smaller companies access to capital up to a maximum of $10 million in a 12-month period. a maximum of $20 million in a 12-month period. a maximum of $5 million in a 12-month period.
a maximum of $20 million in a 12-month period. Tier 1 of Regulation A allows small- to medium-sized companies to raise up to a maximum of $20 million in a 12-month period. Tier 2 offerings of securities go up to $75 million.
A deficiency letter issued by the SEC indicates that a preliminary prospectus needs to be modified. a final prospectus needs to be modified.
a preliminary prospectus needs to be modified. If a registration statement, which is the base document for preparing a preliminary prospectus, is found by the SEC to be deficient, the SEC will issue a deficiency letter to the issuer. Until the deficiencies are corrected, the 20-day cooling-off period is halted.
An unregistered, nonbranch location could be each of the following except a location used for securities business less than 30 business days in any calendar year (other than primary residence). an office used solely for back-office functions. an office used principally for non-securities activities and where the AP effects no more than 25 securities transactions in a calendar year. a representative's home office which is published in the phone book.
a representative's home office which is published in the phone book. A home office held out to the public as a place of securities business by publishing a telephone number in the phone book or the internet, using a business name, meeting with customers at the home, or printing business cards and local advertisements with the residential address or telephone number would likely be deemed a branch office subject to registration.
All of the following functions can be performed by a general sales supervisor except approval of sales-related correspondence. a research report. new accounts. customer orders.
a research report A general sales supervisor or branch office manager (Series 9/10) is permitted to oversee customer business only for the approval of new accounts, the endorsement of sales-related customer correspondence, and the review of order tickets.
A seasoned penny stock investor is looking to open an account at your firm to continue trading in low priced, speculative securities. The branch office manager (BOM) explains to the representative that to open this kind of new account requires a suitability analysis. a capital contribution of $25,000.
a suitability analysis. The term penny stock refers to a security that trades at less than $5 per share. Also, the definition of a penny stock may include the securities of certain private companies with no active trading market. To approve a person's account for transactions in penny stocks, the broker-dealer must obtain the person's financial picture, investment experience, and objectives. The firm must determine, based on the information, that penny stocks are suitable and the investor has sufficient knowledge and experience in financial matters that the individual may reasonably be deemed capable of evaluating the risks associated with this type of investment. The firm must also deliver to the person a written statement setting forth the basis on which the broker-dealer made the determination
A branch office manager (BOM) is asked by a registered representative for a waiver from firm element training due to education and prior experience. Which of the following statements is most correct with regard to acceptable relief from the firm element requirement? The representative has a master's degree in finance or a clearly related field. The representative has been certified as a financial planner or other designation from a nationally recognized training program. A waiver is not available. The representative is involved in only one line of business, e.g. mutual funds, and has at least five years of experience.
a waiver is not available Each associated person of the member firm, including analysts, must participate in a firm element course given annually. The firm element must be tailor made to the firm's particular lines of business. As a reminder, the regulatory element must be satisfied by December 31, annually.
A Series 57 license is required for Nasdaq market makers. all of these. proprietary OTC traders. persons who supervise Nasdaq market makers and proprietary OTC traders.
all of these
Regulation AC applies to research reports covering common stock convertible debt securities all of these nonconvertible debt securities.
all of these Regulation AC requires firms to include in research reports a statement by the analyst that the views expressed accurately reflect the analyst's personal view and a statement indicating whether or not the analyst's compensation is related to the views expressed. The analyst must certify these statements quarterly. The regulation applies to research on any type of security.
Registered securities broker-dealers who employ research analysts must be registered with FINRA. ensure the analyst is qualified by examination. be certain the analyst completes the regulatory element training. be certain the analyst completes the firm element training.
all the above Research analysts must register with FINRA and pass a qualification exam such as the Series 16 or 86/87. In addition, analysts must complete both elements of continuing education.
The trustee for a bankrupt broker-dealer must notify customers of the bankruptcy. handle the broker-dealer's liquidation. distribute all property specifically identified as belonging to customers. review the firm's books and records.
all the above Upon being appointed by a court, a trustee must inform all customers of the broker-dealer's condition, conduct a rapid and orderly liquidation of the broker-dealer's business, and distribute all identifiable assets. The trustee reviews the broker-dealer's books and records as part of this process.
All of the following would indicate that an established member firm is experiencing significant financial and operational problems except an inability to clear trades on a timely basis. an AI-to-NC ratio of 8:1. computed net capital is at 110% of minimum. a debt-to-equity ratio of 80% for over 100 days.
an AI-to-NC ratio of 8:1. A debt-to-equity ratio of more than 70% for a period of more than 90 days is a violation of the net capital rule requiring immediate notification to the regulatory authorities. If capital is below 120% of minimum, the firm is in early warning, which requires notification within 24 hours. An inability to clear trades is an indication that the firm is having significant operational problems. An AI-to-NC ratio of 800% is only a problem for first-year firms.
All of the following events require prompt reporting to FINRA except a complaint against an employee settled for more than $15,000. an allegation concerning excessive transactions in a discretionary account. an allegation of theft of funds or securities from a customer. an allegation of forgery.
an allegation concerning excessive transactions in a discretionary account. An allegation of churning is not serious enough to warrant prompt filing with FINRA. Allegations of forgery or theft, or a settlement for more than $15,000 involving an individual would all warrant immediate filing.
Under Regulation D, all of the following are accredited investors except an individual with annual income of $200,000 for the past two years with an expectation of continued earnings at that level. an officer or director of the issuer an individual with a net worth of $750,000.
an individual with a net worth of $750,000.
Under SEC rules, all of the following would be considered accredited investors except an individual with annual income of $500,000 for the last two year with an expectation of continued earnings at that level. an officer of the issuer with annual income of $100,000. an individual with a personal net worth of $200,000.
an individual with a personal net worth of $200,000. Under SEC rules, an accredited investor is an institution, an individual with annual income of $200,000 or more (with an expectation of continued earnings), an individual with a net worth of $1 million or more, exclusive of the net equity of their primary residence, or any officer or director of the issuer. In joint accounts, the income threshold is $300,000.
Under SEC Rule 10b-13, all of the following would be prohibited from tendering shares except an investor long call options an investor long stock. an investor short against the box. an investor short stock
an investor long stock. To tender stock, a customer must be long the stock. Being long call options does not satisfy this requirement unless the customer has issued exercise instructions. If a customer is short against the box, the customer's net position is zero.
A registered representative meets with certain clients, by appointment, at a local library twice a month. This is an example of a non-supervising branch office. a non-sales location. a branch office. an office of convenience.
an office of convenience. Any location used occasionally and by appointment is termed an office of convenience.
Under FINRA Rule 3130, a member's CEO must certify that the firm has adequate compliance and supervisory procedures in place monthly. annually. semiannually. quarterly.
annually FINRA Rule 3130 requires firms to designate a principal to serve as chief compliance officer (CCO) and to have the CEO certify annually that the firm has processes in place to review, test, and modify its supervisory procedures. The CEO must also conduct one or more meetings with the CCO during the 12 months preceding certification.
The regulatory element of FINRA's continuing education must be completed within 120 days of the representative's registration anniversary date and every year thereafter. every other year. semi-annually. annually.
annually The regulatory element must be completed by December 31 annually.
If a securities broker-dealer registered with FINRA wishes to merge with another member, FINRA must be notified at least 20 days prior to the closing date. on or prior to the closing date. at least 30 days prior to the closing date. at least 10 days prior to the closing date.
at least 30 days prior to the closing date. The membership agreement between a broker-dealer and FINRA requires written notice to FINRA at least 30 days prior to merger with another member, acquisition by the member of another member, acquisition or merger with a nonmember, and a material change in the member's business.
At maturity, equity-linked notes convert to the underlying equity. a combination of cash and the underlying equity. zero-coupon bonds. cash.
cash An equity-linked note, a type of structured product, is a debt instrument that differs from a conventional fixed income security in that the final payout at maturity is based, in part, on the return of the underlying equity, which can be a single stock, a basket of stocks, or an index. A typical ELN is principal-protected; the investor is guaranteed to receive 100% of the original amount invested at maturity but receives no interest along the way. The final payout, in cash, is the amount invested plus a portion of the gain on the underlying equity.
A Series 6 license holder is permitted to sell all of the following except mutual funds. unit trusts. closed-end funds in the secondary market. closed-end funds as a new issue.
closed-end funds in the secondary market A Series 6 registration enables the holder to sell variable contracts and investment company products, including closed-end funds, by prospectus only. Closed-end funds in the secondary market trade without prospectus and are thus outside the scope of the Series 6 license.
Form 144 must be filed with the SEC concurrently with the sale or earlier. within 10 days of the sale 5 days before the sale
concurrently with the sale or earlier. Form 144, which alerts the SEC to the impending sale of unregistered or control stock, must be filed concurrently with or before the sale. The form must also be filed as amended if there is an inaccuracy or to indicate a change in broker.
Employees of a FINRA member firm must be fingerprinted if involved in any of the following except cashiering. customer account processing. sales. the transfer of securities.
customer account processing Under SEC Rule 17f-2, persons registered with FINRA, persons involved in handling customer funds or securities (including employees of transfer agents), and persons involved in preparing the firm's original books and records must be fingerprinted. Mere processing of customer accounts does not involve any of these
Under FINRA rules, an associated person must complete the annual regulatory element of continuing education by April 30. December 31. September 30. June 30.
december 31
When syndicate members agree to share financial responsibility for any unsold securities on an undivided basis, this contractual arrangement comprises what type of account? western eastern
eastern An undivided account, which is a shared underwriting liability for unsold securities, is an Eastern account.
If criminal activity is suspected with respect to missing securities, notification must be made to each of the following except the Securities Information Center. FINRA. the FBI. the issuer's transfer agent.
finra When securities are suspected of being stolen, the SIC and the transfer agent must be notified within one business day. The FBI must be notified immediately.
A member that is a subsidiary of a publicly held corporation may sell the securities of its parent company to a customer if it discloses its relationship to the parent company before the completion of the transaction. on an unsolicited basis only. under no circumstances. without restriction.
if it discloses its relationship to the parent company before the completion of the transaction. The member must disclose this control relationship before the trade settles.
If a member's blanket fidelity bond coverage is substantially modified, cancelled or terminated, FINRA must be advised within 10 business days. within 5 business days. within 20 business days. immediately.
immediately If a member's fidelity bond is canceled or modified, FINRA must be notified immediately.
A father delivers street name securities valued at $50,000 to be placed in the account of his son, an existing customer. Your firm will make an inquiry of the SIC. send the securities to the transfer agent to be retitled. file a suspicious activity report. file Form 112.
make an inquiry of the SIC. The delivery of street name securities to your firm will always necessitate an inquiry of the SIC.
An associated person of a member firm has a vacation home on Cape Cod, Massachusetts. This year, she plans to spend the entire summer operating a securities and a real estate rental business from that home. Under FINRA rules, the vacation home will be considered a nonbranch office. must be registered as a branch office. is deemed a joint back office (JBO). will be considered an office of convenience.
must be registered as a branch office. A branch office is any location where one or more APs effect or induce securities transactions or is held out to the public as such. There are exceptions. One exception is any location that serves a back office function where no sales activities are undertaken and the location is not held out to the public as a place where transactions and sales activities are conducted. Another example is an office of convenience, which could be a restaurant, hotel lobby, or any place where the AP occasionally and exclusively by appointment meets with customers. Those would be nonbranch locations. Under certain conditions, locations such as a vacation home used for securities business for less than 30 business days in a calendar year may be exempt from the definition of a branch office as well. In this question, the representative will be operating a securities business for more than 30 business days, so the location is deemed a branch. A member firm must inspect this kind of branch at least every three years. However, due to the real estate business being conducted from the home, more frequent office inspections would be prudent to check for compliance.
A registered representative owns a vacation home he sometimes rents on the South Carolina coast that he wants to sell. Which of the following statements is true? The branch manager must be notified in writing. No notification is required. The NYSE must be notified. FINRA must be notified.
no notification is required Selling real estate does not require written notification to the firm or any SRO.
A member firm receives an order from an investment adviser to purchase shares in a common stock IPO. Under FINRA Rule 5130, the member must obtain a representation from the conduit that the purchaser is not a restricted person. refuse to accept the order. obtain a list of all of the adviser's clients to determine eligibility.
obtain a representation from the conduit that the purchaser is not a restricted person. When receiving an order to buy a new equity issue from a bank, investment adviser, or other conduit, a member must obtain a representation from the conduit that all purchasers are in compliance with FINRA Rule 5130 (i.e., they are not restricted persons).
Securities offered or sold under Regulation S are exempt from registration provided they are made available only to QIBs (qualified institutional buyers). offshore with no directed selling efforts in the United States. only to accredited investors. only to sophisticated investors.
offshore with no directed selling efforts in the United States. Regulation S provides for an exemption from registration under the Securities Act of 1933 (a.k.a. the Prospectus Act, the Paper Act, the Truth in Securities Act or Law). The exemption is available only for offers and sales of securities outside the United States contingent on two general conditions: the offer or sale must be an offshore transaction, and there may be no directed selling effort. A directed selling effort is one in which the issuer or distributors undertake to condition the U.S. market for the securities with general circulation advertising in the United States or mailing promotional material to U.S. investors. Even making an offer directed at clusters of U.S. citizens offshore such as at military personnel could be judged to be a directed selling effort and possibly void the exemption.
At a minimum, a member firm must inspect and evaluate the operations of a nonsupervisory branch office annually. periodically. at intervals determined by the firm. once every three years.
once every 3 years A supervising branch must be inspected at least annually, while a nonsupervisory branch must be inspected at least once every three years.
A member firm, in return for letting a customer buy shares of a new issue at the public offering price, requests that the customer buy at least 500 additional shares in the secondary market within two weeks of the issuer's effective date. This action is permitted prohibited
prohibited Tie-in arrangements are considered fraud under the Act of 1934 and are strictly prohibited.
Under SEC Regulation AC, if an analyst makes a public appearance, the analyst must deliver a written certification to the group being addressed. make a verbal certification to the group being addressed. provide a blanket certification for all appearances made each quarter. provide a blanket certification for all appearances made each month.
provide a blanket certification for all appearances made each quarter. Within 30 days after each calendar quarter, firms must make a record that includes a statement by the analyst (certification) that the views expressed in all public appearances during the quarter reflected the analyst's personal view at that time.
A $5,000 introducing member firm is prohibited from all of the following activities except participating in a firm commitment underwriting as a selling group member. receiving customer securities for prompt forwarding to its clearing firm. receiving customer checks in the clearing firm's name for prompt forwarding to the clearing firm. receiving customer checks in the member's name for prompt forwarding to the clearing firm.
receiving customer checks in the clearing firm's name for prompt forwarding to the clearing firm. Both $5,000 and $50,000 introducing firms may accept checks made out to the clearing firm for prompt forwarding, but neither may accept checks made out in their name. Both may make occasional trades in their investment accounts and manage a best efforts offering, but neither are able to be in a syndicate engaged in a firm commitment underwriting. There are two actions that can be taken by $50,000 firms that are prohibited to $5,000 firms: $50,000 firms may accept customer securities in-house for prompt forwarding and may participate in a firm commitment underwriting as a selling group member.
A company's board of directors has authorized senior management to proceed with a public offering of senior debt securities. Following submission of the registration statement, which of the following documents must contain the legend "subject to completion or amendment"? red herring form 144 form t
red herring The legend "subject to completion or amendment" must be printed in red on a preliminary prospectus (red herring). SEC Schedule 14A is filed to provide financial information and other important procedures for shareholders meetings
The Act of 1934 applies to all of the following except the extension of credit on securities transactions. secondary market trading. regulation of new issues.
regulation of new issues. The Act of 1933 deals with new issues. The Act of 1934 created the SEC, required the registration of broker-dealers, empowered the Federal Reserve to control the extension of credit on securities transactions, and created rules dealing with secondary market trading.
You hear through the office grapevine that Kent, your top producer, was convicted of driving under the influence four years ago. You ask Kent about it, and he admits to the conviction. You then check his Form U4 and discover that this incident was not disclosed. A DUI conviction in his state of residence is a felony. You should secure a copy of the court record relating to this incident. seek advice from your firm's legal department. terminate Kent and file a Form U5. let the incident drop as it is older than three years.
seek advice from your firm's legal department. A felony conviction is grounds for statutory disqualification. You should seek advice from your firm's legal department.
which of the following categories of registration permits a representative of a member firm to solicit sales of closed-end fund shares trading over the counter? Securities Industry Essentials Series 27 Series 7 Series 6 or 7
series 7 the Series 7 license permits a representative to offer any security except commodity futures contracts. The Series 6 license is limited to offering investment company securities registered under the 1940 Act sold by prospectus. The only time a Series 6 license can be used to sell a closed-end fund would be in a primary offering where it is sold by prospectus.
Customer account records (such as the new account form) must be maintained for not less than six years, starting when the account is opened. three years. six years, starting when the account is closed. four years.
six years, starting when the account is closed. Customer account records (such as the new account form) are six-year records. The six years toll from when the account is closed.
Which of the following factors is not considered when determining if a location should be designated as an office of supervisory jurisdiction? Distance from other OSJs of the firm Diversity and complexity of the securities being sold Number of registered persons at a location Size of orders at a location
size of orders at a location In making this determination, FINRA requires members to consider the following: Whether registered persons at a location have regular contact with the public The number of registered persons at a location Whether the location is geographically distant from another OSJ of the firm Whether the securities activities are diverse and/or complex Whether the member's registered persons are geographically dispersed
Receipts and deliveries of securities and receipts and disbursements of cash must be posted on the blotter the business day following receipt or delivery. the day of receipt or delivery. the business day following the settlement date. the settlement date.
the business day following receipt or delivery. Most blotters maintained by broker-dealers must be posted no later than the business day after the transaction. For receipts and deliveries of securities, the business day after which securities have been received or delivered is the deadline. For cash receipts and disbursements, the blotter must be posted by the business day after the cash was received or disbursed.
In disclosing to customers information on its business continuity plan, a member may exclude all of the following information except any proprietary information contained in the plan. the parties with whom the member has backup arrangements. the location of any backup facility. the existence of backup facilities and arrangements.
the existence of backup facilities and arrangements. Members must disclose to customers the existence of backup facilities and arrangements. They are not, however, required to disclose the location of any backup facility, any proprietary information contained in the plan, and the parties with whom the member has backup arrangements.
An office of a member firm must be designated as an OSJ in all of the following situations except the firm's financial records are kept there. customer securities are kept in custody there. market making takes place there. the structuring of public offerings takes place there.
the firm's financial records are kept there. An OSJ is defined as any office where one or more of the following functions take place: order execution and/or market making, structuring of public offerings or private placements, maintaining custody of customer funds or securities, review and endorsement of customer orders, and final approval of retail communications.
All of the following are requirements of a Rule 506(b) offering under Regulation D except the sale is limited to a total of 35 investors. the issue is not advertised to the general public. all nonaccredited investors are sophisticated
the sale is limited to a total of 35 investors. In a Rule 506(b) offering, an issuer that is free of "bad actors" can sell to an unlimited number of accredited investors. However, there can be no more than 35 nonaccredited investors in any single offering. All investors must receive a copy of the offering memorandum, and all nonaccredited investors must be sophisticated. In addition, nonaccredited investors must be permitted to use a purchaser representative to help them evaluate the investment. Certain advertising, if limited in scope, is permitted. Advertising to the general public is strictly prohibited. Rule 506(c) prohibits nonaccredited investors.
Statutory underwriter is a term that refers to... the syndicate manager in a firm commitment offering. a syndicate member in a firm commitment offering.
the syndicate manager in a firm commitment offering.\ The syndicate manager in a firm commitment underwriting often is referred to as the statutory (or lead) underwriter. You also may see this person referred to as the book runner or bookrunning manager.
Under SEC Rule 415, a shelf registration, once effective, allows the issuer to sell securities for up to 6 months from the effective date. two years from the effective date. 12 months from the effective date.
two years from the effective date. Once effective with the SEC, a shelf registration is good for two years. This allows issuers who are looking for a window of opportunity to have an effective registration in place if and when the window opens. For well-known and seasoned issuers (WKSI), a shelf registration statement is good for three years. WKSIs may take advantage of a safe harbor and make use of free writing communication during the shelf life.
One of the brokers in your office opens an account for an investment club and notes on the new account form that his spouse has a 15% interest in the club. Under which of the following circumstances may your firm sell shares of a new equity issue to this account? As long as the shares sold represent less than 1% of the total issue under no circumstance under no circumstance
under no circumstance FINRA Rule 5130 prohibits firms from selling a new issue of equity securities to members of the immediate family of employees.
An issuer or broker-dealer selling private placement securities under Rule 506(b) is permitted to advertise through a seminar or meeting that is open to the public. under none of these circumstances. in a general news medium.
under none of these circumstances. Rule 506(b) prohibits general advertisements. However, advertisements directed to potential, qualified investors are allowed. These advertisements usually take the form of seminars open only to qualified investors. Rule 506(c) permits advertising while limiting purchasers to those who are accredited.
Under SEC rules, Form 8-K must be filed within 10 business days of the event. promptly within 4 business days of the event.
within 4 business days of the event. Form 8-K is used to report newsworthy events to the SEC. The reporting time limit is four business days.
It is required that the CEO certify that the broker-dealer has in place detailed processes and that she has held at least one meeting with the chief compliance officer of the firm and submitted the annual report to the member firm's board of directors and audit committee at the earlier of their next scheduled meeting or within 60 days of the date of execution of the certification. within 3 business days of the date of execution of the certification. within 90 days of the date of execution of the certification. within 45 days of the date of execution of the certification.
within 45 days of the date of execution of the certification. FINRA Rule 3130 requires that your broker-dealer designate and identify to FINRA a Chief Compliance Officer (CCO). The rule further requires that the CCO prepare an annual report detailing the processes the BD has in place to establish, test, and modify WSPs reasonably designed to achieve compliance. The CEO must certify annually that the broker-dealer has in place the processes detailed in the annual report and that one or more meetings with the CCO in the preceding year was held to discuss the BD's compliance efforts. Following that, the firm must submit the annual report to the member firm's board of directors and audit committee at the earlier of their next scheduled meetings or within 45 days of the date of execution of the certification.
When securities previously reported as lost are recovered or found, recovery must be reported within two business days of recovery. within one business day of recovery. within 10 business days of recovery or as soon as the certificate numbers can be determined. on the day of recovery.
within one business day of recovery. If securities reported as lost are subsequently recovered, a report must be made within one business day of recovery.
If a registered representative failed to complete the regulatory element of continuing education, the representative may solicit new customers but may not execute any orders. would be restricted from all activities of an associated person. may make a onetime application to the SEC for an extension of time. may handle unsolicited orders only.
would be restricted from all activities of an associated person. Registered persons who do not complete the regulatory element by December 31 each year will have their registrations deemed CE inactive until such time as the requirement has been met. They must cease all activities as a registered person and are prohibited from performing any duties requiring registration.
