SIE Chapter 9

All the following are included in a customer's confirmation statement except: A Commission paid to the registered representative B Identity of the security C Quantity D Price

A The SEC requires that member firms provide their customers with confirmations of each transaction. Confirmations are generally sent on or before the settlement date. The confirmation must include the price and identity of the security, the number of shares, date of transaction, time of execution, capacity of the firm (agent or principal), commission, mark-up or mark-down, price and yield and the settlement date. Confirmations may only be sent to a third-party with written consent of the customer

Under Regulation S-P, firms must have policies and procedures reasonably designed to do all the following, except: A Protect customers from taking investment risks B Protect against any anticipated threats or hazards to the security or integrity of customer information C Protect against unauthorized access to, or use of, customer information that could result in substantial harm or inconvenience to any customer D Ensure the security and confidentiality of customer records and information

A.

A customer has an account with a broker-dealer that becomes insolvent. The customer has securities valued at $500,000 and cash of $250,000 on deposit with the firm. The customer would: A Become a general creditor of the broker-dealer for any portion not covered by SIPC B Have no claim against the broker-dealer for any amount not insured by the SIPC C Become a secured creditor of the broker-dealer for any portion not covered by SIPC D Be fully insured by the SIPC

A. SIPC insures each customer for a total of $500,000, of which no more than $250,000 may be for cash. The customer then becomes a general creditor of the broker-dealer for any amount not reimbursed by SIPC ($250,000 worth of securities, in this case).

Responses to regulatory requests must be made: A In a timely fashion B Immediately C Within 90 days D Within 45 days

A. FINRA has the right to require members to provide information in writing, or electronically, regarding any matter involved in any investigation, complaint, examination, or proceeding. The response to regulatory requests must be timely

All the following information broker-dealers must supply customers with at account opening and least once per calendar year except: A A registered representative's history of residence and social security number which is not included on FINRA's BrokerCheck B FINRA's BrokerCheck hotline number C A statement regarding the availability of an investor brochure that includes information describing FINRA's BrokerCheck D FINRA website address

A. Personal information, such as history of residence and Social Security number, are not included on FINRA BrokerCheck. If a customer cannot access BrokerCheck, a FINRA toll-free number must be provided. Broker-dealers must supply customers with the following information at account opening and least once per calendar year: FINRA's BrokerCheck hotline number; FINRA website address; A statement regarding the availability of an investor brochure that includes information describing FINRA's BrokerCheck

Who among the following could purchase a new issue? A Neighbor of the registered representative B Spouse of the broker-dealer's president C Registered representative D Underwriter

A. The underwriter must make a bona fide public offering of all the shares. Therefore 'industry insiders' and their relatives may not purchase new issues.

Which of the following statements is true regarding outside business activities of registered representatives? A The broker-dealer may prohibit the activity if it determines that the outside business activity could create a conflict of interest B The representative may notify the broker-dealer orally if done at least five business days before undertaking such activity C Written permission must be obtained from the broker-dealer before such activity is undertaken D The representative has 30 days in which to notify the broker-dealer

A. The registered representative must promptly notify the broker-dealer in writing of such outside business activity. The broker-dealer's permission is not required. However, the broker-dealer may prohibit the activity if it determines that the outside business activity could create a conflict of interest

How long must records of retail communications and correspondence be kept on file? A Permanently B 3 years C 6 years D 2 years

B. 3 years

Who is responsible for approving retail communications regarding mutual funds which are mailed to a customer? A The fund's sponsor B A registered principal C The associated person provided the piece goes to 49 or fewer retail investors D FINRA

B. The approval of all advertising and sales literature, is the ultimate responsibility of a firm's designated principal. An RR would never approve his own sales literature.

A Currency Transaction Report (CTR) must be completed by the financial institution to file reports of deposits, withdrawals, exchanges of currency, or other payments or transfers involving a transaction in cash totaling more than: A $1,000 B $2,500 C $5,000 D $10,000

D

Under the Customer Identification Program (CIP) financial institutions must do all the following except: A Obtain customer fingerprints B Implement procedures to verify the identity of each customer opening an account C Consult government-provided lists of known or suspected terrorists D Maintain records used to identify the customer

A. Proper AML procedures include following the guidelines of the Customer Identification Program whereas financial institutions are required to implement procedures to verify the identity of each customer opening an account, maintain records used to identify the customer, and consult government-provided lists of known or suspected terrorists. Through the CIP, customer verification of name, date of birth, physical address, and tax ID number will all be accomplished. Non-U.S. Citizens must provide a passport and U.S. tax identification number to open an account.

A registered representative meets the definition of MFP for XYZ municipal securities firm that is acting as a U/W for that municipal issuer. In his spare time the representative is a volunteer to the election campaign of a candidate for mayor of the issuer. The representative attends a reception dinner for the candidate that costs $400 a plate. Which of the following statements is true? A The $400 out of pocket expenses exceed the political contribution limit resulting in the municipal securities firm being banned as a U/W for that issuer for a period of 2 years B The representative is entitled to vote in the election and can make contributions up to $500 C The $400 out of pocket expenses are within the allowable amount D This is permitted because the MFP did not contribute to the campaign, the cost of $400 was for the reception which falls outside the restrictions

A. MSRB Rule G-37 specifically prohibits brokers, dealers, or municipal securities dealers from engaging in municipal securities business with an issuer within two years after any contribution is made to an official of the issuer by either the broker, dealer, municipal securities dealer, or any municipal finance professional (MFP) associated with these firms. There is one exception to this rule, which is considered a de minimis rule. The prohibition would not apply if the only contributions to officials of issuers are made by MFPs entitled to vote for such officials, provided the contributions are not in excess of $250 by each MFP to each official, per election. The $400 out of pocket expense in this question has exceeded the de minimis rule.

Which of the following are considered to be advertising under FINRA Conduct Rules? I Group e-mail II Internet Web sites III Videotaped presentations on cable TV IV Brochures A II and III B I and II C I, III, and IV D II, III, and IV

A. A letter or e-mail sent to one individual is considered correspondence and is subject to spot checks according to house rules. Research reports and brochures are considered sales literature and must be approved by a principal prior to distribution. Form letters or group e-mails might be classified as either correspondence, institutional sales material, or sales literature, depending on the recipients. TV or radio broadcasts, and Internet Web sites are considered advertising under FINRA rules. Sales literature and advertising are classified as retail communication. Although ads are also subject to principal approval prior to use, they may also be subject to filing with FINRA.

SARs are filed with: A The Financial Crimes Enforcement Network (FinCEN) B The Financial Industry Regulatory Authority (FINRA) C The Securities Exchange Commission (SEC) D The Federal Bureau of Investigations (FBI)

A. If an employee suspects red flag activity, a SARs must be filed with the broker-dealer, who will in turn file with the Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department. SARs include detailed information about transactions that are or appear to be suspicious and must be filed with FinCEN within 30 calendar days if a broker-dealer suspects such activity involving $5,000 or more. Financial institutions and their employees face civil and criminal penalties for failing to properly file suspicious activity reports. CTRs must be filed within 15 days of cash transactions, including layering, of $10,000 or more.

All the following records must be retained for a period of 6 years, except: A Emails B Blotters C Customer account records D Municipal complaints

A. SEC rules set which records must be kept by member firms, how long those records must be retained, and the manner in which they must be kept. If a time period is not specifically stated for a record, the default time period of retention is 6 years. Correspondence and communications including e-mails, instant messages must be kept for a period of 3 years. All other choices in this question must be retained for a period of 6 years.

Under FINRA rules, conduct rules that are applicable to retail communication applies to which situations? I The member sponsors an investment seminar for the public II An officer of a member participates in a television program on investments III A registered representative sends a form letter to all of his/her clients IV A registered representative serves as a guest speaker on investments at a local club meeting

All I, II, III, IV

How often are member firms required to disclose their current financial situation to customers? A Monthly B Every 6 months and at any time upon request C Annually D Quarterly

B

In response to the Dodd-Frank Act, the SEC created Regulation S-ID. What is the purpose of this regulation? A The regulation requires member firms to keep copies of customer identification on file for a period of 4 years B The regulation requires member firms to create a written Identity Theft Prevention Program C The regulation requires member firms to create a customer identification program D The regulation requires member firms to include customer ID, such as drivers license number, on all order tickets

B. Regulation S-ID requires firms to create a written Identity Theft Prevention Program designed to identify, detect and respond to "red flags"- patterns, practices or specific activities- that could indicate identity theft. Identity theft is a fraud committed or attempted using the identifying information of another person without authority.

Which of the following is an example of a private securities transaction? A A registered representative buys interests in a limited partnership for their own investment account after notifying the firm and did not receive any compensation B A customer wishes to buy a variable annuity from a company with which their registered rep's BD does not have a selling agreement, the rep contacts the insurance company directly and makes the sale C A registered representative sells a customer a whole life policy through an outside insurance company D A registered representative sells a customer a very special mutual fund which is sponsored by a well-known fund family that has a selling agreement with the firm

B. A private securities transaction occurs when a representative sells securities to customers without going through the rep's employing BD.

All the following are considered Outside Business Activities that must be reported to your employing firm, except: A Working as a professional coach for the local baseball team B Working as a volunteer firefighter C Selling life insurance outside of the firm D Working for, or on the board of a start-up company

B. FINRA regulations require representatives to notify their firms of any outside business activities or private security transactions prior to their start. FINRA states that you may not be an employee, independent contractor, trustee, sole proprietor, officer, director or partner of another person because of any business activity outside the scope of the relationship with your firm, unless you have provided written notice to your firm. Acting as a trustee for a trust account as a registered representative would have several potential conflicts of interest. Therefore, it is considered an OBA and must be disclosed to the firm in writing and treated as any other outside business activity. You must also disclose any offer to work with any other business or receipt of any form of compensation from a source other than your employing BD firm. Working as a volunteer firefighter would not require reporting to your firm.

Which of the following best defines affinity fraud? A A tool that helps investors locate similar investors via social media B A tool used by criminals to gain the trust of victims by claiming to be members of the same identifiable group C A tool used by people to provide a safe harbor for investments D A tool used by criminals to access databases at broker-dealers

B. Affinity fraud is a tool used by criminals to gain the trust of victims by claiming to be members of the same identifiable group, such as a religious affiliation, race, national origin, or profession, or to have similar interests.

Which of the following statements concerning an individual e-mail is correct? A All e-mail is exempt from FINRA rules and is simply subject to whatever "house rules" govern a given branch B The e-mail is considered correspondence and subject to spot checks based on the firm's procedures C The e-mail is considered retail communication and subject to internal approval prior to distribution D The e-mail is considered correspondence and must be filed with FINRA within 10 days of being sent

B. An individual e-mail is considered correspondence under FINRA rules. Correspondence is subject to house rules which may involve spot checks or sampling. Correspondence is not required to be filed with either FINRA or SEC

Information about an associated person which is available to the public upon request through the FINRA BrokerCheck program includes all of the following, EXCEPT: A Information about current and former affiliations with member firms B Information about the broker's education C Information about the broker's disciplinary history D Information about qualification exams passed

B. The RR's educational history is not included in the BrokerCheck information, although education information may be coincidentally disclosed as part of their most recent registration statement, i.e., education during the 10 years preceding the registration filing.

What can a person do if they purchase a security and the items in the filing statements include false statements regarding material facts or omit material facts required to be stated? A They can only complain to the SEC B They have the right to pursue civil tort claims C They can only take the promoter to arbitration D They can contact the FBI as well as the local police department to see if they can recover any monies lost

B. Criminal penalties may be imposed for anyone offering securities through fraud or misrepresentation. The person who purchases a security has the right to pursue civil tort claims if the items in the filing statements include false statements regarding material facts or omit material facts required to be stated.

How is the funding for SIPC coverage generated? A Through fines collected by the SEC B Through assessments upon member firms C Through federal taxes D Through premiums paid by investors

B. SIPC is not a governmental entity, and receives no tax subsidies. SIPC is a private, not-for-profit organization that broker-dealers are required to join. Members are required to pay annual assessments, which are held for customer reimbursements in case of member bankruptcies

The Written Supervisory Procedures (WSP) and the businesses in which a broker-dealer engages, must be reviewed at least: A Every 2 years B Quarterly C Annually D Every 3 years

C

What is the maximum amount of coverage per separate customer under SIPC? A $250,000 in securities plus $250,000 in cash B $5,000,000, plus $100,000 in cash C Up to $500,000, of which no more than $250,000 can be for cash balances D $500,000, plus $250,000 in cash

C Up to $500,000, of which no more than $250,000 can be for cash balances

What form must be filed for cash transaction of more than $10,000? A Wire transfer report B Suspicious Activity Report C Currency Transaction Report D Currency and Monetary Instrument Transportation Report

C. A Currency Transaction Report must be filed for any transaction over $10,000. Suspicious Activity Reports must be filed for various unusual activities. The other two choices are distractors.

The Quest Equities Firm is preparing to conduct its annual compliance meeting. Which of the following are true regarding the upcoming meeting? I All Quest personnel must attend II Only registered personnel of Quest Equities must attend III The agenda of the meeting is derived from the results of the firm's Designated Examining Authority's (FINRA) annual audit IV The agenda of the meeting is created based on an internal analysis of the firm's business, its products, and the current compliance needs of the firm's personnel A I and IV B II and III C II and IV D I and III

C. As part of its supervisory system, a broker-dealer must make arrangements for each of its RRs to attend, at least once a year, a meeting or interview at which compliance issues are discussed. The compliance issues covered must be relevant to the activities of the RRs attending. The meeting may be held with each RR individually or in groups, and may be conducted in person or electronically.

If an investor purchases a security based on false information contained in a prospectus, what remedy can the investor seek? A Criminal liabilities B Criminal penalties C Civil liabilities D The investor may hold the SEC liable for approving the issue for sale

C. The person who purchases a security has the right to pursue civil tort claims if the items in the filing statements include false statements regarding material facts or omit material facts required to be stated.

A Currency Transaction Report (CTR) must be filed within: A 45 days B 30 days C 15 days D 20 days

C. A Currency Transaction Report (CTR) must be completed by the financial institution to file reports of deposits, withdrawals, exchanges of currency, or other payments or transfers involving a transaction in cash totaling more than $10,000. The Currency Transaction Report includes: Identity of the person(s) involved in the transactions, including the Social Security number, date of birth, address, and other described methods of individual identification, the identity of the individual conducting the transactions (if different than the person involved in the transaction), the amount and type of transaction(s), the financial institution where the transaction(s) takes place, the report must be filed within 15 days

Which of the following statements is correct concerning FINRA rules regarding outside employment by RRs? A RRs are only required to obtain prior written permission of their firms if the outside employment is in the financial services industry B Outside employment by RRs is prohibited by FINRA rules C RRs must notify their employing firms of any outside employment D RRs must obtain prior written permission of their firms prior to accepting any outside employment

C. RRs are required to notify their employers of any outside employment whether securities related or not. Volunteer activities are not subject to this rule. Whether or not the RR may have an outside job is dependent on the individual firm's "house" rules.

Which of the following statements may be made by a registered representative? A The SEC has reviewed the prospectus to make sure there is no false or misleading information provided by the issuer B The SEC has reviewed the filing and approved it for sale to the public C The prospectus contains material information needed to help you make an informed decision D Once registration is effective, this means the SEC has approved of the offering

C. The SEC does not warrant the accuracy of the registration statement or pass any judgment on the quality of the investment. It is unlawful to say or imply that the SEC approves of any investment and this disclaimer must be at the front of every prospectus.

Who among the following is not eligible for membership in FINRA? A Underwriters B Investment bankers C Commercial banks D Broker-dealers

C. Banks are lending/savings institutions, not securities broker-dealers and are consequently excluded from FINRA membership. An investment banker (underwriter) is a broker-dealer that underwrites new issues and must be a FINRA member.

Under FINRA rules, which of the following actions would constitute "selling away?" A Selling an international mutual fund in an IRA to a BD's customer B Failing to obtain a firm's written permission prior to engaging in any outside employment C Selling limited partnerships without notifying your employer D Buying and selling the same security in different markets

C. In some cases, an RR may wish to sell a product that is not typically offered by her firm (e.g., private placements, viaticals, or limited partnerships). FINRA requires all RRs to notify their employer of these activities and obtain written permission if compensated. The term "selling away" refers to an RR who engages in these outside sales without notifying her employer. Buying and selling the same security in different markets is known as arbitrage.

Under the Customer Identification Program (CIP) financial institutions must do all the following except: A Implement procedures to verify the identity of each customer opening an account B Maintain records used to identify the customer C Obtain customer fingerprints D Consult government-provided lists of known or suspected terrorists

C. Proper AML procedures include following the guidelines of the Customer Identification Program whereas financial institutions are required to implement procedures to verify the identity of each customer opening an account, maintain records used to identify the customer, and consult government-provided lists of known or suspected terrorists. Through the CIP, customer verification of name, date of birth, physical address, and tax ID number will all be accomplished. Non-U.S. Citizens must provide a passport and U.S. tax identification number to open an account.

Todd has been depositing a number of large cash transactions into his account at the firm. His registered representative suspects that Todd is involved in money laundering. Which of the following statements is correct? A A CTR must be filed within 48 hours of all deposits exceeding $5,000 B A CTR must be filed within 48 hours of all deposits exceeding $10,000 C A CTR must be filed within 5 calendar days for all deposits exceeding $10,000 D A CTR must be filed within 15 calendar days for all deposits exceeding $10,000

D. FinCEN requires that firms file a Form 104 (usually just called a CTR) within 15 calendar days of receiving deposits of more than $10,000 of currency. In addition, as a registered representative you should also look for any activities in an account that seem suspicious and involve $10,000 or less. Suspicious transactions of $10,000 or less require that the firm file a suspicious activity report (SAR).

When reviewing registration forms (U4), the supervising principal must verify: A That the applicant has a college degree B Prior 5 years of residence history C All employment history listed D Prior 3 years of employment history

D. In reviewing the registration forms (U4), the principal must investigate the good character, business reputation, and experience of every applicant. The supervising principal must review, sign, and date all new hire registration forms (U4) and must verify the prior 3 years of employment history.

What is integration? A Separating the proceeds of criminal activity from their origins through layers of complex financial transactions to hide the source of the funds B Introducing funds to be laundered into the legitimate financial system C Making deposits, withdrawals, exchanges of currency, or other payments or transfers involving a transaction in cash totaling more than $10,000 D Reintroducing the now clean funds back into the financial system by providing an apparently legitimate explanation for the illicit proceeds

D.

An MFP is entitled to vote for an elected official's campaign and writes a check from a joint account for $500. The representative provides the employing firm with a copy of the check and a letter stating that half the contribution was on behalf of the spouse, even though only the MFP has signed the check. Is the municipal securities firm banned for 2-years from transacting municipal securities business with the issuer? A No, because the ban is only triggered when an MFP contributes in excess of $500 B No, because MFP provided evidence that half the contribution was from the spouse C Yes, because the MFP was not permitted to contribute to an elected official's campaign that the MFP is entitled to vote for D Yes, because the MFP is deemed to have made the full $500 contribution

D. MSRB Rule G-37 specifically prohibits brokers, dealers, or municipal securities dealers from engaging in municipal securities business with an issuer within two years after any contribution is made to an official of the issuer by either the broker, dealer, municipal securities dealer, or any municipal finance professional (MFP) associated with these firms. There is one exception to this rule, which is considered a de minimis rule. The prohibition would not apply if the only contributions to officials of issuers are made by MFPs entitled to vote for such officials, provided the contributions are not in excess of $250 by each MFP to each official, per election. If the MFP signs a check, even if drawn on a joint account, and submits it as a contribution to an issuer official, the MFP is deemed to have made the full contribution. If the MFP and the joint account holder BOTH sign the check, each person is deemed to have made half the contribution.

Which of the following is NOT a requirement of the Bank Secrecy Act? A Each member firm must establish and maintain procedures that will detect money laundering B A SAR must be filed by the broker-dealer to the Financial Crimes Enforcement Network C Establish and maintain policies to comply with the Bank Secrecy Act D Review these procedures quarterly

D. While the procedures must be reviewed and kept up to date, there is no requirement for quarterly review.

If a person taking the Series 6 exam fails on the first attempt, the waiting period to retest is: A 90 days B 180 days C 7 days D 30 days

D. If a candidate fails in the first or second attempt for a securities license, a minimum waiting period of 30 days is required before retaking the exam. Any candidate failing on the third or later try must wait 180 days to retest.

When reviewing registration forms (U4), the supervising principal must verify: A Prior 5 years of residence history B That the applicant has a college degree C All employment history listed D Prior 3 years of employment history

D. In reviewing the registration forms (U4), the principal must investigate the good character, business reputation, and experience of every applicant. The supervising principal must review, sign, and date all new hire registration forms (U4) and must verify the prior 3 years of employment history.

All the following monetary related securities disputes must be handled through the arbitration process, except: A Dispute between a registered representative and another registered representative B Dispute between a registered representative and a client that has signed an arbitration agreement C Dispute between a registered representative and their employing firm D Dispute between a registered representative and their employing firm regarding employment discrimination

D. All associated persons filing Form U4 must be given a statement providing detailed disclosures regarding the predispute arbitration clause, and the RR should understand this communication. Any monetary related securities dispute that an RR may have with their BD, another RR, or a client must be handled by arbitration and not taken to court (litigation). This does not apply to cases involving employment discrimination.

In which of the following circumstances would a person need to be registered as a registered representative? A A secretary files copies of customer confirmation slips and occasionally verifies confirmation information with the customer B A firm's silent partner has invested $1,000,000 in the firm, but is only involved for capital participation C An employee of a member firm is a registered floor member of the NYSE D An employee of the firm conducts sales training seminars for registered representatives of the firm, but is paid a monthly salary

D. Persons associated with a member whose functions are solely and exclusively clerical or ministerial are exempt from registration. A person associated with a member who trains persons to sell securities or supervises other employees who do sell must be registered. Persons associated with a member whose functions are related solely and exclusively to the member's need for capital participation are exempt from registration. Persons associated with members who effect transactions on the floor of a national securities exchange and are registered as floor members with such exchanges are exempt from FINRA registration.

Under FINRA rules, conduct rules that are applicable to retail communication applies to which situations? I The member sponsors an investment seminar for the public II An officer of a member participates in a television program on investments III A registered representative sends a form letter to all of his/her clients IV A registered representative serves as a guest speaker on investments at a local club meeting

I,II,III & IV

Regulation S-P requires that member firms give their clients an annual: A Compliance audit B Compliance notice C Corporate financial update D Privacy notice

Privacy notice. Privacy notices to customers describe information sharing policies and inform customers of their rights.

Which of the following is considered retail communication? I Form letter to 25 prospective customers II Newspaper ad III Radio or television ad IV A letter from the issuer to the underwriter giving points to be emphasized in promotions

Retail communication includes written and electronic communication sent to more than 25 customers or prospective customers per 30 days (if sent to 25 or less, it is classified as correspondence). Communication directed to a larger retail audience is also considered retail communication. IV is considered institutional communication.

All of the following could result in 'statutory disqualification', EXCEPT: A Making false statements on a U-4 (FINRA membership application) B Expulsion from the Commodity Futures Trading Commission C Current suspension or bar from an SRO D A felony conviction from 12 years ago

Statutory disqualification applies to felony convictions within the previous 10 years. Making false statements or omitting material information on a FINRA membership application may result in statutory disqualification. Current suspension, expulsion, or bar from an SRO is grounds for statutory disqualification.