SIE Reg and Knowledge
The federal law requiring companies offering public equity or debt securities to provide a prospectus to investors is known as A) the Trust Indenture Act of 1939. B) the Securities Act of 1933. C) the Securities Investors Protection Act of 1970. D) the Securities Exchange Act of 1934.
B, The Securities Act of 1933 is also known as the Prospectus Act. With limited exceptions, companies looking to offer securities to the public must provide a prospectus to those who are approached about purchasing those securities. A prospectus is a disclosure document that provides key information about the company.
An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is true? A) It can be deemed an offer to sell securities to the public. B) It is made available between the registration date and the effective date. C) The final price for the securities is published within it. D) Receipt of it is a commitment that the underwriters will sell securities to the recipient.
B, The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus.
The U-4 form requires registered representatives to disclose all of the following except A) any aliases. B) information on any criminal charges, even if found innocent. C) 10-year employment history. D) 10-year residency history.
D, The U- 4 form only requires a five-year residency history.
Mary Alice McVey, a registered representative with a Financial Industry Regulatory Authority (FINRA) member broker-dealer, has recently remodeled her home and now has an area with a private entrance that she would like to use instead of commuting each day to her office 20 miles away. Under FINRA rules A) this would be permitted with FINRA's approval, but she would have to work at least one day per week in the branch in order to ensure proper supervision. B) she would only be permitted to see existing customers at her home. C) registered representatives may not operate out of their homes. D) this would be permitted with FINRA's approval.
D, FINRA rules provide for the ability of registered representatives to operate out of their residence in what is known as a home office. Approval from FINRA is required and the same rules that apply to any branch office would apply here.
While an associated person may work for an entity other than the member firm, the employing member firm's permission is A) not requested. B) required. C) requested. D) not required.
D, If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. Note that notice must be made, but the employing member's permission is not being requested nor is it required.
Which of the following would be allowed during the cooling off period? A) Taking orders B) Distributing a prospectus C) Allocating shares to investors D) Distributing a red herring
D, No selling or soliciting is allowed during the cooling off period. Distributing a red herring (a preliminary prospectus) is allowed.
FINRA firms must employee at least how many principals? A) Three B) Two C) Four D) Five
B, The rule requires at least two principals, unless the firm only has one individual working for the firm.
A broker-dealer and its associated persons may be subjected to sanctions for violations of the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) rules. Which of the following penalties can be levied against the associated persons? A) Limits placed on research activities B) Censure C) Loss of Securities Investor Protection Corporation (SIPC) coverage D) Imprisonment
B, There are many ways a firm and its associated persons can be sanctioned by FINRA including censure. However, imprisonment and forced withdrawal from SIPC are not approved disciplinary actions.
If a married couple have a joint account with a market value of $1 million and a debit balance of $600,000, all of which is in securities, how much coverage would this account have? A) $500,000 B) $1 million C) $400,000 D) $600,000
C, A joint account has a maximum coverage of $500,000; however, in a margin account only the equity is covered, so the debit balance is subtracted from the market value, leaving $400,000 equity.
The aftermarket prospectus requirement for exchange-listed securities is A) 25 days. B) 90 days. C) 0 days. D) 40 days.
C, For exchange-listed additional public offerings, there is no aftermarket prospectus requirement.
Which of the following choices would best describe a follow-on offering? A) An issue of shares by a public company that is already listed on an exchange B) The common stock that is issued attached to a rights offering C) An offering to the employees of the issuing company D) An initial public offering (IPO) that has additional shares added by the issuer on the effective date
A, A follow-on public offer (FPO) is an issue of shares by a public company [registered and reporting to the Securities and Exchange Commission (SEC)] that is currently listed on an exchange and has previously gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue.
After the issuer files a registration statement with the Securities and Exchange Commission (SEC), the time known as the cooling-off period begins. This allows a registration to become effective as early as A) 40 business days after the date the SEC has received it. B) 20 calendar days after the date the SEC has received it. C) 40 calendar days after the date the SEC has received it. D) 20 business days after the date the SEC has received it.
B, Once the registration statement has been received by the SEC, a cooling-off period begins and it must last at least 20 calendar days. This allows the registration to become effective as early as 20 calendar days after the date the SEC has received it.
Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 except A) Regulation D. B) access equals delivery rule. C) Regulation A+. D) Rule 147.
B, Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A+, Regulation D, Rule 147 and Regulation S.
All of the following names describe the Securities Act of 1933 except A) The Truth in Securities Act. B) The Exchange Act. C) The Full and Fair Disclosure Act. D) The Prospectus Act.
B, The Exchange Act is the Securities Exchange Act of 1934 and covers the secondary markets. The Securities Act of 1933 covers the primary market and requires full and fair disclosure on new issues by providing a prospectus to the investor.
A final prospectus contains all of the following except A) history of the business. B) SEC approval. C) description of the management. D) the use of the proceeds.
B, The SEC neither approves nor disapproves a final prospectus; they allow the issue to become effective. Beware of any approval language when referring to a regulator.
The regulatory element of training requires that all registered persons complete a computer-based training session how frequently? A) Within 90 days of the person's second registration anniversary and then every 3 years thereafter B) Within 120 days of the person's second registration anniversary and then every 3 years thereafter C) Within 120 days of the person's third registration anniversary and then every 2 years thereafter D) Within 90 days of the person's third registration anniversary and then every 2 years thereafter
B, The regulatory element of training requires that all registered persons complete a computer-based training session within 120 days of the person's second registration anniversary and every three years thereafter (i.e., within 120 days of the person's 2nd, 5th, 8th, 11th registration anniversary, and so on).
Which of the following is a lagging indicator? A) Increase in hours worked B) Raw materials orders C) Increase in the consumer loans to personal income ratio D) Decrease in industrial production
C, Changes in the ratio of consumer installment credit to personal income is a lagging indicator. Changes in industrial production and hours worked are coincident indicators. Changes in raw materials orders is a leading indicator.
Associated persons or registered representatives who want to work outside of their existing employment with their current broker-dealer may do so if they provide prior written notice to the member. In which of the following would notice not be required? A) The amount of total compensation expected from the outside employer is less than $7,500 per year. B) Ownership equaling 5% interest in another financial services company is intended to be made. C) They will be involved in extensive fundraising activities for a charitable institution. D) They intend to serve only in the capacity of a director of another company with no compensation.
C, If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. These affiliations would include serving as an officer or director of a company or owning any interest in another financial services company.
Sales for new issues of securities may be solicited A) during the cooling-off period. B) before the cooling-off period. C) after the cooling-off period. D) before, during, or after the cooling-off period, if done with a final prospectus.
C, Sales can only be solicited after the cooling-off period (upon the effective date). Solicitations of all sales must be done with a final prospectus.
Under the Uniform Securities Act (USA), registrations must be renewed how frequently? A) Biannually B) Semiannually C) Annually D) Quarterly
C, State laws require that registrations must be renewed annually for broker-dealers with an office in the state or those who direct calls into the state or receive calls from the state.
The rate at which banks lend to broker-dealers for the purpose of lending money for margin loans is typically A) notably below (several percentage points) other short-term lending rates. B) slightly below (a percentage point or so) other short-term lending rates. C) slightly above (a percentage point or so) other short-term lending rates. D) notably above (several percentage points) other short-term lending rates.
C, The broker call loan rate is the rate at which banks lend to broker-dealers for the purpose of lending money for margin loans. This rate is usually slightly above, by a percentage point or so, other short-term lending rates.
All the following are leading indicators except A) new orders. B) the money supply. C) personal income. D) stock prices.
C, The money supply, new orders, and stock prices are all leading indicators. These increase in advance to an increase in economic activity. Personal income, however, is a coincident indicator moving along with economic activity.
Under the Securities Exchange Act of 1934, registration is required for A) foreign securities exchanges. B) initial public offerings (IPOs). C) broker-dealers. D) securities.
C, Under the Securities Exchange Act of 1934, broker-dealers and domestic exchanges are required to register with the Securities and Exchange Commission (SEC). Registration of securities and IPOs is a requirement of the Securities Act of 1933, sometimes called the Paper or New Issues Act. The SEC does not have authority over foreign exchanges.
Which of the following would be allowed during the cooling off period? A) Allocating shares to investors B) Placing a tombstone add C) Distributing a final prospectus D) Taking orders
B, No selling or soliciting is allowed during the cooling off period. Publishing a tombstone is considered an announcement, not a solicitation. The final prospectus is not available during the cooling off period.
A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm? A) Introducing/fully disclosed B) Clearing agent/carrying agent C) Market making D) Full service
A, A fully disclosed introducing broker-dealer is what the word implies—it introduces its customer's business to a clearing firm. Clearing firms (often called carrying firms or agents) hold funds and securities and settle transactions (clear and process) for their correspondent introducing firms. Essentially, the clearing firm acts as the introducing firm's back office.
Associated persons who wish to enter into a private securities transaction for which they will receive no compensation must A) provide prior written notice to their employer. B) open a new account to accommodate the transaction immediately. C) await the employer's approval before proceeding. D) take steps to have the transaction supervised at the firm where it will occur.
A, Associated persons who wish to enter into a private securities transaction must provide prior written notice to their employer. Approval is only required when compensation will be paid. All supervision for the transaction is the responsibility of the employing member and not the firm accommodating the transaction.
An associated person of a Financial Industry Regulatory Authority (FINRA) member firm would not be considered a municipal finance professional (MFP) if involved solely in which of the following? A) Municipal securities sales to customers B) Underwriting municipal securities for the firm C) Research involving municipal securities for the firm D) Municipal securities communications with customers
A, Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP.
The statement "These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information" is A) mandated to be in the final prospectus by the Securities and Exchange Commission (SEC). B) is the disclaimer placed by the underwriters in a tombstone advertisement. C) mandated by the Financial Industry Regulatory Authority (FINRA) to be placed in both the preliminary and final prospectus. D) placed by the issuer in the preliminary prospectus.
A, Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus.
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities except A) credit unions. B) the Depository Trust Company (DTC). C) carrying firms. D) the National Securities Clearing Corporation (NSCC).
A, Credit unions cannot serve as a depository or clearing facility for securities transactions.
A broker-dealer firm managing an initial public offering (IPO) wishes to give a gift to an associated person of one of the selling group members. Which of the following would be an unacceptable gift under the rules? A) A $125 designer edition fountain pen and desk holder B) A $150 leather briefcase with the broker-dealer's name and logo on it C) A ticket to a major league ball game to attend with a principal of the broker-dealer D) A dinner at an expensive restaurant with a representative of the broker-dealer
A, Financial Industry Regulatory Authority (FINRA) member firms may not give business-related compensation to associated persons of other firms - compensation directly tied to sales or promises of sales - but may give an individual gifts whose value does not exceed $100 in a 12-month period. Tickets to a sporting event or dinner at an expensive restaurant may exceed the $100 limit if it is occasional, someone from the rewarding firm is present, and the employing firm has given its permission. Reminder advertising, items with the broker-dealer's name and/or logo, may also exceed the $100 limit, within reason, because it has a business purpose.
For a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers within how many days after the effective date? A) 25 days B) 90 days C) 40 days D) 60 days
A, For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket is 25 days. For nonlisted and non-Nasdaq securities, the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days.
Which of the following calls for the underwriters to buy securities from the issuer acting as an agent, not as principal? A) Best efforts underwriting B) Firm commitment underwriting C) Initial public offering D) Follow-on offering
A, In a best efforts underwriting the underwriters (syndicate) buy securities from the issuer acting simply as an agent, not as principal. This means that the underwriter is not committed to purchasing the shares and is therefore not at risk. The underwriter acts as an agent contingent on its ability to sell shares in either a public offering or a private placement.
An underwriter is placing a tombstone advertisement for a company's new issue. A prospective investor might expect to see all of the following information on the advertisement except A) the names of the company's officers. B) the type of security to be sold (stock or bond). C) the names of the underwriting members. D) the number of shares to be sold.
A, Information on a tombstone, those advertisements allowed to be placed prior to the effective date, is limited to; name of issuer, type of security, number of shares to be sold, public offering price or expected range, and names of the underwriters or group.
For those who follow monetary theory, which is the most complete measure of the money supply? A) M3 B) M1 C) M1 + M2 D) M2
A, M3 is the most complete of the money supply measures because it includes all of M1 and M2 and adds large time deposits (only those over $100,000) plus repurchase agreements (repos) with a term of more than one day.
During the cooling-off period, underwriters of new securities may accept orders to purchase shares. not accept orders to purchase shares. not accept indications of interest regarding potential purchases of shares. accept indications of interest regarding potential purchases of shares. A) II and IV B) I and IV C) II and III
A, Orders for shares may never be taken before the effective date; therefore, no orders to purchase shares may be taken during the cooling-off period. Indications of interest, however, are allowed to be taken but are not binding on either party.
Regarding the registration of securities with the Securities Exchange Commission (SEC) which of the following is true? A) Private securities offerings are generally exempt from registration. B) All securities offerings, public or private, are exempt from registration. C) No securities offering can ever be exempt from registration. D) Public securities offerings are generally exempt from registration.
A, Private placements are generally exempt from the registration requirements of the Securities Act of 1933.
Which of the following is true regarding the primary market? A) Issuer transactions occur in the primary market. B) Price is determined by supply and demand. C) It is regulated by the Securities Act of 1934. D) The NYSE is an example of a primary market.
A, The primary market is where securities are sold to the investing public through issuer transactions. It is regulated by the Securities Act of 1933. The NYSE is an example of a secondary market where price is determined by supply and demand.
The primary purpose of the Securities Act of 1933 is to A) require full and fair disclosure in connection with the sale of securities to the public. B) authorize the designated self-regulatory organizations (SROs) to enforce securities rules and regulations. C) regulate all persons associated with industry member firms. D) provide a basis for the regulation of exchanges and electronic trading venues.
A, The primary purpose of the Securities Act of 1933 is to require full and fair disclosure in connection with the sale of securities to the public.
A registered representative provides financial support and housing at her home for her grandfather. Regarding the purchase of new issues, A) both persons are considered restricted. B) the registered representative is restricted, but her grandfather is not. C) the grandfather is restricted, but the registered representative is not. D) neither are considered restricted.
A, Working for a broker-dealer, the registered representative is considered restricted. While grandparents of restricted persons are generally not considered restricted, anyone being provided financial support and/or living under the same roof as a restricted person (as is the case here) is also restricted.
Which of the following constitute a private securities transaction, or selling away? A registered representative executes a trade for a customer in securities of a type normally handled by the representative's broker-dealer. A registered representative's sibling has some old bonds that the representative sells as a favor through a municipal securities broker. A registered representative helps an old school friend issue securities for a small business under formation. A registered representative helps an acquaintance sell some inherited stock certificates without the acquaintance becoming a customer of the firm. A) II and IV B) III and IV C) I and III D) I and II
B, A private securities transaction is any sale of securities outside the scope of the regular business of the associated person involved and of the broker-dealer firm. Such a transaction done for an immediate family member, however, does not fall under the definition.
During the cooling off period, underwriters would be allowed to do all of the following except A) distribute a preliminary prospectus. B) advertise the issue. C) take indications of interest. D) publish a tombstone.
B, During the cooling off period sales, solicitations and advertising are not allowed.
During the cooling off period, underwriters would be allowed to do all of the following except A) take indications of interest. B) take orders. C) distribute a preliminary prospectus. D) publish a tombstone.
B, During the cooling off period, sales are not allowed.
One of the Financial Industry Regulatory Authority (FINRA) Conduct Rules is concerned with private securities transactions. Under that rule, it would be correct to state that 1. if the member approves the registered representative participating in a transaction for compensation, it must treat the transaction as if it is being done on its own behalf by entering the transaction on its own books and supervising the associated person during the transaction. 2. as long as no compensation to the registered representative is involved, notification to the member is not required. 3. sale of a securities product to the registered representative's mother where there is only nominal compensation is not covered under the rule. 4. if the member disapproves of the registered representative's participation in a transaction for compensation, the associated person may not participate in it. A) I and II B) I and IV C) III and IV D) II and III
B, FINRA divides private securities transactions into two categories. If the associated person will receive compensation, the rules are more comprehensive requiring approval or disapproval. If approved, the firm must record the transaction on its books and records and supervise as if it were executed on behalf of the member firm. Trades with immediate family members are not included if there is no compensation. In other transactions where there is no compensation, written notice to the employer member is still required.
If a registered representative is involved in a securities transaction outside the scope of employment with the firm, a practice known as selling away and will receive compensation for it, which of the following must see that the representative is properly supervised for the transaction? A) None because there is no supervisory requirement B) The employing firm C) The firm where the trade will take place D) A Financial Industry Regulatory Authority (FINRA) examiner
B, If a registered representative is to be compensated for a trade done through another firm, the employing firm must run the trade on its own books and see to it that the representative is properly supervised. The firm where the outside trade will take place is, of course, responsible only for the actions of its own registered representatives.
Which of the following would be applicable to nonexempt securities (those that must be registered) being offered to the public by a corporate issuer? Securities Act of 1933 Prospectus Securities Act of 1934 Secondary market A) II and III B) I and II C) II and IV D) III and IV
B, Offering nonexempt securities [those that must be registered with the Securities and Exchange Commission (SEC)] such as common stock to the public requires the registration of the securities under the Securities Act of 1933. The offering must be made by prospectus.
The prime rate is set by A) the Federal Reserve Board (FRB). B) the Securities and Exchange Commission (SEC). C) the Federal Open Market Committee (FOMC). D) individual banks.
D, The prime rate is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans. Each bank sets its own prime rate.
In an underwriting where fixing a minimum dollar amount to be sold in order to move forward with the entire offering is most commonly referred to as A) all or none (AON). B) de minimis. C) firm commitment. D) mini-max.
D, A mini-max offering is a best efforts underwriting setting a floor or minimum, which is the least amount the issuer needs to raise in order to move forward with the underwriting, and a ceiling or maximum on the dollar amount of securities the issuer is willing to sell.
All of the following are self-regulatory organizations (SROs) except A) New York Stock Exchange (NYSE). B) Municipal Securities Rule Board (MSRB). C) Financial Industry Regulatory Authority (FINRA). D) Securities and Exchange Commission (SEC).
D, All U.S. exchanges such as the NYSE and Chicago Board Options Exchange (CBOE) are SROs. In addition, FINRA and the MSRB are SROs. The SEC is not.
A company is already public with several major stockholders. Sale proceeds for shares being sold to the investing public will go to some of the existing stockholders who want to divest of their shares. This is a secondary offering. a primary offering. an additional public offering (APO). an initial primary offering (IPO). A) I and IV B) II and IV C) II and III D) I and III
D, Anytime proceeds are going to the selling shareholders rather than the issuer, it is a secondary offering. Because the company is already public (has shares in the hands of stockholders), this offering of those shares to the investing public would be an APO rather than an IPO.
A corporation needs to build a new manufacturing facility costing several hundred million dollars. In which of the following markets could this new capital be raised? A) Municipal bond market B) Government bond market C) Capital market D) Secondary market
D, Capital markets are a source of financing for corporations, municipalities, and governments. Capital can be raised by issuing equities or debt and offering the securities to investors in an initial public offering (IPO) or an additional public offering (APO). Note that bonds might be issued by a municipality or the federal government to raise money, but corporations (as noted in this question) do not issue government bonds, either federal or municipal.
The Uniform Securities Act (USA) provides a legal framework for the registration of A) variable annuities at both state and federal levels. B) mutual funds at the federal level. C) foreign securities traded abroad. D) securities at the state level.
D, The USA provides a legal framework for the state registration of securities. It may be adopted by individual states and adapted to their needs.
A corporation sells shares to the investing public in order to raise capital. This is known as A) a secondary market transaction. B) a primary, or investor-to-investor, transaction. C) an exchange market execution. D) an issuer transaction.
D, The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.
