Unit 3 Final
Broker-dealer records, whether required to be maintained for three years or six years, should be kept in a readily accessible location for the most recent:
2 years
(T/F) Finra rules require that a member have at least 2 principals unless the firm is a sole proprietorship
True
Rulings under the Code of Arbitration Procedure: (are binding or are not)
are binding
Under the Uniform Net Capital Rule, a general securities broker-dealer that introduces accounts to another firm on a fully disclosed basis and does not receive or hold customer securities or funds must maintain a minimum net capital of:
$5,000.
Under the Code of Procedure, when one is the subject of a complaint, the respondent must file an answer to the initial complaint letter with the Hearing Officer within:
25 days.
Which of the following are characteristics of a mutual fund accumulation plan? Not binding on the fund. Binding on the investor. Binding on the fund. Not binding on the investor.
3 AND 4
Designation record (FINRA list for supervisory compliance) must be kept for how long
3 years
How many days does a member have to act to avoid taping?
30
Under FINRA Rule 2330, a "red" flag should be raised when a client wishes to exchange a deferred variable annuity purchased within the previous:
36 months
Among the requirements of the USA PATRIOT Act of 2001 are all of the following EXCEPT: A) completion of FinCEN Form 112 for all foreign account holders. B) blocking certain transactions. C) closer scrutiny of foreign account holders. D) the appointment of an anti-money laundering compliance officer.
A
An investment adviser might offer advice exclusively on any of the following EXCEPT: A) real estate. B) investment-grade corporate bonds. C) exchange-listed securities. D) penny stocks.
A
FINRA's Code of Procedure refers to an Offer of Settlement. Which of the following best describes this term? A) The respondent makes an offer in a disciplinary proceeding. If accepted, the case is settled based on those terms. B) The alleged offense is of a minor nature, the facts are not in dispute, and FINRA makes the accused an offer to settle without the expense of a hearing. C) A member firm offers to settle a trade at a time more convenient to the contra party than regular way delivery. D) A dispute between two parties is settled before going to arbitration.
A
The identification of customers opening accounts should be checked against a list of known terrorists, suspected terrorists, and terrorist organizations. The list is maintained by which of the following organizations? A) Office of Foreign Assets Control (OFAC) B) FINRA C) Securities and Exchange Commission (SEC) D) Financial Crimes Enforcement Network (FinCEN)
A
Office of Supervisory Jurisdiction (OSJ)
A designated office of a member firm where certain management reviews take place, including reviews of customer orders, approval of new accounts and approval of advertising and sales literature
Retail communication
Any written communication distributed or made available to 25 or more retail investors in a 30 day period -Hard copy or electronic formats -Contains all components of advertising and sales literature -Must be approved by a registered principal prior to first use -Chat room posts that do not promote the business or provide investment advice are exempt -Generic advertising is exempt -Maintained by firm for 3 years -If new firm registered with Central Registration Depository for less than 12 months, must file all retail communication with FINRA 10 days prior to first use unless previously filed with no material changes -Firms registered > 12 months file 10 days after first use -Investment companies, ETF sponsors, and variable annuities filed 10 days prior to first use -FINRA may require all 10 days prior if firm is making misleading statements
A FINRA member firm may allow a discount from the public offering price in the sale of mutual fund shares to all of the following EXCEPT: A) a broker-dealer whose suspension from membership ended 5 business days ago. B) a bank. C) an employee of the mutual fund. D) another member firm.
B
A broker-dealer that does not carry customer accounts and does mutual fund transactions by wire order must meet which of the following net capital requirements? A) $5,000. B) $25,000. C) $50,000. D) $2,500
B
If an associated person of a FINRA member firm enters into an investment joint venture or shared trading profit arrangement with a customer, which of the following statements is TRUE? A) The express prior approval of FINRA or another SRO is required. B) The profit split must be in proportion to each party's capital contribution unless the account is held jointly by 2 or more family members. C) This is an outright violation of the Conduct Rules. D) The arrangement must be between family members.
B
One of the registered representatives under your supervision has submitted a new account form for approval. As you review the form, you notice that the customer has indicated an investment objective of maximizing current income without undue risk. The representative has recommended placing 20% of the investment into a gold fund currently returning a 5.6% dividend, 50% into a high-yield bond fund with a current yield of 8.7%, and the balance into a fund designed to correlate with the S&P 500 Index. You would probably: A) reject the account because it is clear that the two funds offering income contain too much risk and the index fund, while perhaps of lower risk, will not supply the income the client seeks. B) approve the new account but require the representative to change his recommendations because none of these funds fits the customer's stated objectives. C) approve the new account form but suggest that the representative replace the high-yield fund with something of investment-grade quality. D) approve the new account and congratulate the representative for doing such a good job of asset allocation.
B
Regarding mutual fund shares held in a margin account, which of the following statements is CORRECT? A) Investment company shares never have a loan value. B) Once an investor has had an account holding shares of an open-end investment company for at least 30 days, those shares have a loan value in accordance with Regulation T. C) During an open-end investment company's first year after registration, its shares may not have a loan value. D) Once an investor has had an account holding shares of an open-end investment company for at least 30 days, future purchases of additional shares may be margined.
B
The Act of 1934 applies to all of the following EXCEPT: A) secondary market trading. B) regulation of new issues. C) the extension of credit on purchase of securities. D) registration of broker-dealers.
B
Which of the following individuals could supervise one of a broker-dealer firm's branch offices? A) A Series 28 principal B) An experienced registered representative C) The director of human resources D) An investment adviser representative
B
Which of the following would be in violation of FINRA's rule 3320 on influencing or rewarding employees of other firms? A) Providing seminar tickets that will present a new investment strategy B) Meeting for a steak dinner and beverage several times a year and picking up the tab C) Giving a $250 set of crystal candle stick holders as a wedding gift D) Spending a total of $190 to take an associated person of another member to play a round of golf
B
Your firm has just put in place written supervisory procedures as part of its customer identification program. Those who will oversee the program have been identified, and those who will implement and follow the procedures have been fully trained. Which of the following remains to be done? A) A cost analysis of the plan must be done and submitted to FINRA. B) The procedures must be tested to ensure that they function properly. C) No further steps need be taken. D) An alternate plan must be devised for backup, to be used in case the first plan fails.
B
A former customer has received a letter from her former representative who now works for a new broker-dealer suggesting the transfer securities to the new broker-dealer. The letter was sent shortly after the rep was hired by the new firm. All of the following statements regarding the transfer of assets are true EXCEPT: A) the delivery of educational material to the customer applies for 3 months following the date the registered person begins employment or associates with the new member. B) if the customer initiated the transfer of their account, educational material regarding the transfer of assets is required to be delivered with the account transfer approval documentation. C) educational material must be provided to the customer regarding implications of the transfer of assets within 3 business days of contacting the customer. D) contacting the customer to transfer an account may be done with written, electronic, or oral communication. Electronic communication may include a hyperlink directly to the educational communication.
C
All of the following statements about variable annuity suitability are true EXCEPT: A) variable annuities would not be suitable for investors who express preference for a noninsurance product. B) variable annuities may not be suitable for investors of an advanced age because of surrender charges. C) variable annuity investors with high risk tolerance and growth objectives would most likely invest in a high grade corporate bond subaccount. D) the Conduct Rules require that variable annuities be treated in the same manner as other securities products.
C
FINRA rules on communications with the public permit open-end investment company advertisements to use rankings if certain standards are adhered to. Which of the following would be in violation of those standards? A) Creation of a ranking by the investment company itself. B) Showing total return for the past one, five, and ten years. C) Using a ranking based solely on the fund's size. D) Using symbols, such as stars, with a footnote explaining their meaning.
C
Jeffrey Small, a Series 6 registered representative, has sent out 27 different emails to 27 different customers this afternoon. His communications are classified as
Correspondence
The duties of the transfer agent of a mutual fund include which of the following?
Customer service.
When an associated person is terminated by a member firm, which of the following actions by the firm is necessary? A) If it is determined that facts contained on the Form U5 are inaccurate, an amended form must be filed within 5 business days and a copy sent to the former employee. B) It must provide a copy of the Form U5 to a future employer of the terminated individual. C) It must file a copy of the Form U5 with its FINRA District Office. D) It must file a copy of the Form U5 with FINRA's Web CRD.
D
Which of the following might be considered a violation of the Conduct Rules? A) Redeeming some of your own shares of a mutual fund that you just recommended to a customer. B) Purchasing the same mutual fund you recommended to a customer. C) Exercising your discretionary authority over a customer's account to liquidate an investment without notifying the customer in advance. D) Having a customer move his investment from the ABC fund family to the KPL fund family when KPL shows slightly higher performance.
D
Persons involved in securities transactions based upon the use of material nonpublic information: I. are not subject to imprisonment. II. may be fined. III. are not subject to criminal charges. IV. may be in violation of civil law.
II and IV
Section 22 of the Investment Company Act of 1940 provides for either the reduction or elimination of sales charges on the sale of open-end investment company shares when: I. any person invests a significant amount into a fund or funds with the same distributor. II. a shareholder who has elected to take distributions in cash reinvests those distributions within 30 days of receipt. III. purchases are made by an individual employee of the fund or an entity affiliated with the fund. IV. a purchase that exceeds a breakpoint level described in the prospectus is made by the designated agent of an investment club.
I AND III
Which of the following statements are characteristics of a contractual plan holder? I. Receives a plan certificate. II. Receives a 45-day free-look letter. III. Owns specific shares in the underlying portfolio. Iv. Plan completion insurance must be purchased.
I and II
A registered representative may arrange for a friend's purchase of privately offered stock, for which she will receive no direct or indirect compensation, if the representative: I. gives written notification to her broker-dealer after the purchase has been paid for. II. gives written notification to her broker-dealer before the transaction. III. provides all documents and information requested by her broker-dealer. IV. obtains written permission from her broker-dealer before the transaction.
II and III
Shares of a closed-end investment company: I. are sold at net asset value plus the appropriate sales charge. II. are fixed in number. III. do not require delivery of a prospectus except on the initial public offering. IV. are redeemable.
II and III
Which of the following features regarding sales contests should represent a regulatory concern to a supervisor of a member firm? I. Frequent opening of new accounts. II. Commission payments for large purchases of the sponsor's funds at net asset value by the broker-dealer's customers. III. Cash awards or increased commission for sales contests that promote a single product of a sponsor over the short term. IV. Any sale of proprietary products.
II and III
Which of the following statements regarding the fidelity bonding requirements of FINRA are CORRECT? I. The minimum amount of the bond is $250,000 II. The amount of the bond is based on the highest required net capital during the previous 12 months. III. The bond covers the firm in the event of fraud, embezzlement, and theft. IV. The bond covers the firm in the event of a member filing for bankruptcy.
II and III
A member firm may test its anti-money laundering compliance procedures once every two years if it meets which of the following conditions? I. It updates information about its AML compliance officer every month rather than every quarter. II. It does not act as an introducing broker. III. It uses an approved outside service rather than its own vault to hold custody over customer assets. IV. It does not execute transactions for customers.
II and IV
Reporting under SEC Rule 17a-11 (violation and early warning reports) is required when I. a member firm doing application-only orders for mutual funds has net capital of $7,500 II. the ratio of AI to NC of an established securities firm is 13:1 III. a firm's net capital exceeds 125% of its minimum requirement Iv. you discover that your operations department is posting Monday's transaction activity to the blotter on Thursday
II and IV
Which of the following are characteristic of an investment adviser who describes himself as offering investment counsel? I. He does not offer actual investment advice. II. His principal business is acting as an investment adviser. III. He does not have to register as an investment adviser. IV. A substantial part of his business is offering investment supervisory services.
II and IV
You are a registered principal with Member Firm A located in Chicago and are invited to spend a week on an all-expenses-paid Caribbean cruise sponsored by Member Firm B in return for your giving classes on mutual fund analysis. With written notification to Firm A, Firm B could compensate you in what manner? I. Reimbursement of actual expenditures only II. On a per lecture basis, or by flat fee at whatever figure you agree upon III. No additional compensation is allowed IV. Free accommodations for your spouse, should Firm B choose to provide it
II and IV
Which of the following penalties apply to individuals who are guilty of insider trading? I. Criminal penalties of up to 10 years in prison. II. Civil penalties of up to the amount of the profit made or loss avoided. III. Civil penalties of up to a base amount that is indexed for inflation. IV. Criminal penalties of up to 20 years in prison.
III and IV
A registered representative of ABC broker-dealer works primarily as an insurance agent and meets with clients at his insurance office location. So far this year, he has sold mutual funds to 35 customers. How is this location defined by FINRA?
It is a branch office. - Locations used to transact 25 or more securities transactions per year lose FINRA's exemption from the branch office definition of FINRA. This would be defined as a branch office.
When a customer only provides minimal financial and nonfinancial information when opening a trading account at a broker-dealer, which of the following best describes how this should be handled by the firm?
The account may be opened; however, the range of recommendations made to the customer will be limited.
One of your firm's customers believes he has lost money to another investor because of insider trading and wants to sue him. If his suit is successful, how much can he collect?
The amount he lost.
if the firm receives an inquiry via social media asking for a investment recommendation and the firm responds to visit their website, does the response and article need to be filed with FINRA?
The article must be, the response does not need to be
(T/F) OSJ means any office of a member at which final approval of retail communications for use by persons associated with the member EXCEPT for an office that solely conducts final approval of research reports
True
Correspondence
Written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period
An investment company share purchased at its net asset value that can be redeemed later at the then-current net asset value, is a share issued by: (load, open/closed)
a no-load, open-end investment company.
An omitting prospectus is best described as a(n):
advertisement in compliance with Rule 482 that makes reference to obtaining a prospectus before purchasing the mutual fund.
FINRA rules require member firms to review their surety bond coverage:
annually
branch office
any location where one or more asociated persons of a member regularly conduct business of effecting any transcations in, or including or attempting to induce the purchase or sale of, any security or that is held out to the public as a place where securities transactions take place
As a compliance officer, you note that a client has, over the past three months, made weekly cash deposits into a brokerage account, each of approximately $5,000, to purchase securities that have no apparent overall objective. Under the USA PATRIOT Act, you should consider
filing an SAR
Hypothetical illustrations showing assumed rates of return may only be used to demonstrate the performance of variable life policies if:
illustrations reflect the maximum mortality and expense charges associated with the policy for each assumed rate of return illustrated.
Filing of FinCEN Form 112 is required when a customer:
makes a cash withdrawal of $10,500.
A client liquidates $32,000 of common stock. Once the trade has settled, he directs you to apply the entire proceeds towards a wire order purchase of $50,000 of the GEMCo Growth Fund. It is now the day after settlement date and you have yet to receive the $18,000 balance. Under the provisions of Regulation T of the Federal Reserve Board, you:
may request an extension of time from the SRO that is your Designated Examining Authority (DEA) if exceptional circumstances prevented the client from paying on time.
A registered representative has found an excellent mutual fund analysis recently published by an independent financial analyst. He would like to use this material in recommendations to his customers. He may do so with principal approval,
provided he fully informs his customers of the authorship of the article
One of your representatives regularly participates in an electronic forum devoted to securities questions and discussions. You must be sure he understands that this activity comes under the rules regarding
public appearances
The practice of registered personnel of member firms engaging in securities transactions without the knowledge of the member firm is known as:
selling away
Under the Uniform Transfers to Minors Act (UTMA)
the custodian, even if the donor, may be reimbursed for reasonable expenses incurred in the handling of the account
When one broker-dealer succeeds an existing broker-dealer
the successor firm files for membership within 30 days of succession
If an individual's employment is terminated, records which relate to the employee must be retained for:
three years
Included in the definition of restricted persons under FINRA Rule 5130 would be all of the following EXCEPT: A) member firms and their employees. B) owners of 5% or more of member firms. C) investment company fund managers. D) immediate family members of employees of member firms.
B - 10% OR GREATER
Under the guidelines of the Customer Identification Program, financial institutions should know their customers. A know-your-customer policy would include I. implementing reasonable steps to verify the true identity of all customers II. monitoring activity of accounts that seem unusual or disproportionate relative to income and net worth III. verifying the identity of clients conducting transactions IV. ensuring that each recommendation is suitable based on the client's needs and objectives
I AND III
A registered representative opens an account at another FINRA member firm in the name of a customer who has granted full power of attorney to the representative. Which of the following actions must the executing member firm take in the process of accepting the account? I. Notify the employer firm in writing before the execution of any orders that the registered representative is opening a discretionary account for a customer. II. Notify the registered representative that his employer firm has been alerted to the fact that a discretionary account is in the process of being opened. III. Open the account only on the condition that duplicate confirmations on all trades and monthly statements be sent to the employer firm without fail. IV. Open the account only on the condition that the customer sign a waiver acknowledging the fact that the representative is an employee of another firm.
I and II
A client purchasing a variable life insurance policy should expect I. level premiums for the life of the policy II. a possible reduction in premiums if separate account performance exceeds the policy's AIR III. a guaranteed minimum death benefit IV. cash value that will never be less than the guaranteed minimum amount
I and III
As a principal you are reviewing the activity in customer accounts to detect any trading irregularities. If you are looking for churning, among the things you will look at are the I. financial resources of the account II. ratio of profitable trades to losing trades III. objectives of the account IV. marital status of the customer
I and III
FINRA rules on supervision require inspection of member firm offices. Which of the following correctly state the minimum required inspection cycle? I. OSJs annually. II. Branch offices biannually. III. Branch offices supervising nonbranch offices annually. IV. Nonbranch offices every three years.
I and III
Which of the following actions of a member firm would have to be divulged under the disciplinary action reporting requirements of FINRA? I. A $30,000 judgment against the firm in a securities-related civil case. II. A $10,000 judgment against an associated person in a securities-related civil case. III. Opening a motel in partnership with a former registered representative convicted of a felony three years ago. IV. The firm is the subject of a written customer complaint alleging churning.
I and III
Which of the following statements regarding the cold-calling rule are CORRECT? I. There are time-of-day calling restrictions. II. If someone asks to be placed on the firm's Do-Not-Call list and they are already on the national Do-Not-Call registry, it is not required to duplicate records. III. A designated principal must approve any script that is used. IV. The caller's introduction must include the name of the security being recommended.
I and III
Which of the following statements would probably reflect characteristics of the XYZ S&P 500 Index Fund? I. Relatively low portfolio turnover rate. II. Relatively high operating expense ratio. III. Very high correlation to the performance of the S&P 500 Index. IV. No management fee.
I and III
A FINRA member firm enters into a selling agreement with a mutual fund distributor. Under the terms of that agreement, the member: I. may purchase shares for its own investment account. II. will be able to purchase shares of the fund at a discount from the net asset value. III. may purchase shares with the intent of reselling them to the public at a later time. IV. may purchase shares to fill customers' orders already received.
I and IV
Which of the following methods may be used to conduct the annual compliance review of registered representatives? I. A conference held in a rented ballroom at a resort hotel. II. An audio or video taped presentation covering new regulatory insights. III. Sending each representative a workbook with a series of questions that must be answered and returned for grading. IV. An interactive Webcast.
I and IV
