Unit 4

According to the Conduct Rules, a FINRA member must do which of the following?

) Authorize a registered representative to share in a client's profits or losses only in writing. To share in the profits or losses of a customer's account, a registered person must obtain the firm's prior written approval, and the representative must share only to the extent of his proportionate contribution to the account. (Note: Accounts of the associated person's immediate family are exempt from the proportionate share limitation.)

In connection with an investigation of a customer complaint, the association may require an associated person to agree to all the following EXCEPT:

A) Be represented by council

Which of the following are differences between the Code of Procedure and the Code of Arbitration Procedure? The Code of Procedure deals with violations of the Conduct Rules, whereas arbitration is used to settle disputes. Mediation is not required with the Code of Procedure but is mandatory with Arbitration. Code of Procedure decisions may be appealed, whereas decisions reached under Arbitration may not. Arbitration is used for violations that are more serious than those for which the Code of Procedure is used.

A) I and III. The Code of Procedure is used to deal with violations of the Conduct Rules, whereas the Code of Arbitration is used to settle disputes. Adverse decisions and penalties under the CoP can be appealed to the National Adjudicatory Council, then to the SEC, and, eventually, to the federal appellate court system. Settlements under arbitration are not subject to appeal, and mediation is not mandatory.

Arbitration and mediation are two services provided by FINRA to settle disputes between members. Regarding these services, which of the following statements are NOT true? Mediation is mandatory; arbitration is not. Arbitration always results in a binding decision; mediation may not. If arbitration is unsuccessful, the dispute moves on to mediation. A mediator in a dispute may not serve as an arbitrator in the same dispute

A) I and III. Arbitration is mandatory in disputes between members. If mediation takes place and is not successful, the dispute moves on to arbitration. The person who served as mediator may not be an arbitrator in the same dispute.

The ex-dividend date of a stock is Thursday, January 15. What is the record date?

B) Friday, January 16 The record date is one business day after the ex-dividend date.

General communications by a broker-dealer firm, such as customer orders and complaints, must be reviewed by which of the following?

B) Principal of a member

Under the Code of Arbitration Procedure, how much time does a client have to submit a claim against a registered representative or member firm?

B) Six years.

A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How many days does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request?

B) Ten business days.

A FINRA member quotes 32.25 - 32.50 on an over-the-counter stock. A customer who wishes to sell at that price informs the broker-dealer of this, and the trade is completed. The customer delivers the stock the next day, but now the price is 28.75. According to the rules, the trade will be:

B) completed at 32.25. The customer sells at the bid price, which is 32.25. The trade terms are fixed as of the trade date, regardless of price movements before settlement.

According to the Code of Arbitration, which of the following entities may institute arbitration proceedings against a registered representative? Only a customer. Anyone employed outside the securities industry. Anyone employed in the securities industry. Only the registered representative's firm.

C) II and III. Anyone may institute arbitration proceedings against a registered representative. In fact, as a condition of registration, the representative agrees to submit to arbitration.

A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How many days does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request?

C) Ten business days.

A customer of yours wants to buy 1000 shares of a little known oil company based in Texas but drilling for oil in Israel. The shares trade on NASDAQ but instead of securing them in that market from several different firms, your trading department contacts a different firm they know have the stock as a market maker for the oil company. The price to your customer is slightly more than the NASDAQ system but all 1000 shares are purchased in one lot. In this case, which of the following is true?

C) This is a violation called interpositioning Interpositioning is the act of adding another broker/dealer to a transaction when there is no benefit to the buyer or seller. This prohibited practice occurs when one B/D inserts another into his own transactions simply to generate commissions or fees for the other B/D. Violations of interpositioning have revealed that these prohibited practices are generally reciprocal arrangements between B/Ds.

During a period of suspension, a member must:

C) be treated as a nonmember by other members.

Disputes between FINRA members regarding such issues as delivery and payment for securities transactions are settled through:

C) the Code of Arbitration.

complaints

must be written cannot be orally said

exchanges

prices are established by auction

OTC market

prices are established by negotiation

All of the following statements regarding branch offices are true EXCEPT

they must have a resident principal Branch offices need not have a resident principal; they may use a qualified registered representative to serve as branch manager.

FINRA issues a complaint against ALFA Securities, a FINRA member firm, charging that the firm failed to adequately supervise one of its employees involved in a private placement. Which body of rules governs how this complaint will be handled?

Code of Procedure.

Which of the following terms are associated with over-the-counter trading? Market maker. Floor broker. Auction market. Negotiated market.

D) I and IV. The over-the-counter market is a negotiated market. Within it, market makers are broker-dealer firms that provide a source for stock that customers wish to buy and a repository for stock that customers wish to sell.

If a registered representative wishes to open a joint account with his brother, who is a client of his, which of the following rules would NOT apply?

D) The sharing in profits and losses in the account must be proportional to each party's investment in the account. If a registered representative is opening a joint account with an immediate family member, the sharing of profits and losses need not be proportional to each party's investment in the account. Although it would be most common for the account to be opened TIC, there is nothing that requires it and the brothers could open as JTWROS if they desired.

A copy of trade confirmations must be maintained by the firm for:

D) Three years.

The New York Stock Exchange is characterized as a(n):

auction market where the highest bid and lowest ask prices prevail.

cash trades settlement

by 2:30 on the same day as the trade

Third Market

OTC LISTED

Government securities settlement date

T + 1

regular way settlement

T + 2

REgulation T

Date where customer has to pay for purchased transaction (T + 4)