Ch1 Quiz SIE
Who must reconfirm a good 'til canceled order for it to stay in force more than six months?
The customer who placed the order Good 'til canceled orders historically have been canceled at the end of April and October. Some firms will cancel them more frequently, but for the order to stay in effect longer than six months, the customer would need to reinstate the order. LO 1.g
What does the BID represent?
The highest amount that someone can sell the security The BID is the best price that someone can sell the security for at the time of quote. LO1.f
In order to qualify to invest in a Regulation A Tier 2 offering, a customer must do which of the following?
C) Self-certify that they meet the requirements
A broker dealer arranges for a customer's order to be executed on the NYSE - what type of transaction
Secondary Market
Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place?
Sell limit orders are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price. LO 1.g
Distinguishing between a sell stop order and a sell stop limit order,
The sell stop limit order becomes a sell limit once triggered. The sell stop order becomes an order to sell at the market when triggered.
Your customer inherits several thousand shares of a telecom company. He sells a portion of the position to raise some cash to buy a new boat. what types of transaction?
This is a secondary market transaction`
A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is
a clearing agent A clearing agent is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties. While some broker-dealers are self clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent. lo 1.e
A prospectus displays
a description of how the proceeds will be used
Restricted persons are not allowed to purchase an IPO of common stock. All of the following are restricted persons
any person owning 10% or more of a member firm. registered representatives. broker-dealers.
Tombstone ads
are permitted before the effective date
a closing transaction can
buy or sell
A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following?
carrying firm
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
mandated to be in the final prospectus by the Securities and Exchange Commission (SEC). Commonly known as the Securities and Exchange Commission's disclaimer, the SEC mandates that it be found in the final prospectus. LO 1.b
The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these is correct regarding the rules for initial public offerings (IPOs) and additional public offerings (APOs)
n IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days. The prospectus delivery rules include the following: IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day LO 1.b
When an investor receives a final prospectus, the expectation should be that one of the following would not be found. Which is it?
the Securities and Exchange Commission's (SEC's) verification of accuracy
The spread a dealer makes is best described as
the ask minus the bid. The spread is what a dealer makes as a markup when he sells from his inventory if he buys at the bid and sells at the ask. A commission is charged in an agency transaction. LO 1.f
Securities regulations that are called blue-sky laws refer to those at
the state level.
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
20 calendar days after the date the SEC has received it. D) LO1.b
An officer of a broker-dealer firm would be categorized as a restricted person if that individual attempted to purchase
a new issue initial public offering (IPO) at the public offering price.
A signature endorsement on a stock certificate would not be required for good delivery if the shares were
held in street name. inShares held in street name are normally registered to the broker-dealer, who hold them on behalf of the client. As these shares are likely only in electronic form no signature is required to transfer them. LO 1.
When shares are held in street name, this refers to the shares being
held in the name of the broker-dealer for the beneficial owner.
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
mini-max. 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.
Underwriters for an IPO of Seabird Airlines stock have been taking indications of interest for shares of an upcoming new issue. These indications of interest are
nonbinding on all parties. Indications of interest are not binding on either buyers (investors) or sellers (underwriters). There are no binding indications of interest. LO 1.b
All the following are exempt from the Securities Act of 1933
-limited partnership. -debt securities issued by religious organization. -U.S. Treasury securities.
A firm designated as self-clearing can
Act in a back-office capactiy for an introducing firm. clear and settle transactions executed by other firm.
would best describe a follow-on offering
An issue of shares by a public company that is already listed on an exchange 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. LO 1.a
Your customer notes that the amount of commission they paid your broker-dealer firm for their purchase of 100 shares of DEF, Inc., common stock is about 1% of the purchase price. On this trade your firm most likely acted in what capacity?
As a market maker
Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified...
Carrying Firm
Which of the following terms is associated with the exchanges?
Prices on the exchanges are set by the auction. Exchanges are often physical locations. Securities that trade on an exchange are called listed securities. LO 1.d
An institutional customer, such as a hedge fund, utilizes the services of a broker-dealer who provides custody of securities, as well as other back-office functions, while allowing the customer to establish relationships with other broker-dealers for the purpose of executing orders. This account would be known as a
Prime Account A broker-dealer that provides custody of securities and other back-office functions but allows the customer to maintain relationships with other broker-dealers who will provide execution services is known as a prime broker-dealer. The account, known as a prime account, is maintained with the prime broker rather than with any executing brokers. lo1.e
Which of these may be found in the final prospectus that is not in the preliminary prospectus?
Public offer price Release date
Regular way settlement for common stock is
Regular way settlement is T + 2 for everything except treasuries, money market securities, and options. LO 1.i
Which of the following choices would best describe a follow-on offering?
The common stock that is issued attached to a rights offering
A customer placed an order to purchase 300 shares of DEF Corp. preferred stock. The broker-dealer sourced the shares from another broker-dealer that makes a market in the stock. The customer's firm acted as
a broker.
All of the following are benefits of using a prime broker
consolidation of records. multiple executing brokers. cost savings.
Sell limit orders are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price. LO 1.g
designated market makers maintaining liquidity. a physical floor where traders call out bids and offers. two-dollar brokers assisting in maintaining an orderly market.
customer's shares are held by and registered to the broker dealer, the shares are said to be
held in street name
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.
BigBox Stores, Inc., common stock is a New York Stock Exchange-listed security. If an over-the-counter dealer makes a market in the stock, this activity is taking place in which market center?
third market One market center is the third market, or Nasdaq Intermarket, a trading market in which exchange-listed securities are traded in the OTC market. Broker-dealers registered as OTC market makers in listed securities can do transactions in the third market. All securities listed on the NYSE and most securities listed on the regional exchanges are eligible for OTC trading. LO 1.d
Josie Reese, one of your clients with an option account, calls and asks you to remind her when she is required to settle if she bought a call today. You would tell her
trade date plus 1 business day.
What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(b)?
35 The SEC does not require registration of an offering under Regulation D as long as there are no more than 35 nonaccredited investors. There is no limit to the number of accredited investors that may invest in the private placement. LO 1.c
Nonlisted and non-hasdaw securities, a prospectus must be provided to all those who purchase securities as part of an APO for how many days after the effective date
40 days
Which of the following would be a secondary market transaction?
A broker-dealer arranges for a customer's order to be executed on the NYSE IPOs, APOs, and mutual fund transactions involve the issuer selling to the public, which are primary market transactions. Secondary market transactions are between investors (which is what takes place on the NYSE as well as other exchanges and the OTC market). LO1.d
Which of the following would be allowed during the cooling off period?
A) Taking indications of interest No selling or soliciting is allowed during the cooling off period. Taking indications of interest is permitted. LO 1.b
The founder of a large, publicly traded company is looking to sell a very large number of shares of their personal holdings of the company stock. They enlisted the help of Great Plains Investments, LLC, a FINRA member broker-dealer based in Omaha, to run the sale. Great Plains is acting as
A) an investment banker. In this example, The broker-dealer is acting as an investment banker, assisting a person (the founder) in a secondary offering. LO 1.a
An investor who has a short position in 500 shares of JKH common stock would eliminate that position by
) entering a closing purchase order for 500 shares of JKH. In order to eliminate a position, long or short, the investor always takes an action opposite that of the one that began (opened) the position. Therefore, we always close the position with a closing order. In the case of a short position, we began with a sale, so we close with a purchase of the same security that was initially sold short—in this case, 500 shares of JKH. LO 1.g
Member firms violate rules regarding sales of new equity issues to restricted persons when they do which of the following
-Sell blocks of the new issue to accounts of partners or officers of the member firm. -Sell to accountants or attorneys acting on behalf of the underwriters.
Regarding a public offering and a private placement, all of the following are true
-both allow securities to be sold to individual and institutional investors. -both may utilize the services of investment bankers to facilitate the sale of securities. -both are methods of offering securities for sale to investors.
Capital markets can be characterized by all of the following
-entities can utilize them to finance both long- and short-term capital needs. -securities traded in them can be bought and sold by both individuals and institutions. -they are utilized by the public sector only.
The following phrases are associated with a broker-dealer as a dealer
-trades with customers from own inventory -profits on spread -charges a commission for the transaction.
WRJ stock is quoted as 21 bid, 21.15 offer. For a customer order, which of the following is true
A purchase can be made at $21.15 per share if buying at the market. The spread is $0.15. A quote always represents the bid and an ask (offer) price. Investors pay the current ask price when purchasing (21.15) and receive the current bid price when selling (21). The spread is the difference between the bid and the ask price which in this quote is 0.15. LO1.f
Subject to market liquidity, which of the following orders is most likely to be executed immediately?
Market order When a liquid market exists, buy or sell market orders are executed at the best available price immediately. LO 1.g
Trading in the over-the-counter market occurs between whom?
Market makers OTC trading occurs between market makers in a decentralized electronic market. LO 1.d
An investor receives a quote of 48.70—48.75 for XYZ common stock. Which of these is true?
Purchasing the stock will cost $48.75 per share. The spread is $.05. Quotes are provided in bid-ask form. The first number, the bid, is the price an investor can sell a security. The second number, the ask, is the price an investor will need to pay to buy the security. The spread is the difference between these two numbers. LO 1.f
A customer enters an order to buy 325 shares of Bryce Bridges, Inc., at 17. Which of the following regarding these order instructions is true?
The order can be executed at 17 or lower. This is a buy limit order (at 17) and can only be executed to purchase XYZ at 17 or better. Because this is an instruction to buy, purchasing better than the limit would be lower than the limit. LO 1.g
The ATOP Company is planning to offer shares of both common and preferred stock to the investing public in order to raise operating capital intended to be used for expansion. Which of the following laws enacted by Congress would be the most relevant when issuing these equity securities to the public?
The securities act of 1933 The Securities Act of 1933, is also known as the Paper Act, Prospectus Act, or New Issues Act. This federal law requires that issuers who want to raise capital by making a public offering of securities to the public, provide full and fair disclosure of all material facts about the company and the securities being offered. LO 1.a
Securities sold in an issuer-related transaction would best be described as
a primary offering. When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company. LO 1.a
A document that substitutes for the owners signatures on the back of a stock or bond certificate is called a
A) stock or bond power.
a corporation enlists the services of a transfer agent, what functions would they handle
-maintaining records of shareholder ownership. -canceling old certificates and issuing new ones. -registering the corporation's securities with the state.
Under the de minimis exemption, an initial public offering of common stock may be sold to an account where restricted persons have a beneficial interest as long as their interest in the account does not exceed
10%
ABC currently has the following quotes: BidAskSize10.00 10.50 3 × 2 10.20 10.45 4 × 3 10.25 10.60 3 × 2 What is the inside quote of ABC?
10.25 - 10.45 3 × 3 The inside quote is the highest bid (the highest price someone is willing to buy) paired with the lowest offer, or ask (the lowest price someone is willing to sell). In this case, the most someone was willing to pay was 10.25, and the lowest someone was willing to sell was 10.45. LO1.f
Your customer buys 300 shares of Steel Tools common stock on Tuesday and will be an owner of record as of the close of business that same Tuesday. This must be
A cash settlement trade This is called a cash settlement trade. It states that the trade is a common stock, so not a mutual fund. There is no formal quick settlement trade. LO 1.i
would describe the Fourth Market
A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers
It would be appropriate to refer to any of the following as an issuer transaction
Issuer transactions are those where the proceeds of the offering go to the issuing company. APOs (additional public offerings), IPOs (initial public offerings), and SPOs (subsequent public offerings) all result in funds going to the issuer. A repo (repurchase agreement) is a money market instrument where the money changes hands between the buyer and the seller. LO 1.a
ABC Brokers, a FINRA member firm, filled a customer's buy order for DEF common stock and did not charge a commission. The firm most likely acted in what capacity?
Market maker When a broker-dealer acts as a principal (market maker, dealer) they are filling the trade through the firm's inventory. The firm profits on the difference between what the firm paid for the security and what the customer pays, which is called the spread (or mark-up). There is no commission when a firm acts in a principal capacity. LO1.H
Which of the following is true regarding a member firm operating under Financial Industry Regulatory Authority (FINRA) membership or the membership of another self-regulatory organization (SRO)?
Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a few.
Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933
Rule 147. C) Regulation A. D) Regulation D.
Under the Securities Act of 1933, what is a nonexempt security?
Shares issued by a U.S. government bond fund
A customer enters an order for ABC, Inc., common stock that includes instructions that it must be executed in its entirety when entered or canceled. This is known as
a fill-or-kill (FOK) order. A FOK order must be canceled immediately if it cannot be filled in its entirety when entered. In this light, there can be no partial executions. The entire order must be filled immediately, or it must be killed. An IOC order allows for partial executions, and an AON order can remain working as a good till canceled order if it cannot be filled immediately when entered. LO 1.g
all of the following phrases are associated with a broker-dealer acting as a dealer except
charges a commission for the transaction When a BD acts as a principal (dealer, market maker), they are selling securities from the firm's inventory to a customer or buying a security from a customer for the dealer's inventory. The firm profits on the difference between what the firm paid for the security and what the customer pays, which is called the spread (or mark-up). There is no commission when a firm acts in a principal capacity. LO 1.h
