FINA 4311 CH 8

A broker-dealer that executes trades and settles transactions for another broker-dealer is called A) a carrying firm. B) a fully disclosed firm. C) a limited broker-dealer. D) an introducing firm.

A) a carrying firm.

An individual who purchases securities for a personal account is called A) a retail investor. B) an institutional investor. C) an accredited investor. D) a market maker.

A) a retail investor.

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is best described as A) a trustee. B) an investment advisor. C) a prime broker. D) a market maker.

A) a trustee.

The transfer agent for a corporation is responsible for each of the following except A) acting as an intermediary between the buy and sell sides of a transaction. B) ensuring that its securities are issued in the correct owner's name. C) maintaining records of ownership. D) canceling old and issuing new certificates.

A) acting as an intermediary between the buy and sell sides of a transaction.

For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) made by the clearing firm. B) never permitted. C) made by the introducing broker-dealer. D) made by the customer.

A) made by the clearing firm.

All of the following would be secondary market transactions except A) securities sold to the public by the issuer. B) securities sold on both the OTC and NYSE. C) securities bought and sold on the NYSE. D) securities bought and sold on the OTC.

A) securities sold to the public by the issuer.

A market in which exchange-listed securities are traded in the over-the-counter (OTC) market would best be described as A) the Third Market. B) the Fourth Market. C) the First Market. D) the Second Market.

A) the Third Market.

Which of the following would be a secondary market transaction? A) A broker-dealer arranges for a customer to purchase mutual fund shares B) A broker-dealer arranges for a customer's order to be executed on the NYSE C) A broker-dealer arranges for a customer to purchase an IPO D) A broker-dealer arranges for a customer to purchase an APO

B) A broker-dealer arranges for a customer's order to be executed on the NYSE

Which of the following statements would describe the Fourth Market? A) These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely as principals B) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers C) The after-hours market D) These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals

B) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A) Clearing/carrying B) Introducing/fully disclosed C) Market making D) Prime/executing

B) Introducing/fully disclosed

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) Market making B) Introducing/fully disclosed C) Full service D) Clearing agent/carrying agent

B) Introducing/fully disclosed

Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is A) a fully disclosed broker-dealer. B) a market maker. C) an executing for commissions only. D) a clearing agent.

B) a market maker.

Anyone who, as part of their business, gives investment advice for compensation must register as A) an underwriter. B) an investment adviser under the Investment Advisers Act of 1940. C) a stock broker. D) an agent for the issuer.

B) an investment adviser under the Investment Advisers Act of 1940.

All of the following are associated with being a carrying firm except A) accepting customer funds. B) being a fully disclosed firm. C) being able to clear customer transactions. D) accepting customer securities.

B) being a fully disclosed firm.

When investors buy and sell securities to and from one another, these transactions occur A) in the primary market. B) in the secondary market. C) on exchanges only. D) in the over-the-counter (OTC) market only.

B) in the secondary market.

All of the following are benefits of using a prime broker except A) cost savings. B) research. C) multiple executing brokers. D) consolidation of records.

B) research.

Secondary market transactions would include all of the following except A) sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker. B) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. C) sale of $10 million of corporate stock by a broker-dealer acting as a market maker. D) sale of $10 million of municipal bonds by a broker-dealer acting as a market maker.

B) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter.

Carrying firms, those that carry customer accounts, must A) commingle customer funds and securities with the firms' funds and securities. B) segregate customer funds and securities from the firms' funds and securities. C) maintain levels of net capital equal to or lower than noncarrying firms. D) not disclose its net capital if it is higher than noncarrying firms.

B) segregate customer funds and securities from the firms' funds and securities.

Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following? A) Limited broker-dealer B) Introducing firm C) Carrying firm D) Fully disclosed firm

C) Carrying firm

A firm designated as self-clearing can I. act in a back-office capacity for an introducing firm. II. not act in a back-office capacity for an introducing firm. III. clear and settle transactions executed by other firms. IV. only clear transactions it executed. A) II and III B) I and IV C) I and III D) II and IV

C) I and III

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Self-clearing B) Fully disclosed C) Market maker D) Introducing

C) Market maker

A broker-dealer designated as a carrying firm would be expected to do all of the following except A) take custody of customer funds and securities. B) clear transactions for customer accounts. C) maintain a lower net capital than noncarrying broker-dealers. D) perform back-office functions, such as sending trade confirmations to customers.

C) maintain a lower net capital than noncarrying broker-dealers.

A broker-dealer designated as a clearing firm would be expected to do all of the following except A) clear transactions for customer accounts. B) perform back-office functions such as sending trade confirmations to customers. C) maintain a lower net capital than noncarrying broker-dealers. D) take custody of customer funds and securities.

C) maintain a lower net capital than noncarrying broker-dealers.

Carrying firms may not A) clear and settle transactions for their customers. B) execute transactions for their customers. C) mix customer funds and securities with their own. D) send trade confirmations and statements to customers.

C) mix customer funds and securities with their own.

In a prime brokerage account, the prime broker A) subcontracts out all services to other brokers. B) provides custody and clearing, but no margin financing. C) provides custody and clearing services, as well as margin loans. D) provides execution services only, while another broker clears transactions and provides any other account services required.

C) provides custody and clearing services, as well as margin loans.

A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) replacing lost or destroyed stock certificates. B) maintaining records of shareholder ownership. C) registering the corporation's securities with the state. D) canceling old certificates and issuing new ones.

C) registering the corporation's securities with the state.

A market maker A) can only be an institution doing proprietary trading. B) trades in a customer's account standing ready to buy or sell at their own discretion. C) trades in a proprietary account to facilitate trading of a security and provide liquidity. D) acts as an agent to buy and sell for public customers who will hold their own securities.

C) trades in a proprietary account to facilitate trading of a security and provide liquidity.

A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A depository trust B) A fully disclosed introducing firm C) An investment company D) A carrying firm

D) A carrying firm

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)? A) Member firms are required to be full-service broker-dealers. B) Member firms may never incorporate proprietary trading into their business model. C) 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. D) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals.

C) 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.

A stock's market value is directly determined by which of the following? A) Vote of the stockholders B) Company's financial condition C) Supply and demand D) Board of directors

C) Supply and demand

Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as A) a receivership. B) a fully disclosed firm. C) a carrying firm. D) a depository trust.

C) a carrying firm.

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) a broker-dealer. B) a depository. C) a clearing agent. D) a transfer agent.

C) a clearing agent.

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a direct participation program. B) a holding company. C) a market maker. D) a clearing corporation.

C) a market maker.

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) an underwriter. B) a market maker. C) an investment banker. D) an agent.

C) an investment banker.

All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities except A) the National Securities Clearing Corporation (NSCC). B) carrying firms. C) credit unions. D) the Depository Trust Company (DTC).

C) credit unions.

It is expected that financial markets A) have securities prices determined by a board of directors. B) be limited to stocks and bonds and not include derivatives like options. C) have transparent pricing for assets. D) be nonregulated to allow for free trade.

C) have transparent pricing for assets.

When shares are held in street name, this refers to the shares being A) restricted, and thus, nontransferable. B) allowed to be sold only on the exchange where they were initially purchased. C) held in the name of the broker-dealer for the beneficial owner. D) held at the transfer agent for the beneficial owner.

C) held in the name of the broker-dealer for the beneficial owner.

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as A) a unit investment trust. B) a fully disclosed firm. C) an investment company. D) a custodian.

D) a custodian.

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a clearing corporation. B) a holding company. C) a direct participation program. D) a market maker.

D) a market maker.

An institutional investor selects a single Financial Industry Regulatory Authority (FINRA)/NYSE member firm to provide for financing and custody of securities while orders to buy or sell are placed with executing brokers. This is an example of A) an omnibus clearing arrangement. B) an investment advisory account. C) a managed account. D) a prime brokerage account.

D) a prime brokerage account.

A clearing corporation agent or depository for securities transactions A) can never be a corporation. B) must be a broker-dealer. C) can be a bank or corporation only if they are also a broker-dealer. D) can be a commercial bank.

D) can be a commercial bank.

A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) canceling old certificates and issuing new ones. B) maintaining records of shareholder ownership. C) replacing lost or destroyed stock certificates. D) filing an S-1 registration statement.

D) filing an S-1 registration statement.

A fully disclosed broker-dealer A) is like a clearing agent in that it can take custody of funds and securities. B) is also known as a full-service clearing agent able to process and clear transactions. C) clears all of its retail customer transactions and those of other broker-dealers. D) is one that introduces its business to a carrying firm to clear transactions.

D) is one that introduces its business to a carrying firm to clear transactions.

All of the following are true regarding the term market except A) it is where buyers and sellers come together for the purpose of trading assets. B) it includes stock exchanges. C) it can be a physical place or an electronic venue. D) it is unique to the U.S. securities industry.

D) it is unique to the U.S. securities industry.