finals - regulations

If an individual is found guilty of insider trading, the civil penalty imposed can be how many times the profit achieved or loss avoided?

3X If an individual is found guilty of insider trading, he or she must pay back the profit achieved or loss avoided, and in addition must pay a penalty equal to 3 times that amount. This is called "treble damages."

A seller who has filed Form 144 can sell 1% of the outstanding shares or the weekly average of the last 4 weeks' trading volume whichever is greater. This amount can be sold how many times a year?

4 Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater). This amount can be sold every 90 days (every 3 months), so a sale can occur 4 times per year.

Excluding the percentage of the outstanding shares test, the maximum permitted sale under Rule 144 is the weekly average of the last:

4 weeks' trading volume Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is greater) to be sold every 90 days.

Under Regulation M, the maximum restricted period for trading a subject security by a syndicate member that is NOT a market maker is: 1 day 5 days 10 days 20 days

5 days During the cooling off period for "add-on" offerings, Regulation M places restrictions on syndicate members that are not market makers from trading that issuer's securities. The idea is that the syndicate members will not attempt to bid up the price of the issuer's outstanding shares, in order to be able to raise the POP of the additional issue. The rule states that: If the security is actively traded (average daily trading volume of $1,000,000 or more and public float of at least $150,000,000), there are no restrictions placed on market makers trading the issue prior to the distribution. The idea here is that this issue is too big for the price to be manipulated. This is called a "Tier 1" issue. If the security has an average daily trading volume of $100,000 and a public float of at least $25,000,000, the restricted period is the business day prior to the effective date. This is called a "Tier 2" issue. Any other security not meeting these minimums is a "Tier 3" issue and is subject to a restricted period of 5 business days prior to the effective date.

An investor must file a 13D report with the SEC if a: 5% or greater common stock holding is purchased of one issuer 10% or greater common stock holding is purchased of one issuer 15% or greater common stock holding is purchased of one issuer 20% or greater common stock holding is purchased of one issuer

5% or greater common stock holding is purchased of one issuer Investors who accumulate a 5% or greater position in the common stock of one registered issuer are required to file a 13D notice with the SEC within 10 business days of date that the 5% threshold was passed. This information is made public (and is of great interest to the management of the company, since the new large stockholder will probably want a say in how the company is being run!) There is no requirement to file for holding a large portion of a corporation's debt.

Which of the following statements can be made to customers about the trading of options? I "Options can be used to hedge stock positions from loss" II "Many portfolio managers use covered call writing strategies to enhance income" III "Options involve a lower degree of risk than trading the underlying securities because the capital requirements are lower" IV "Options are available on stocks, foreign currencies, stock indexes and interest rates"

I "Options can be used to hedge stock positions from loss" II "Many portfolio managers use covered call writing strategies to enhance income" IV "Options are available on stocks, foreign currencies, stock indexes and interest rates" Under the advertising rules of the exchanges, any statements made must be truthful, and not exaggerated. Statements I, II, and IV are facts and are true. Statement III is untrue - options have greater risk than the underlying securities because they are more volatile and lose time value each day.

Which of the following can be a stabilizing bid for a new issue that has a Public Offering Price of $30 per share? I $29.75 II $29.88 III $30.00 IV $30.13

I $29.75 II $29.88 III $30.00 Stabilizing bids can only be entered at or below the public offering price, never above. If the bid were allowed to be placed above the public offering price, it would make the issue instantly "hot" and this is prohibited.

A registered representative based in Los Angeles is working at the office late making cold calls to potential customers. At 6:45 PM in Los Angeles, the registered representative is making cold calls to individuals in Miami and individuals in Sacramento. Which statements are TRUE? I Cold calls to potential customers in Miami are prohibited II Cold calls to potential customers in Miami are permitted III Cold calls to potential customers in Sacramento are prohibited IV Cold calls to potential customers in Sacramento are permitted

I Cold calls to potential customers in Miami are prohibited IV Cold calls to potential customers in Sacramento are permitted Unsolicited cold calls cannot be made after 9:00 PM in the time zone where they are received. Since this representative is in California, he or she can make cold calls to California at 6:45 PM Pacific time. However, since it is 9:45 PM (3 hours later) in Miami, cold calls to that city are not permitted.

Which of the following activities are allowed prior to the filing of the registration statement? I Sending a customer a "red herring" preliminary prospectus II Accepting an indication of interest from the customer III Accepting a deposit from the customer IV Accepting a firm order from the customer

NONE! Prior to the filing of the registration statement, nothing can be done. Once the registration statement is filed, a preliminary prospectus may be used to obtain indications of interest. Once the registration is effective, the final prospectus can be used to offer and sell the issue.

Permitted purchasers of Rule 144A issues are: Accredited Investors Financial Institutions Qualified Institutional Buyers Major Institutional Investors

Qualified Institutional Buyers Rule 144A is not to be confused with Rule 144. Rule 144A allows issuers to sell large blocks of private placements without SEC registration to "QIBs" - Qualified Institutional Buyers. Basically, a QIB is an institutional investor with at least $100MM of assets available for investment. The issue with private placements is that they are illiquid. They cannot be sold in the public markets. Rule 144A "fixes" this problem by allowing 144A issues to be traded from QIB to QIB. The market for this is "PORTAL" - an electronic trading market only for 144A issues. PORTAL is owned by a consortium consisting of NASDAQ and the larger broker-dealers who cater to institutional clients.

"Qualified Institutional Buyers" are permitted to buy and trade large blocks of unregistered securities among themselves under:

Rule 144A Rule 144A should not be confused with SEC Rule 144. Rule 144A allows qualified institutional buyers ("QIBs") to buy and trade between themselves large blocks of privately placed issues. Thus, issuers can sell private placements to these QIBs, who can then trade the private placement issues among themselves. This market is not available to individuals. Do not confuse Rule 144A with Rule 144, which covers the sale of "restricted" and "control" stock in the open market.

The Securities and Exchange Commission was created by the:

Securities Exchange Act of 1934 The Securities and Exchange Commission was created by the Securities Exchange Act of 1934 (which was passed in the very beginning of 1934, while the 1933 Act was passed at the very end of 1933 - so these 2 Acts were really enacted "back-to-back").

All of the following must be registered under state blue sky laws EXCEPT: Broker-Dealers U.S. Government Issues Limited Partnership Offerings Sales Representatives

U.S. Government Issues Issues that are exempt from registration under Federal laws are also exempt under state laws, so U.S. Governments do not have to be registered with the state. However, sales representatives, broker-dealers, and non-exempt issues (such as limited partnership offerings) must be registered.

Pre-arranged trades by insiders are: prohibited permitted under Rule 10b-5 permitted under Rule 10b-5-1 permitted under Regulation FD

permitted under Rule 10b-5-1 We all know that insiders are prohibited from trading based on material non-public information. In 2000, the SEC issued a "safe-harbor" rule that permits statutory insiders (officers, directors and 10% shareholders) to set up a written plan for trading that company's securities. Such a written plan specifies the future date with amount on which securities are to be bought and sold; or specifies the algorithm to be used for determining the amount and date of future purchases or sales. Once the plan is in force, the "insider" cannot have any further influence on trades effected under the plan. As long as the insider adheres to such a written trading plan, that person is given a "safe harbor" from being accused of using "inside information" as the basis for the trades that occur based on adhering to the plan.

Standards for options advertising that is not preceded by delivery of the ODD (Options Disclosure Document) allow all of the following EXCEPT: making reference to the Options Clearing Corporation using a corporate logo referring to a specific options exchange referring to a specific option contract

referring to a specific option contract The recommendation or reference to specific options contracts is prohibited in any options communication that is not accompanied or preceded by delivery of the ODD. However, advertising can mention the functions of the Options Clearing Corporation, can include the broker-dealer's name and logo; and can explain the functions of the options exchanges.

Which of the following information is available on EMMA? I Official Statements for municipal bond issues, notes, and 529 plans II Details of bonds that have been pre-refunded III Real-time prices and yields for municipal bond trades, as reported through RTRS IV Real-time price and yields for municipal note trades as reported through SHORT

all Consider this to be a learning question about EMMA (Electronic Municipal Market Access). The EMMA web portal, run by the MSRB, makes available to the investing public: Official Statements, Preliminary Official Statements, Advance Refunding Documents, and Event Notices; Real time reporting of municipal bond trades through RTRS (Real Time Reporting System); and Real time reporting of municipal note trades through SHORT (Short-Term Obligation Rate Transparency System).

A new issue offering to a maximum of 35 non-accredited investors that has not been registered with the SEC is:

exempt under Regulation D Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement.

Under Rule 144, how much of the issuer's outstanding shares can be sold every 90 days? A) 1% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is less B) 1% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is greater C) 10% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is less D) 10% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is greater

B) 1% of the outstanding shares or the average of the last 4 weeks' trading volume, whichever is greater Rule 144 allows the sale of 1% of the issuer's outstanding shares or the weekly average of the preceding 4 weeks' trading volume (whichever is higher) to be sold every 90 days.

Which of the following describes a "Chinese Wall" as used in the securities industry? A) The prohibition on trading in the United States of companies listed on the Hong Kong, Singapore, and Taiwan markets B) A separation of investment banking and trading functions within a broker-dealer to stop the potential flow of inside information C) The restriction of currency movement imposed by mainland China on the Hong Kong Stock Exchange D) The restriction imposed by the U.S. Government against trading of securities issued by mainland China by "Wall Street" firms

B) A separation of investment banking and trading functions within a broker-dealer to stop the potential flow of inside information The "Chinese Wall" as used in the securities industry, is the complete separation of a broker-dealer's investment banking unit from its trading unit. In its normal operations, an investment banking unit may advise on takeovers; or receive other confidential information that could influence the price of an issuer's securities once the information is public. Broker-dealers establish a "wall" between the investment banking unit and the trading unit, so that this information is not received by the firm's traders in advance of its release to the public. This is accomplished by referring to the issuer's name as a codeword only; by severely restricting the number of people that work on sensitive projects, etc. In this manner, the firm's traders cannot profit from the information in advance of its release to the public. This is critical, since to do so would be a violation of the "Insider Trading" provisions of the Securities Exchange Act of 1934.

When the Securities and Exchange Commission sets the effective date for a new issue in registration, this means that the: A) SEC has approved the offering for sale to the public B) SEC has certified that the offering documents give full and fair disclosure C) proper documents for registration have been filed with the SEC D) effective cost to potential purchasers has been established by the SEC

C) proper documents for registration have been filed with the SEC If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public.

Which statement is TRUEabout a registered representative who wishes to take a second job under FINRA rules? A) This action is prohibited B) This action is permitted without restriction C) This action requires the prior written approval of FINRA D) This action requires the prior written approval of the member organization employer

D) This action requires the prior written approval of the member organization employer For a registered representative to take a second job requires approval of the branch manager or other authorized person at the member firm under FINRA rules.

A customer has a cash account and a margin account at a brokerage firm. In a liquidation under SIPC: A) only the equity in the margin account is covered B) only the cash account value is covered C) each account is covered separately up to $500,000 total coverage per account D) both accounts are treated as one account with coverage limited to $500,000

D) both accounts are treated as one account with coverage limited to $500,000 SIPC coverage limits are applied by customer name; thus if John Jones has both a cash account and a margin account at a firm, they are treated as one account under SIPC. If John and Mary Jones also have a joint cash account and a joint margin account, these are lumped together and considered to be one account under SIPC rules.

Fines assessed for convictions involving violations of insider trading laws are paid to the: Internal Revenue Service Department of Treasury Securities and Exchange Commission Department of Justice

Department of Treasury Fines assessed for insider trading convictions are paid to the Department of Treasury. The fines are not paid to the SEC. If they were, then the SEC might be tempted to "go crazy" prosecuting insider trading cases to pump up its operating budget (raises for everyone!)

Under Regulation M, which statements are TRUE regarding stabilizing bids entered by market makers? I Stabilizing bids can only be maintained for 5 consecutive business days II There is no time limitation on the period that a stabilizing bid can be maintained III A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectus IV A stabilizing bid cannot be placed unless an "Official Notice of Sale" is placed in the prospectus

II There is no time limitation on the period that a stabilizing bid can be maintained III A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectus There is no time limitation on the period that a stabilizing bid can be maintained under Regulation M. However, stabilization must cease when the syndicate is broken by the manager. A "Notice of Stabilization" must be included in the prospectus (on the inside front cover) that details the fact that the manager can start and stop stabilizing at any time and that when stabilization stops, the price of the issue may drop. An Official Notice of Sale is used to solicit competitive bids for municipal new issues and has nothing to do with stabilization.

Which of the following is defined as options "advertising"? Booklet that explains options strategies Standard option worksheet Telephone recording on options investing Lecture on options investing

Telephone recording on options investing Options advertising is defined as any sales material that reaches a public audience through a mass medium, including: website, newspapers, periodicals, magazines, radio, television, telephone recordings, motion pictures, billboards, signs, or through sales communications to the public. A booklet that explains options strategies, a standard options worksheet, and a lecture on options investing, are all defined as "sales literature." These are communications to a specific group of individuals - not to the general public.

Rule 144 allows the sale, every 90 days, of: I 1% of the outstanding shares II 10% of the outstanding shares III the weekly average of the prior 4 weeks' trading volume IV the weekly average of the prior 8 weeks' trading volume

(I) 1% of the outstanding shares; OR (III) the weekly average of the prior 4 weeks' trading volume (WHICHEVER IS GREATER) Rule 144 allows the sale, every 90 days, of the greater of 1% of the outstanding shares of that company; or the weekly average of the prior 4 week's trading volume.

A Municipal Finance Professional (MFP) can give what dollar amount to an elected official's campaign in which he or she is NOT entitled to vote without this action resulting in a 2 year ban? 0 $100 $250 $500

0 Under MSRB Rule G-37, a Municipal Finance Professional can give up to $250 to an elected official's campaign in which the MFP is entitled to vote without any problems. If the amount given is more than $250, or if ANY dollar amount is given to an elected official's campaign in which the MFP is not entitled to vote (as in this case), then the municipal broker-dealer is banned from doing negotiated underwritings and municipal financial advisory work for that municipality for 2 years. Therefore, an MFP can give nothing to an elected official's campaign in which he or she is not entitled to vote, otherwise a ban will result. The idea here is simple - why would an MFP give any campaign contribution where he or she is not entitled to vote, other than to curry favor with that issuer official?

A high-ranking officer of ABC Corporation owns 10,000 shares of ABC Corporation control stock that she wishes to sell under the provisions of Rule 144. The company has 900,000 shares outstanding. The average weekly trading volume over the preceding 4 weeks was 3,000 shares. The maximum permitted sale under Rule 144 is: 1,000 shares 3,000 shares 9,000 shares 10,000 shares

9,000 shares Rule 144 allows the sale of the greater of 1% of the outstanding shares or the weekly average of the preceding 4 weeks trading volume every 90 days. 1% of 900,000 shares = 9,000 shares. This is greater than the 3,000 share average trading volume over the preceding 4 weeks, so this is the maximum permitted sale.

Customer securities held in margin accounts: A) can be commingled with other customer margin securities and used as collateral for a loan by the brokerage firm B) can be commingled with fully paid customer securities and used as collateral for a loan by the brokerage firm C) must be held in custody of the customer D) must be segregated and placed in safekeeping

A) can be commingled with other customer margin securities and used as collateral for a loan by the brokerage firm Brokerage firms can hold fully paid customer securities as long as the positions are segregated from other margin securities and are kept in safekeeping. Customer margin securities are pledged as collateral for the margin loan. The broker is permitted to commingle ("mix-up") these securities with those of other margin customers (but not with fully paid customer securities), and it is these margin securities that may be pledged to a bank for a loan.

A woman is the owner of 200,000 shares of XYZ stock. XYZ is a publicly traded company with 1,000,000 shares outstanding. Which of the following statements are TRUE? I She is considered an "insider" under the Securities Exchange Act of 1934 II She is prohibited from selling XYZ stock short III She must report trading activity to the SEC IV She must be registered with the SEC as a holder of more than 5% of the company's stock

ALL All of the statements are true. A holder of 10% or more is considered an insider. Insiders are prohibited from selling that company's stock short and must report their trading activity to the SEC (within 2 business days of each trade). Any holder of 5% or more of a company's stock must file with the SEC under Section 13D.

To sell restricted stock in compliance with the provisions of Rule 144, which of the following are required? I Filing of a Form 144 II Issuer's representation that the corporation is current with all required SEC filings III Seller's representation that the securities have been held fully paid for 6 months IV Broker's representation that it did not solicit the transaction

All of the statements are true regarding Rule 144 sales. Filing of a Form 144 with the SEC is required at the time that the order to sell is placed. On the Form, the seller computes the maximum sale amount during the next 90 days. The issuer's representation that the corporation is current with all required SEC filings must be obtained because it is prohibited to use Rule 144 to sell if this is not the case. The seller must represent that the securities have been held fully paid for 6 months, otherwise Rule 144 cannot be used. Finally, the broker must represent that it did not solicit the transaction and that it acted as agent in executing the transaction.

Which of the following would be defined as an "Investment Adviser" that must register under the Investment Advisers Act of 1940? A) A magazine of general circulation on investing B) A subscription investment letter that gives advice tailored to specific customer situations C) A weekly economic forecasting report available by subscription D) A daily newspaper column on personal investing

B) A subscription investment letter that gives advice tailored to specific customer situations The Investment Advisers Act of 1940 defines an "investment adviser" as any person that sells advice about securities for a fee. Advisers must be registered with the SEC. Excluded from the definition are magazines or newspapers about investing that have a general paid circulation. Economic forecasting newsletters do not fall under the definition, since investment recommendations are not being made. Subscription investment letters do fall under the definition of an "Investment Adviser" if they are giving advice tailored to specific customer situations. (Also note that the subscription investment letter that gives tailored advice will only be required to register with the SEC as a federal covered adviser if the adviser has $100 million or more of assets under management. If it does not meet the threshold, then it must register in the State and not with the SEC.)

If a registered representative solicits an order from a new customer to purchase a "penny stock" that is trading over-the-counter, which procedure is required? A) Send a prospectus to the customer B) Have the customer sign a statement that he or she understands the risks involved prior to executing the order C) Have the branch manager approve the order and then fill the customer's order in the same manner as with any other security D) Send the customer a Subscription Agreement to be signed before filling the order

B) Have the customer sign a statement that he or she understands the risks involved prior to executing the order Under the SEC's "penny stock rule" (Rules 15g-1 through 15g-6), if a registered representative solicits a new customer to buy a non-NASDAQ over-the-counter stock priced under $5 (translated, this is an OTCBB or Pink Sheet issue under $5), the registered representative must complete a detailed suitability statement for the customer, and the customer must sign this statement before the order can be confirmed. This rule was enacted to curb unethical sales practices of so-called "penny stocks."

Which of the following is NOT defined as correspondence? A) E-mail distributed to 15 existing retail customers B) Seminar text for a speech that will be delivered to 30 prospective retail clients C) E-mail sent to 10 prospective retail clients D) Prospecting letter sent to 5 sales leads

B) Seminar text for a speech that will be delivered to 30 prospective retail clients Correspondence is defined as a communication to 25 or fewer existing or prospective retail clients. Choices A, Cand Dare items of correspondence. These can be reviewed and approved by a manager or principal after they are sent out, as long as the firm has put in appropriate correspondence compliance procedures. Also, these are not subject to any FINRA filing requirement. Choice B, a speech text, is a "Retail Communication," defined as a communication to more than 25 existing or prospective retail clients. Retail communications require prior principal approval and can be required to be filed with FINRA. Note that the main categories of retail communications are "advertising" (general audience, such as TV, radio, newsprint, websites) and "sales literature" (specific audience, such as a research report, form letter, scripted speech, password-protected website).

A registered representative prepares the firm's standard options worksheet for a customer, detailing an income strategy for writing covered calls against "blue chip" stocks that the customer holds in his cash account. Which statement is TRUE? A) No additional steps are required before sending the completed worksheet to the customer B) The customer must receive an Options Disclosure Document before receiving, or with the completed standard options worksheet C) The completed worksheet must be approved in writing by the firm's compliance department prior to being sent to the customer D) The worksheet must be filed with the Options Exchange 10 business days prior to its being forwarded to the customer

B) The customer must receive an Options Disclosure Document before receiving, or with the completed standard options worksheet "Standard" options worksheets are "blank forms" that detail potential gain, loss, and breakeven, for a given options strategy. A registered representative will complete this form by filling in the proposed options and stock positions that will be used in the strategy for that customer. Prior to use, the "standard" blank form worksheet must be approved by the firm's designated Registered Options Principal (ROP). Once the blank form is approved, it may be used by a registered representative with Branch Manager approval. However, the customer must receive the latest Options Disclosure Document at or prior to receipt of the completed standard options worksheet, since these include a performance projection. There is no filing with, or approval by, the CBOE, since options sales literature is accompanied or preceded by the ODD. Only communications that are not accompanied or preceded by the ODD (basically options advertising) must be pre-filed with the CBOE.

If a client is paid less than $100 to give a testimonial about a broker-dealer's services, which statement is FALSE? A) The fact that the testimonial may not be representative of the experience of other customers must be disclosed B) The fact that the maker of the testimonial was paid must be disclosed C) The fact that the testimonial is no guarantee of future performance must be disclosed D) The fact that the testimonial is no guarantee of future success must be disclosed

B) The fact that the maker of the testimonial was paid must be disclosed The FINRA rule on testimonials used in communications states that: "Retail communications or correspondence providing any testimonial concerning the investment advice or investment performance of a member or its products must prominently disclose the following: The fact that the testimonial may not be representative of the experience of other customers. The fact that the testimonial is no guarantee of future performance or success. If more than $100 in value is paid for the testimonial, the fact that it is a paid testimonial." Note that the fact that a testimonial was paid is only required to be disclosed is MORE than $100 was paid to the maker.

General creditor status in the liquidation is given to any customer claims that are: A) below Securities Investor Protection Corporationcoverage limits B) above Securities Investor Protection Corporation coverage limits C) for securities held in margins accounts that had a debit balance D) for cash balances below $250,000

B) above Securities Investor Protection Corporation coverage limits Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit. For any uncovered claim amounts above these limits, the customer becomes a general creditor of the failed broker-dealer. Coverage limits apply to both cash and margin accounts.

An issuer making a tender offer for its non-convertible bonds and later increases the price being offered by 10%. Which statement is TRUE? A) The increase in the tender price has no effect on the life of the offer B) The increase in the tender price increases the life of the offer by another 5 business days C) The increase in the tender price increases the life of the offer by another 10 business days D) The increase in the tender price increases the life of the offer by another 20 business days

B) The increase in the tender price increases the life of the offer by another 5 business days An issuer would consider tendering for its outstanding bonds when it has debt outstanding that is not callable, but it has excess funds that it believes would be best used to reduce the amount of debt outstanding. A tender offer is made to the bondholders, who have the choice of tendering or not. Unlike stock tender offers, where the initial offer must be held out for 20 business days, here the initial life of the offer is only 5 business days. (The life is shorter because this tender offer is being made by the issuer, not an outsider.) Unlike stock tender offers, where there is typically a contingency that a minimum number of shares be tendered, these are "any and all offers" - so if a bondholder tenders, he or she will receive the tender price for the bonds. If the issuer does not get enough bonds tendered, the issuer can "sweeten" the offer. This extends the offer by another 5 business days, and the sweetened price is given to all bonds tendered. (While the initial offer specifies a price to be paid, or a price based on a spread to a benchmark debt security, the actual price paid on the tendered bonds is not set until that last business day of the offer).

A registered representative at a member firm only deals in stocks and other equity investments. The registered representative helps an associate at that firm negotiate an underwriting of municipal bonds with a municipal issuer official that he knows very well from other business dealings. He does this as a 1-time event and is paid a finder's fee for his help. Which statement is TRUE? A) Because this was a 1-time event, the registered representative is not considered to be a Municipal Finance Professional and is not subject to the political contribution rule B) The registered representative is considered to be a Municipal Finance Professional and is subject to the political contribution rule C) Any registered representative at a member firm is defined as Municipal Finance Professional and is subject to the political contribution rule D) Any registered representative at a member firm is excluded from the definition of a Municipal Finance Professional and is exempt from the political contribution rule

B) The registered representative is considered to be a Municipal Finance Professional and is subject to the political contribution rule An "MFP" - a Municipal Finance Professional - is an associated person who solicits business from municipal issuers, renders financial advisory services to municipal issuers, or who performs research or writes reports on municipal issues. Because the representative was paid a finder's fee for helping get the municipal underwriting business from the issuer, that registered representative is defined as an MFP and comes under the $250 political contribution limit.

An officer of a listed company calls his registered representative and tells him to buy a large block of that stock. Prior to placing the order to buy, the registered representative calls ten of his customers and tells them to buy that company's stock. Which statement is TRUE? A) This action is permitted under SEC rules B) This action is a violation of the insider trading rules C) This action is an ethical business practice D) This action is beneficial to the customer, and thus is allowed

B) This action is a violation of the insider trading rules When the registered representative received the buy order from the officer, he is obligated to execute that order before acting on the information he has received. Once the order is executed, it is public information. At this point, he can trade for himself or his customers, and he is no longer considered to be an "insider." In effect, the registered representative is "front running" the officer by telling his other customers to buy before placing the officer's buy order. This is a violation of the Securities Exchange Act Rule 10b-5.

A registered representative has a long-term client who works in a bank. The representative tells the client that he wants to buy a new house and has started to look for a mortgage. The client informs the representative that because of their relationship, she can get the representative a better mortgage interest rate than is available to the general public. Which statement is TRUE about this? A) This is prohibited because representatives cannot borrow from their clients B) This is prohibited because representatives cannot borrow from bank clients at preferential rates C) This is permitted because banks are in the business of lending money D) This is permitted because there is a long-standing client relationship

B) This is prohibited because representatives cannot borrow from bank clients at preferential rates Representatives are prohibited from borrowing from their clients. However, there are permitted exceptions to the rule: Representatives are permitted to borrow from immediate family members who are clients (such as a husband borrowing from a wife or vice-versa); and Representatives are permitted to borrow from banks who are clients, as long as the terms and conditions of the loan are the same as those given to the general public. The problem here is that the loan from the bank is being given on preferential terms. Because of this, the loan to the representative is prohibited.

A potential new customer is solicited by a registered representative to buy a new issue offering that is priced at $100 per share. The customer has $10,000 to invest and the registered representative explains to the customer that such an amount "deposited to a margin account creates $20,000 of buying power, so you will be able to buy 200 shares." This statement is: A) true in all material respects B) a misrepresentation of margin rules, since new issues must be fully paid C) allowed only if accompanied, or preceded by, a prospectus D) allowed only if the transaction was unsolicited

B) a misrepresentation of margin rules, since new issues must be fully paid While it is true that $10,000 of cash deposited to a margin account will buy $20,000 of marginable securities (since Reg T margin is 50%), new issues are not marginable. Thus, $10,000 of cash can only buy $10,000 of a new issue. The registered representative has made a misrepresentation to the customer.

All of the following options communications require written approval of a designated Registered Options Principal prior to use EXCEPT: A) written correspondence sent to 30 customers soliciting the customers about options strategies B) an internal memo to be distributed to registered representatives within the broker-dealer C) sales literature to be sent to 40 customers D) research reports to be sent to customers on request

B) an internal memo to be distributed to registered representatives within the broker-dealer Internal memos are not considered to be communications with the public and do not have to be approved by the designated ROP prior to use. Correspondence would normally be approved by the BOM (Branch Office Manager), however correspondence sent to more than 25 existing or prospective customers is defined as a retail communication which requires designated ROP approval. Also note that a research report is a retail communication that requires designated ROP approval, if is sent to more than 25 retail clients. In Choice D, there is no number of clients given, but because it is sent to customers on request, the research report is likely to go to a large number of clients.

For any claims that a customer may have against a failed broker-dealer that are in excess of Securities Investor Protection Corporationcoverage limits, the customer: A) can deduct the loss from that year's taxes B) becomes an unsecured general creditor with last claim in the liquidation C) becomes a super-secured creditor with first claim in the liquidation D) has no claim against the failed broker-dealer

B) becomes an unsecured general creditor with last claim in the liquidation Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit. For any uncovered claim amounts above these limits, the customer becomes a general creditor of the failed broker-dealer.

A municipal securities firm is hosting an event in its suite at a football game in the city where the firm is headquartered. A registered representative wants to invite an individual to join him in the suite to watch the game. The individual works for the municipality, and has worked with the registered representative on previous bond underwriting deals for the municipality. The ticket to the game is worth $250. Which statement is TRUE about this? A) Giving the ticket to the game to this individual violates the MSRB $100 gift limit B) This individual can be given the ticket because it has a de minimis value under the MSRB Political Contribution rule C) This individual can be given the ticket because the firm is hosting the event and it is acceptable to invite a business client D) This individual cannot be given the ticket because it is a conflict of interest

C) This individual can be given the ticket because the firm is hosting the event and it is acceptable to invite a business client This question is trying to confuse the MSRB gift limit with the MSRB Political Contribution Rule - and neither one applies in this scenario! The Political Contribution rule prohibits MFPs (Municipal Finance Professionals) from making a contribution of more than $250 to an elected official's campaign in which the MFP is entitled to vote. If this occurs, the municipal firm is banned from doing municipal securities business with that municipal issuer for 2 years. This situation is not a campaign contribution. The MSRB gift limit of $100 does not apply to business entertainment - which is what this is. The requirement here is that the registered representative be with the client during the period of entertainment (which is the case here) and the entertainment can not be too excessive nor too frequent. Finally, the entertainment must comply with the firm's policies and procedures - which is the case here because the firm is hosting the event.

"Access equals delivery" means that any purchaser of a new securities issue offered by prospectus: A) must be delivered a paper copy of the prospectus, at or prior to confirmation of sale B) must be delivered an electronic copy of the prospectus, at or prior to confirmation of sale C) can be delivered an electronic copy of the prospectus in lieu of a paper copy if the member firm knows that the customer has internet access D) can be delivered a paper copy of the prospectus in lieu of an electronic copy if the member firm knows that the customer has internet access

C) can be delivered an electronic copy of the prospectus in lieu of a paper copy if the member firm knows that the customer has internet access "Access equals delivery" allows a broker-dealer to deliver an electronic copy of a prospectus to a purchaser of a new issue rather than a paper copy. However, the rule only permits such electronic delivery if the broker-dealer knows that the customer has internet access - which basically means that the broker-dealer has an e-mail address for the customer. If the broker-dealer does not know that the customer has internet access, then a paper prospectus is still required.

When a customer buys a new stock issue from a syndicate member, the customer pays: A) the public offering priceas stated in the prospectusplus a commission B) the public offering price as stated in the prospectus plus a mark-up C) the public offering price as stated in the prospectus without any commission D) any price since this is a negotiated market offering

C) the public offering price as stated in the prospectus without any commission New stock issues are sold under a prospectus that states the Public Offering Price which is inclusive of any compensation to the underwriter (the spread). Additional commissions or charges above the P.O.P. are not allowed.

Under Regulation D, issuers must provide which of the following to investors to obtain a private placement exemption? Copy of the Prospectus Copy of the Official Notice of Sale Copy of the Offering Circular or Private Placement Memorandum Copy of the Official Statement

Copy of the Offering Circular or Private Placement Memorandum Under Regulation D, purchasers of private placements must be given full disclosure about the issue, even though no prospectus is required (the issue is exempt). Disclosure is accomplished by providing the purchaser with a copy of an "Offering Circular," which for smaller private placements is called the "Offering Memorandum."

An electronic communication of an "individual" nature sent by a representative to a customer is defined as: Advertising Sales Literature Correspondence Educational Material

Correspondence A communication of an individual nature sent to a customer is defined as correspondence. The specific definition is a written or electronic communication made available to 25 or fewer existing or prospective retail customers. Every piece of correspondence sent by a representative to a customer must be approved by a principal or manager. If the firm has implemented an correspondence compliance program, then FINRA permits "post-use review and approval." If the firm has not implemented a correspondence compliance program, then each piece of correspondence must be approved by a principal prior to use. Of course, virtually every firm has put in appropriate compliance procedures so that it can approve these "after the fact."

Which statement is TRUEabout a seminar given by a registered representative about mutual funds, collateralized mortgage obligations or direct participation programs? A) The seminar must be recorded and the recording must be retained by the member firm B) The attendees must be pre-screened for suitability of any investments recommended at the seminar C) The representative giving the seminar must have an unblemished BrokerCheck report D) Any materials given to participants must be filed with FINRA no later than 10 business days after first use

D) Any materials given to participants must be filed with FINRA no later than 10 business days after first use FINRA's general rule on filing of retail communications is that for a member firm's first year of operations, all retail communications must be filed 10 business days in advance of use. Thereafter, no filing is required, but the member firm is subject to spot check. However, there are exceptions to the general rule. Retail communications that must ALWAYS be filed 10 business days in ADVANCE of first use are: Options retail communications; and Mutual fund retail communications with member-prepared performance rankings. Retail communications that must ALWAYS be filed 10 business days AFTER first use are: All other mutual fund retail communications; CMO retail communications; and DPP retail communications. (The Investment Company Act of 1940 requires an SRO to get copies of investment company advertising; and the FINRA department that gets these also handles CMO and DPP ads, so they all are grouped under the same rule.) There is no requirement that the seminar be recorded; there is no requirement to pre-screen attendees; and there is no requirement that the representative giving the seminars have an unblemished BrokerCheck report (though this would be nice!).

A customer has a cash account holding $160,000 of securities and $340,000 of cash. If the broker-dealer were to fail, which statement is TRUE regarding the status of the account in an SIPC liquidation? A) SIPC will provide coverage for the $160,000 of securities only B) SIPC will provide coverage for the total of $500,000 of securities and cash C) SIPC will provide coverage for only $250,000 of cash D) The customer will become a general creditor in the amount of $90,000

D) The customer will become a general creditor in the amount of $90,000 SIPC covers customer claims against a failed broker-dealer for a total of $500,000, inclusive of maximum cash coverage of $250,000. For any claims above these limits, the customer becomes a general creditor of the failed broker-dealer. This customer has $160,000 of securities (covered in full) and $340,000 of cash (covered only for $250,000), for total coverage of $410,000. For the remaining $90,000 of cash not covered, the customer becomes a general creditor.

All of the following statements are true regarding Regulation A offerings EXCEPT: A) an exemption from registration is given to offerings of up to $20 million under Tier 1 B) an exemption from registration is given to offerings of up to $50 million under Tier 2 C) Form 1-A must be filed with the SEC and a 20 day review period completed before the issue can be sold D) any purchaser must be provided with a prospectus, at, or prior to, confirmation of sale

D) any purchaser must be provided with a prospectus, at, or prior to, confirmation of sale Regulation A is intended to make it easier for start-up companies to raise capital. It gives an exemption from full registration for offerings of up to $50 million within a 12 month period. The rule is split into Tier 1 and Tier 2. Tier 1 offerings, up to a maximum amount of $20 million, are given the easiest registration method and do not require audited financial statements. Tier 2 offerings allow a maximum of $50 million to be raised, but require audited financial statements. Tier 2 issues are also called Regulation A+ issues and can be exchange listed. Form 1-A is filed with the SEC to claim the exemption. It gives disclosure about the issue and a "20 day review period" must be completed before the issue can be sold. *Disclosure to investors is made through an Offering Circular rather than a Prospectus*.

A registered representative receives an order from a corporate issuer to buy 100,000 shares of that issuer's stock in the market just before the market close. The registered representative should: A) accept the order from the customer B) inform the company that the trade can only be executed on an upbid C) reject the order and report the company to the SEC D) inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934

D) inform the company that this is a possible market manipulation under the Securities Exchange Act of 1934 SEC Rule 10b-18 sets ground rules for issuers or affiliated persons who wish to buy their shares in the open market. If an issuer aggressively buys its stock in the market, or bids for its stock, it can manipulate the market price upwards. Bids and purchases that are made in compliance with Rule 10b-18 will not be considered manipulative activities under Rule 10b-5 ("catch-all" fraud rule). Rule 10b-18 purchases, as they are known: Must be effected through 1 broker/dealer on any given day; Cannot be the opening transaction; Cannot be executed within 10 minutes of market close if the security is "actively traded," otherwise it cannot be executed within 30 minutes of market close; Must be effected at prices no higher than the current market; Cannot exceed 25% of the trading volume in the security that day (except for block purchases handled outside the normal flow of orders). Because the issuer is placing the order to buy its stock just prior to market close, it could be accused of trying to manipulate its closing price upwards. The client should be informed of this.

All of the following statements are true if the SEC sends a deficiency letter to the issuer regarding an issue in registration EXCEPT: A) disclosure in the registration documents is not complete B) the issuer must file an amendment with the SEC to cure the deficiency C) the 20-day cooling offperiod starts again once the amendment is filed D) the effective date of the issue is unaffected by the deficiency notice

D) the effective date of the issue is unaffected by the deficiency notice An SEC "deficiency letter" indicates that there is not adequate disclosure in the registration documents to allow investors to make an informed decision. The deficiency must be cured before the SEC will allow the registration to be effective. Once the amendment is filed, the 20-day cooling off period starts counting again from the beginning. If the SEC finds that there is not adequate disclosure after the amendment is filed, it can issue subsequent deficiency letters. Thus, the registration for the issue may never "go effective."

Which of the following would NOT have to be reviewed by a principal? Form letters mailed to all customers Form letters for internal use within a firm Letters recommending securities to all clients of a registered representative Complaint letters received from customers

Form letters for internal use within a firm FINRA defines communications with the public as either: Correspondence: A communication made available to 25 or fewer existing or prospective retail clients Retail Communication: A communication made available to more than 25 existing or prospective retail clients Retail communications must be approved by a principal prior to use and can be required to be filed with FINRA. In contrast, correspondence is only subject to "post use review and approval" (as long as the firm has appropriate supervisory procedures in place) and cannot be required to be filed with FINRA. A "Retail Communication" is a very broad definition that includes advertising (seen by the general public) and sales literature (seen by a specific audience). Advertising: TV, radio, newsprint, billboards, websites, internet bulletin boards Sales Literature: Research reports, market letters or form letters delivered to more than 25 existing or prospective retail clients, scripted speeches delivered to more than 25 existing or prospective retail clients, password-protected websites Internal documents of a brokerage firm do not have to be reviewed by a manager or principal. Because the public does not see these, FINRA is not concerned with their content. All customer complaint letters must also be reviewed and handled by a principal.

When is a foreign broker-dealer permitted to solicit U.S. based clients? I If the foreign broker-dealer establishes an SEC-registered U.S. subsidiary II If the foreign broker-dealer only offers exempt securities III If the foreign broker-dealer only deals with major institutional investors IV If the foreign broker-dealer only deals with accredited investors

I If the foreign broker-dealer establishes an SEC-registered U.S. subsidiary III If the foreign broker-dealer only deals with major institutional investors The best answer is A. In order for a broker-dealer to solicit in the U.S., it must be registered with the SEC. For foreign broker-dealers, this means setting up an SEC-registered U.S. subsidiary. However, recognizing the increasingly global nature of the world's securities markets, the SEC adopted Rule 15a-6, which is intended to permit foreign broker-dealers to engage in limited activities in the U.S. without registering with the SEC. Under Rule 15a-6, foreign broker-dealers that are not SEC registered are permitted to: effect trades for U.S. persons that contact them on an unsolicited basis; solicit business from and provide research reports to Major Institutional Investors (an investor with at least $100 million of investments) and Institutional Investors (investment companies, insurance companies, banks, etc.) and conduct business with foreign nationals temporarily present in the U.S. Note that there is no exception offered for foreign broker-dealers that only wish to offer exempt securities in the United States; nor is there an exemption for solicitation of accredited investors.

Which of the following statements are TRUE regarding options sales literature that includes a recommendation? I It must be approved prior to use by the designated Registered Options Principal II It must be accompanied or preceded by a copy of the latest Options Disclosure Document III Showing past or projected performance is permitted IV It must be pre-filed with the exchange

I It must be approved prior to use by the designated Registered Options Principal II It must be accompanied or preceded by a copy of the latest Options Disclosure Document III Showing past or projected performance is permitted All options communications with the public must be approved by the designated ROP (main office compliance ROP) - not the Branch Manager. Any communication that shows past performance; makes a performance projection; or that makes a recommendation; must be accompanied or preceded by the ODD (Options Disclosure Document). Options sales literature usually falls under these rules. Only options communications that are NOT accompanied by the ODD must be filed with the Exchange 10 days in advance of use. These are basically advertisements seen by the general public.

Which of the following statements are TRUE regarding a broker-dealer holding margin and fully paid securities? I Margin securities can be commingled with the securities of other customers and rehypothecated II Margin securities must be segregated and placed in safekeeping III Fully paid securities can be commingled with the securities of other customers and rehypothecated IV Fully paid securities must be segregated and placed in safekeeping

I Margin securities can be commingled with the securities of other customers and rehypothecated IV Fully paid securities must be segregated and placed in safekeeping Margin securities are held in street name and can be commingled with the securities of other customers. These securities are permitted to be pledged (rehypothecated) to a bank for a margin loan. Thus, collateral at a bank can be changed at any time, since it consists solely of commingled street name securities. Fully paid securities, on the other hand, must be segregated and placed in safekeeping.

Municipal securities advertising must be approved prior to use by which of the following? I Municipal Securities Principal II Financial and Operations Principal III Municipal Securities Rulemaking Board IV General Principal

I Municipal Securities Principal OR IV General Principal Municipal securities advertising must be approved prior to use by either a municipal securities principal or general principal. The financial principal (the firm's accountant) cannot approve advertising. There is no requirement to file municipal advertising with the MSRB for their approval - they wouldn't know what to do with it since they can't enforce their own rules (remember, FINRA does this for the MSRB).

Under MSRB rules, advertising relating to municipal securities must be approved by the: I Municipal Securities Principal II General Securities Principal III Financial and Operations Principal

I Municipal Securities Principal OR II General Securities Principal Municipal advertising can be approved by either a General Securities Principal or a Municipal Securities Principal. The Financial and Operations Principal prepares or approves the financial reports that brokerage firms submit to the SEC.

Which of the following are NOT considered to be advertising by the MSRB? I Official Statements II Prospectuses III Circulars IV Form letters

I Official Statements II Prospectuses The MSRB defines as "advertising" any form letters, circulars, sales literature, and abstracts of official statements (since these would be written by the firm). Excluded from the definition are Official Statements or prospectuses, since their content is subject to legal oversight.

Under MSRB rules which of the following statement(s) is(are) TRUEwhen selling a new issue of municipal bonds? I Order priority provisions must be disclosed at customer request II The spread must be disclosed in negotiated offerings III The spread must be disclosed in competitive bid offerings

I Order priority provisions must be disclosed at customer request II The spread must be disclosed in negotiated offerings MSRB rules on new issue disclosure require that the spread be disclosed on "negotiated" offerings. There is no spread disclosure on competitive bid offerings. MSRB rules require that order priority provisions (usually Pre-Sale; Group Net; Designated; and Member-Takedown) be disclosed at customer request.

Corporate officers who wish to trade their own company's stock must comply with which of the following rules? I Prohibitions on short sales of that company's stock II Purchase restrictions through the exercise of stock options III Trading is restricted to decisions based on publicly available information IV Filing change of holding reports with the SEC

I Prohibitions on short sales of that company's stock III Trading is restricted to decisions based on publicly available information IV Filing change of holding reports with the SEC There is no restriction on corporate officers' buying their company's stock through the exercise of stock options. Many companies compensate their officers with stock option packages. Officers must report their trades to the SEC (within 2 business days of the trade) since they are classed as "insiders;" insiders are prohibited from selling their company's stock short except for year end "short against the box" trades; and insiders can only trade based on publicly available information.

A FINRA member firm does not follow a particular stock and a registered representative wishes to obtain a 3rd party research reportto send to 30 interested retail customers. Which statements are TRUE? I The report must be approved by a Compliance Officer or Principal before it can be sent out II The report is not required to be approved in advance by a Compliance Officer or Principal before it can be sent out III The report must be approved by a Supervisory Analyst before it can be sent out IV The report is not required to be approved in advance by a Supervisory Analyst before it can be sent out

I The report must be approved by a Compliance Officer or Principal before it can be sent out III The report must be approved by a Supervisory Analyst before it can be sent out Third party research is prepared by independent research firms that tend to be free of the conflicts of interest that have troubled member firms that prepare research reports on the issuers with which they do underwriting and advisory business. If a registered representative were to, on his or her own, obtain 3rd party research to send to customers, then it would need the appropriate approvals required of research reports before they can be sent out. This would be approval of both a principal in compliance (because this is a retail communication being sent to more than 25 existing or prospective retail clients) and the supervisory analyst.

Under MSRB rules, a registered representative can perform which of the following functions? I Trading municipal issues in the secondary market II Offering call and put options on municipal securities to customers III Overseeing the activities of other municipal registered representatives IV Offering new municipal issues to retail customers

I Trading municipal issues in the secondary market II Offering call and put options on municipal securities to customers IV Offering new municipal issues to retail customers Municipal representatives are permitted to trade municipal issues in the secondary market; offer call and put options on municipal issues; and sell new municipal issues to customers. Registered representatives are not permitted to supervise other representatives. To do so, the individual must pass the principal's exam.

Which of the following statements are TRUE about listed securities? I Under Regulation T, all listed securities are marginable II Listed securities are subject to Regulation SHO III Listed securities trade in the Second Market IV Listed companies must be registered with, and report their results to, the SEC

I Under Regulation T, all listed securities are marginable II Listed securities are subject to Regulation SHO IV Listed companies must be registered with, and report their results to, the SEC Listed securities (those listed on an exchange) are marginable under Regulation T. Under the Exchange Act of 1934, Regulation SHO requires that before any equity security (either listed or unlisted) can be sold short, the member firm must affirmatively determine that the security can be borrowed and delivered on settlement. This is called the "locate" requirement. Listed securities trade in the first (exchanges), third (OTC trading of exchange listed securities) and fourth (direct trades between institutions via ECNs) markets. The second market is trading of unlisted securities over-the-counter. These are OTCBB and Pink Sheet issues. Listed companies must register with, and report their results to, the SEC.

Which statements are TRUE regarding the Federal Telephone Consumer Protection Act of 1991? I Unsolicited calls cannot be made before 8:00 AM, nor after 9:00 PM, local time II Solicited calls cannot be made before 8:00 AM, nor after 9:00 PM, local time III If the caller states that he or she does not wish to receive calls, then the person must be placed on a "Do Not Call" list. IV If the caller states that he or she does not wish to receive calls, then the person must be referred to a supervisor

I Unsolicited calls cannot be made before 8:00 AM, nor after 9:00 PM, local time III If the caller states that he or she does not wish to receive calls, then the person must be placed on a "Do Not Call" list. The Federal Telephone Consumer Protection Act of 1991 requires that unsolicited calls cannot be made before 8:00 AM, nor after 9:00 PM, in the time zone of the recipient. The Act says nothing about solicited calls. If the customer states that he or she wishes to be placed on a "Do Not Call" list, do it!

Under MSRB rules, confirmation disclosure for bonds sold at par must include which of the following? I Whether the securities are callable II Capacity in which the broker-dealer acted III Total dollar amount of the transaction IV The yield at which the transaction was effected and the resulting dollar price

I Whether the securities are callable II Capacity in which the broker-dealer acted III Total dollar amount of the transaction For municipal bonds that are traded at par, there is no requirement to show the yield at which the transaction was effected, because it will not differ from the stated rate of interest since the bonds were traded at par. All of the other items must be disclosed; whether the securities are callable, with disclosure of "in-whole" call dates; the capacity in which the broker-dealer acted (either as "agent" or "principal"); and the total dollar amount of the transaction.

Under the "penny stock rule," an established customer that is exempt from the rule is defined as a person who has: I effected a securities transaction or made a deposit of funds or securities with that broker-dealer more than 1 year previously II effected a securities transaction or made a deposit of funds or securities with that broker-dealer more than 3 years previously III made at least 1 previous purchase of "penny stocks" from the same broker-dealer IV made at least 3 previous purchases of "penny stocks" from the same broker-dealer

I effected a securities transaction or made a deposit of funds or securities with that broker-dealer more than 1 year previously or IV made at least 3 previous purchases of "penny stocks" from the same broker-dealer Suitability statements are not required under the "penny stock rule" for so-called "established customers." These are customers who have either had cash or securities in custody of that broker-dealer for at least 1 year; or customers who have bought 3 or more "penny stock" issues previously from that broker-dealer.

A new issue private placement offering is: I exempt under Regulation D II exempt under Regulation A III allowed to be sold to a maximum of 35 non-accredited investors IV limited to a maximum sale of $5,000,000 within 1 year

I exempt under Regulation D III allowed to be sold to a maximum of 35 non-accredited investors Regulation D allows a "private placement" exemption if an issue is sold to a maximum of 35 "non-accredited" investors. The issue can be sold to an unlimited number of "accredited" (wealthy and institutional) investors under this exemption and still be considered a private placement. There is no dollar limitation on the amount of securities that can be sold under a private placement exemption.

Regulation Crowdfunding is intended as a means of raising capital: I for start-up companies II for established companies III with no registration with the SEC IV with a less-rigorous registration process with the SEC

I for start-up companies III with no registration with the SEC "Crowdfunding" is the raising of capital by small start-up businesses through relatively small investment amounts. These are private placement securities that are exempt from registration with the SEC. The intent is to help early-stage companies raise investment capital with little regulatory burden, improving job formation and economic growth in the U.S. economy.

Which of the following individuals are Municipal Finance Professionals? I An associated person who handles the accounts of individual customers II An associated person who handles the accounts of municipal issuers III A municipal principal that supervises municipal underwritings IV A municipal principal that is the executive officer of the municipal firm

II An associated person who handles the accounts of municipal issuers III A municipal principal that supervises municipal underwritings Under Rule G-37 covering political contributions, a Municipal Finance Professional is defined as an associated person (not a clerical employee) that solicits business from issuers or that performs advisory work or research for issuers. Any municipal principal that supervises these functions is also an MFP. An associated person that deals with individual customers is excluded from the definition, as are the executive officers of the dealer.

Which of the following are exempt issues under the Securities Act of 1933? I Real Estate Investment Trusts II Savings and Loan Issues III U.S. Government Bonds IV U.S. Government Bond Funds

II Savings and Loan Issues III U.S. Government Bonds Investment companies, such as mutual funds, are non-exempt; therefore their securities must be registered and sold under a prospectus. Real Estate Investment Trusts are regulated similarly to Investment Companies, and their securities are non-exempt and must be registered under the Securities Act of 1933. U.S. Government issues, savings and loan issues, and municipal issues are exempt.

Which of the following is (are) prohibited in mutual fund advertising? I Showing past performance II Showing projected performance III Showing past performance against a benchmark index

II Showing projected performance All advertising is prohibited from including performance projections. Past performance may be shown in advertising, as can comparisons of past performance to a relevant benchmark.

A registered representative wishes to sell a municipal bond to a customer who lives in a neighboring state. Which of the following MUSTbe registered in the neighboring state? I The municipal bond II The broker-dealer III The registered representative IV The customer

II The broker-dealer III The registered representative Municipal bonds are an exempt security, from both Federal and State registration. However, broker-dealers and their sales employees that sell these bonds must still be registered under state law in any state in which the securities are offered. It makes no difference that the security being offered is exempt; the agent and broker-dealer offering them in the state must still be registered in the state (since they can offer these securities fraudulently, and the state wants to know where to find these persons if they do so!) There is no registration requirement for customers.

Which statements are TRUEabout a tender offer for common shares? I The offer must remain open for at least 10 business days II The offer must remain open for at least 20 business days III Each "sweetening" of the offer must extend the offer for an additional 10 business days IV Each "sweetening" of the offer must extend the offer for an additional 20 business days

II The offer must remain open for at least 20 business days III Each "sweetening" of the offer must extend the offer for an additional 10 business days When a tender offer is made for the common shares of an issuer, the maker of the offer is attempting to buy a majority stake in the company. To attract shareholders to tender, the maker usually prices the offer at a premium to the current market price. Such offers are typically contingent on a minimum number of shares being tendered. If the minimum number is not met, the maker might "sweeten" the offer by raising the tender price; or could simply cancel the offer and return the tendered shares to the subscribing shareholders. The initial offer must be held out for a minimum of 20 business days under SEC rules. Each sweetening of the offer must extend the life of the offer by another 10 business days

If a publicly traded corporation declares bankruptcy: I a 10K report must be filed II an 8K report must be filed III the required report must be filed within 1 business day IV the required report must be filed within 4 business days

II an 8K report must be filed IV the required report must be filed within 4 business days Corporations are required to file 8K reports within 4 business days of significant events such as a declaration of bankruptcy, merger, change in the Board of Directors, etc. The 8K is filed with the SEC, and is a public document.

Under FINRA rules, if an institutional communication is distributed to retail clients: I it is considered to be an institutional communication II it is considered to be a retail communication III it must be approved by a principal prior to distribution IV it is subject to post use review and approval by a principal

II it is considered to be a retail communication III it must be approved by a principal prior to distribution If an institutional communication is distributed to any number of retail clients, it is considered to be a "retail communication." This means that instead of being subject to "post use review and approval," it must be approved by a principal prior to distribution.

Restricted securities can be sold under Rule 144 if: I they are sold on a dealer basis II they are sold on an agency basis III solicitation of orders to buy is restricted to customers expressing interest within the past 10 days IV the issuer is reporting currently to the SEC

II they are sold on an agency basis III solicitation of orders to buy is restricted to customers expressing interest within the past 10 days IV the issuer is reporting currently to the SEC Rule 144 requires that restricted securities be sold on an agency basis only. Your firm cannot act as a market maker in "144" shares. Solicitation of orders to buy "144" shares is prohibited (to stop you from soliciting potential customers to buy 144 shares, which would tend to push up the stock price). However you are allowed to recontact individuals expressing buying interest in "144" transactions within the past 10 days. Since 144 shares are being sold in the open market, the issuer must comply with SEC issuer reporting rules to maintain the public market in the securities.

Which of the following decisions by a registered representative require specific customer authorization? I Determining price and time of execution in a cash account II Determining price and time of execution in a margin account III Determining price and the number of shares traded in a cash account IV Determining price and the number of shares traded in a margin account

III Determining price and the number of shares traded in a cash account IV Determining price and the number of shares traded in a margin account A written power of attorney is required only if a registered representative chooses more than price and/or time of execution in a customer transaction. Thus, if the registered representative chooses the security to be traded or the size of the trade, a discretionary power of attorney is required. It makes no difference if the transaction is effected in either a cash account or a margin account.

A registered representative has written discretionary authorization from a customer. Specific customer approval is needed for the registered representative to effect which of the following transactions in the customer's account? I Sell naked calls II Sell covered calls III Purchase a municipal bond where the broker-dealer has a control relationship with the issuer

III Purchase a municipal bond where the broker-dealer has a control relationship with the issuer Under MSRB rules, if a control relationship exists between a brokerage firm and the security being recommended, this security cannot be purchased in discretionary accounts unless the specific authorization of the customer is obtained first. The issue here is that there can be an inherent conflict of interest when such a relationship exists. For example, a municipal control relationship might exist if the president of the broker-dealer is also a political official of the town whose bonds are being recommended. Such a broker-dealer, if it were unscrupulous, would have an incentive to "support" the price of the issue in the aftermarket, making it more likely that the municipality would use that firm for future underwritings. It could do this by making purchases of that issue in its discretionary accounts. No specific authorization is required to sell naked or covered calls in discretionary accounts. The only requirement is that discretionary trades executed be consistent with the customer's investment objective; must not be too frequent; and must not be excessively large in size.

Prior to the filing of a registration statement, which of the following activities is (are) permitted? I A member firm signing a syndicate agreement to become part of the underwriting group for the issue II A member firm distributing preliminary prospectuses for the issue to customers III A member firm taking indications of interest for the issue from customers IV A member firm selling the issue to customers

ONLY --> I A member firm signing a syndicate agreement to become part of the underwriting group for the issue Prior to the filing of a registration statement, the issue cannot be promoted in any manner - so the use of a preliminary prospectus to take indications of interest is prohibited; as is selling the issue. Once the registration statement is filed, the issue enters the 20 day cooling off period. At this point, a preliminary prospectus can be used to take indications of interest, but the issue cannot be sold. Once the registration is effective, the issue can be sold with the prospectus. There is no prohibition on the underwriter joining the syndicate or selling group prior to the filing of the registration statement, since this does not involve offering the issue to the public.

When the Securities and Exchange Commission sets the effective datefor a new issue in registration, which of the following statements is (are) TRUE? I The SEC has certified that the offering documents give full and fair disclosure II The proper documents for registration have been filed with the SEC III The SEC has approved the offering for sale to the public IV The SEC has established the final offering price

ONLY --> II The proper documents for registration have been filed with the SEC If the SEC sets the "effective date" for an issue in registration, this means that all proper documents have been filed with the SEC. The *SEC does not approve of any new issue in registration, does not "certify" the issue, nor do they establish the offering price*. Think of the SEC as a big filing cabinet - once the proper documents relating to a new issue offering are filed, the issue may be offered and sold to the public.

State registration (Blue Sky)requirements apply to: I registration of government and municipal securities II registration of corporate securities III registration of state chartered bank issues

ONLY --> II registration of corporate securities Generally speaking, if a security is exempt from Federal law, it will be exempt under Blue Sky laws (though there are some exceptions). Governments, municipals, and state chartered bank issues are exempt under both Federal and State law; corporate issues are non-exempt.

Which of the following is defined as options "sales literature"? Options movie Options prospecting letter sent to 10 clients Letters of an "individual" nature sent to customers Options research report

Options research report Options Sales Literature is any written communication distributed to customers or the public that contains any analysis, performance report, projection or recommendation. Included, as well, are standard forms of options worksheets (these detail gain, loss, and breakeven for a given strategy to be employed by a customer), and seminar texts for lectures to be given to the public about options. Sales literature must be accompanied or preceded by an Options Disclosure Document. Options Advertising is defined as any sales material that reaches a public audience through a mass media, including: newspapers, periodicals, magazines, websites, radio, television, telephone recordings, motion pictures, billboards, signs, or through written sales communications to the public that are NOT required to be preceded by an Options Disclosure Document. The content of these communications is very limited so that they are not "promotional" and they must state where an Options Disclosure Document can be obtained. A letter of an individual nature to a customer is defined as correspondence, as is an options prospecting letter sent to fewer than 25 existing or potential clients (note that if the letter is sent to 25 or more existing or potential clients, it becomes sales literature).

Which of the following is defined as options "advertising"? Options disclosure document Standard option worksheet Options website Letters of an "individual" nature sent to customers

Options website Options advertising is defined as any sales material that reaches a public audience through a mass medium, including: websites, newspapers, periodicals, magazines, radio, television, telephone recordings, motion pictures, billboards, signs, or through sales communications to the public. A letter sent to a customer is defined as correspondence; an options worksheet is defined as sales literature. The Options Disclosure Document (ODD) is the required offering information that must be given to customers when they open an options account; and that must accompany or precede any options communication that makes a recommendation; that shows past performance; or that makes a projection.

Issuers that wish to give "earnings guidance" to research analysts must conform with the provisions of SEC: Regulation SB Regulation FD Regulation SK Regulation SP

Regulation FD Regulation FD (Fair Disclosure), passed in 2000, is basically an elaboration of the insider trading rules. It prohibits issuers from making selective disclosure of non-public information to research analysts, mutual fund managers, and other industry professionals, unless at the same time, the information is broadly disseminated to the public. Regulation SP requires financial institutions to provide customers with a copy of their privacy policies and procedures, including whether customer information is provided to third parties; and requires that customers be given the ability to "opt out" of any such disclosures. Regulation SK standardizes the reporting of financial and non-financial information by issuers to the SEC. Regulation SB (Small Business) streamlines registration of issues by small businesses with the SEC.

Which of the following is defined as sales literature? E-mail distributed to 15 existing retail customers Seminar text for a speech that will be delivered to 30 prospective retail clients E-mail sent to 10 prospective retail clients Prospecting letter sent to 5 sales leads

Seminar text for a speech that will be delivered to 30 prospective retail clients FINRA defines communications with the public as either: Correspondence: A communication made available to 25 or fewer existing or prospective retail clients Retail Communication: A communication made available to more than 25 existing or prospective retail clients Retail communications must be approved by a principal prior to use and can be required to be filed with FINRA. In contrast, correspondence is only subject to "post use review and approval" (as long as the firm has appropriate supervisory procedures in place) and cannot be required to be filed with FINRA. A "Retail Communication" is a very broad definition that includes advertising (seen by the general public) and sales literature (seen by a specific audience). Advertising: TV, radio, newsprint, billboards, websites, internet bulletin boards Sales Literature: Research reports, market letters or form letters delivered to more than 25 existing or prospective retail clients, scripted speeches delivered to more than 25 existing or prospective retail clients, password-protected websites

Which statement is FALSEabout stabilizing bids? A stabilizing bid is placed by the syndicate manager Stabilization is permitted during the 20-day cooling off period Only 1 stabilizing bid is permitted at any time Stabilization is permitted under Regulation M

Stabilization is permitted during the 20-day cooling off period Stabilization of new issue prices in the aftermarket is permitted under Regulation M. The bid cannot be placed until the effective date; it is not permitted during the 20-day cooling off period. Only 1 stabilizing bid is permitted at any time. The manager of the syndicate places the stabilizing bid on behalf of the syndicate.

A registered representative wishes to appear in a television commercial about options strategies. Which statement is TRUE? No approval is required The commercial must be approved in advance by the Branch Manager The commercial must be approved in advance by the General Principal The commercial must be approved in advance by the designated Registered Options Principal

The commercial must be approved in advance by the designated Registered Options Principal Television commercials are defined as advertisements. All options communications must be approved in writing prior to use, by a designated Registered Options Principal (ROP). This is the main office compliance ROP. In addition, any communication that is not accompanied or preceded by the ODD (Options Disclosure Document) must be filed with the Exchange at least 10 days in advance of use. Branch managers supervising options are responsible for supervising customer options accounts, approving the opening of options accounts and transactions in options accounts.

Which of the following statements are TRUE regarding negotiated municipal underwritings? I The spread must be disclosed II The initial offering price of each maturity must be disclosed III The participation amount of each underwriter does not have to be disclosed IV The names of the underwriters do not have to be disclosed

all In negotiated municipal underwritings, the spread and offering price of each maturity must be disclosed. There is no requirement to disclose the names of the underwriters (though this information is readily available) nor their participation amounts (since this in no way affects the customer).

Which of the following statements are TRUEabout listed securities? I Under Regulation T, all listed securities are marginable II Listed securities are subject to "Regulation SHO" III Listed issuers must register any new issue offerings with the SEC IV Listed issuers must report their results to the SEC

all Listed securities (those listed on an exchange) are marginable under Regulation T. Under the Exchange Act of 1934, Regulation SHO requires that before any equity security (either listed or unlisted) can be sold short, the member firm must affirmatively determine that the security can be borrowed and delivered on settlement. This is called the "locate" requirement. Listed securities trade in the first (exchanges), third (OTC trading of exchange listed securities) and fourth (direct trades between institutions via ECNs) markets. The second market is trading of unlisted securities over-the-counter. These are OTCBB and Pink Sheet issues. Listed companies must register with, and report their results to, the SEC.

Which of the following securities are exempt from registration under the Securities Act of 1933? I Insurance company issues II Bank issues III Savings and loan issues IV Common carrier issues

all When the Securities Act of 1933 was written, issuers that were already regulated under other laws were generally exempted from the provisions of the Act. Insurance companies were already regulated under State insurance laws; banks and savings and loans were regulated by both State and Federal banking laws; common carriers were regulated by the Interstate Commerce Commission (now part of the Department of Transportation).

Delivery of which of the following options communications containing a recommendation must be accompanied or preceded by an Options Disclosure Document? I Options Advertising II Options Correspondence III Options Sales Literature

all A customer who receives any options communication that makes a recommendation; shows past performance; or includes a performance projection; must get the latest Options Disclosure Document (ODD) at or prior to the receipt of the material.

FINRA's IPO purchase restrictions that prohibit industry personnel from buying new issues in the primary market apply to: common stock offerings preferred stock offerings bond offerings investment company offerings

common stock offerings The FINRA rule restricting member firms and their employees from buying IPOs from underwriters only applies to equity offerings. This is the case because the pricing of equity issues has a large "expectations" component that is difficult to quantify - and substantial price increases in the aftermarket due to overblown "expectations" for the issue are not uncommon. The rule does not apply to preferred stock or bond offerings, where the pricing is determined by the present value of the income flows to be received over the life of the security. For these issues, there is no "expectations" component to pricing.

Under MSRB rules, all of the following may be changed by mutual agreement between municipal dealers EXCEPT: place of delivery settlement date on a "When, As, and If Issued" ("WAII") transaction confirmation contents time of delivery

confirmation contents Confirmation contents are explicitly "spelled out" by the MSRB and cannot be changed. By mutual consent, municipal firms are free to change the place or time of a securities delivery; and can set the settlement date of a "When, As, and If Issued" securities transaction. (In a "WAII" trade, the actual settlement date is not known until the new issue of municipal securities is delivered and the offering has been closed between the syndicate and the issuer).

Under MSRB rules, if a Final Official Statementis not yet ready at the time of settlement of the purchase of a new municipal securities issue, the customer would receive a(n): apology letter copy of the Prospectus copy of the Preliminary Official Statement abstract of the Official Statement

copy of the Preliminary Official Statement Under MSRB rules, if a Final Official Statement is being prepared but is not yet ready at the time of settlement, the customer would receive a copy of the Preliminary Official Statement. An abstract of the Official Statement is a broker-prepared summary - this is not permitted. There is no prospectus because municipals are exempt securities under the Securities Act of 1933.

Stabilization rules for new issues are: set by FINRA covered under the Securities Act of 1933 covered under the Securities Exchange Act of 1934 covered under the Securities Investor Protection Act of 1970

covered under the Securities Exchange Act of 1934 The Securities Exchange Act of 1934 prohibits market manipulation - with one exception. Stabilization of new issues is permitted as long as the stabilizing trades (which take place in the secondary market) conform to the requirements of the 1934 Act.