FINRA Series 10 MASTER
As an initial transaction in a cash account, a customer buys 200 shares of ABC at 15. ABC is a "when issued" security, where the physical certificates have not yet been issued. The customer must deposit:
$2,000 In a "when issued" transaction performed in a cash account, the exchanges and FINRA exempt the transaction from payment in full (since the securities are not yet issued). Instead, the customer must put up the minimum maintenance margin requirement (25% in a long account, with at least $2,000 of equity in the account), until the securities are physically issued. After issuance, the customer must complete payment in full "promptly," but as no later than 4 business days after trade date ("S+2"). In this example, the customer is buying $3,000 of when issued stock, as the initial transaction, in a cash account. The customer must deposit the greater of 25% ($750) or $2,000 since this is the initial transaction. Thus, $2,000 must be deposited.
A customer sells short 100 shares of ABC stock at $15 as an initial transaction in a margin account. The customer must deposit:
$2,000 Since this is the initial transaction in a new short account, minimum equity of $2,000 is required. Remember, in a short account a customer has unlimited loss potential, so a new short account cannot be opened with less than $2,000 of equity.
A customer buys 100 shares of ABC stock at $50 as an initial transaction in a margin account. The customer must deposit:
$2,500 Initial margin to buy stocks is 50%. 50% of $5,000 = $2,500.
A customer margin account shows: 100 shares of ABC @ $50 300 shares of DEF @ $80 200 shares of PDQ @ $30 Debit = $6,000 SMA = $11,500 Reg. T. = 50% What is the equity in the account?
$29,000 Long market value - debit = equity 35,000 - 6,000 = 29,000 100 shares of ABC @ $50 = 5000 300 shares of DEF @ $80 = 24000 200 shares of PDQ @ $30 = 6000
A customer buys 100 shares of XYZ at 60 in a margin account regular way settlement. Two days after the trade, XYZ has risen to 70. The customer will receive a margin call for:
$3,000 The initial margin requirement is 50% of the original purchase price. 50% of $6,000 = $3,000. The rise in value will result in the account having SMA, which can be borrowed by the customer once the initial margin is deposited.
Short Positions 100 ABC @ $60 200 XYZ @ $50 Credit = $40,000 SMA = $16,000 Reg. T. = 50% What is the minimum maintenance margin requirement?
$4,800 Minimum maintenance margin for a short account is 30% of the market value. 30% of $16,000 = $4,800.
Under FINRA rules, if a member suspects that a senior citizen is being financially exploited, a temporary hold may be placed on disbursements from the account for up to _______ business days.
15 business days FINRA permits member firms to place a temporary hold on disbursements from customer accounts if the firm suspects that the account owner is being financially exploited. The initial hold can be for up to 15 business days. In addition, if the member's review of the situation supports this, the member can extend the hold for another 10 business days.
What are initial and maintenance margins for stock positions in a long margin account?
50/25 Initial margin for a long margin account is set by Reg. T at 50%. Maintenance margin is set by FINRA at 25%.
What are initial and maintenance margins for stock positions in a short margin account?
50/30 Initial margin for a short margin account is set by Reg. T at 50%. Maintenance margin is set by FINRA at 30%.
BrokerCheck information is available for: I currently registered representatives who are active in the securities industry II previously registered representatives no longer active in the securities industry III currently registered broker-dealer firms that are active in the securities industry IV previously registered broker-dealer firms that no longer active in the securities industry
ALL OF THE ABOVE
In order to determine suitability for a day trading account, the member firm must ascertain the essential facts relative to the customer's: I Investment objectives II Investment and trading experience III Financial situation, including tax status IV Age, marital status and number of dependents
ALL OF THE ABOVE
Which of the following are duties or requirements of an Office of Supervisory Jurisdiction? I Maintenance of required records II Periodic and frequent inspection of customer account records in the branches III Review and approval of all customer transactions and review of sales related correspondence IV Submission to an annual inspection by the member to ensure compliance
ALL OF THE ABOVE
Which statements are TRUE regarding a customer account with a "full power" third party trading authorization? I The third party can enter orders in the account II Checks drawn on the account can only be made out to the customer, not the third party III Upon the death of the customer, the power of attorney is revoked IV The customer can designate that confirmations be sent only to the third party
ALL OF THE ABOVE
Which of the following practices are prohibited under FINRA rules? I Trading mutual fund shares II Selling dividends III Making blanket recommendations of low price speculative stocks IV Recommending purchases beyond a customer's financial capacity
ALL OF THE ABOVE All of the practices listed are manipulative. Mutual funds do not trade; they are issued by the fund and are redeemed by the fund. Dividends cannot be "sold." This means that customers cannot be induced to buy in time to get the dividend, because the ex-date reduction causes them to get nothing. Blanket recommendations of low price speculative stocks do not consider the suitability of the recommendation for each customer. Finally, trades of excessive frequency or size in a customer's account are manipulative, and simply a means of generating commissions.
Which statements are TRUE regarding broker-dealer requirements regarding "insiders" under the Securities Exchange Act of 1934? I Broker-dealers are obligated to establish and enforce procedures to detect and prevent insider violations II Insider rules have forced broker-dealers to adopt "Chinese Wall" policies III Broker-dealers can be held liable for insider trading of their "controlled" employees
ALL OF THE ABOVE All of the statements are true. Under the '34 Act, broker-dealers are obligated to establish procedures to detect and prevent insider violations by their employees. This has led firms to establish so called "Chinese Walls." If it is found that the firm failed to have the proper procedures in place and that it recklessly disregarded evidence of potential insider violations, the firm can be held liable as well for insider violations.
A broker-dealer that extends credit to a customer must disclose: I The basis upon which interest will be charged II The basis upon which the debit balance will be computed III The type of liens to be placed on the customer's collateral
ALL OF THE ABOVE Rule 10b-16 requires that full disclosure of the conditions upon which credit is extended must be made. Thus, the method of charging interest; the method of computing the debit balance; and the nature of liens placed on the customer's securities must all be disclosed.
The Minor Rules Violation Plan procedure can be used if the: I member admits guilt II offense is minor III penalty is limited to a maximum $2,500 fine for a first offense
ALL OF THE ABOVE The Minor Rules Violation Plan procedure is used for minor offenses where the member admits guilt. The maximum penalty is a $2,500 fine.
Under the Securities Exchange Act of 1934, liability for misuse of "inside information" rests with the: I Tipper if the information results in a securities transactionII Tippee if the information results in a securities transactioN
BOTH The misuse of material non-public information that leads to a securities transaction is a violation for both the tipper and the tippee.
An individual that has been registered as a representative for 9 years: A. is exempt from the Regulatory Element of the Continuing Education requirement B. must complete the Regulatory Element of the Continuing Education requirement every 2 years C. must complete the Regulatory Element of the Continuing Education requirement every 3 years D. must complete the Regulatory Element of the Continuing Education requirement every 5 years
C. C. must complete the Regulatory Element of the Continuing Education requirement every 3 years Any registered individual must complete the Regulatory Element of the Continuing Education requirement on the 2nd anniversary of registration and every 3 years thereafter. Note: Effective January 2023, Regulatory Element CE must be completed annually and within the calendar year. Do not expect this to be tested until the effective date
All of the following are "non-public" arbitrators EXCEPT a: A. person associated with a FINRA member firm B. retired person who was previously associated with a FINRA member firm C. bank employee who deals with high net worth customers D. bank employee who effects securities transactions
C. bank employee who deals with high net worth customers A person associated with a FINRA member firm; a retired person who was associated with a FINRA member firm; and a bank employee who effects securities transactions; are all "non-public" arbitrators. A bank employee who deals with clients would be a "public" arbitrator, since this person has no connection to the securities industry.
A suspended individual associated with a FINRA member is permitted to: A. effect securities trades for customers during the suspension period B. be compensated for effecting securities trades for customers during the suspension period C. be compensated for trades effected for customers prior to the suspension period D. perform clerical duties within a member firm
C. be compensated for trades effected for customers prior to the suspension period
What is the best way to ensure that a broker-dealer has an effective AML program? A. By providing AML training to the representatives in each office B. By making sure that SAR and CTR reports are filed in a timely fashion C. By following Know Your Customer procedures that are risk-based D. By arranging for another member firm to review that firm's AML procedures
C. by following Know Your Customer procedures that are risk based The FINRA rule on creating a firm's AML (Anti-Money Laundering) policy is quite generic, however their interpretations state that the AML Policy should include "KYC" (Know Your Customer) procedures that permit the firm to make a reasonable risk-based determination as to its customers, its customers' sources of income, and expected activity. Also part of the AML procedures is the requirement for an annual outside independent audit; and for annual AML training. However, the key part of the interpretation is "KYC" - and this is the best answer.
The purpose of OFAC (Office of Foreign Assets Control) is to: A. set higher margin requirements for foreign nationals that wish to invest in the United States B. monitor the activities of foreign investors in the U.S. markets C. impose economic sanctions against hostile foreign countries and groups D. monitor foreign currency inflows into the U.S. markets
C. impose economic sanctions against hostile foreign countries and groups
The formula for equity in a combined margin account is: A. long market value + short market value - credit balance - debit balance B. long market value + short market value + credit balance - debit balance C. long market value - short market value + credit balance - debit balance D. long market value - short market value - credit balance + debit balance
C. long market value - short market value + credit balance - debit balance
Arbitration is mandatory for all of the following disputes EXCEPT: A. member against member B. member against clearing corporation C. member against customer who has not signed an arbitration agreement D. member against customer who has signed an arbitration agreement
C. member against customer who was not signed an arbitration agreement Arbitration is required to settle disputes between members, and between members and clearing corporations. A customer complaint will only be handled by arbitration if he signed an arbitration agreement. If this is the case, the customer must agree to submit to arbitration to handle the complaint.If the customer did not sign an arbitration agreement, he is free to use the Code of Procedure or to sue the broker-dealer in court.
If a registered person fails to complete the Regulatory Element of the Continuing Education requirement within the allotted time, that person: A. may request an extension from FINRA B. will have their license suspended, but can still be compensated by the member firm C. will have their license suspended and cannot be compensated by the member firm D. must be terminated within 30 days
C. will have their license suspended and cannot be compensated by the member firm
Upon request, a broker-dealer must furnish a customer with: I The firm's latest balance sheet (statement of financial condition) II The firm's latest income statement III The firm's latest net capital computation
I AND III I The firm's latest balance sheet (statement of financial condition) III The firm's latest net capital computation
A broker-dealer may charge separately for which of the following services? I Collection of dividends II Safekeeping of securities III Appraisals of securities IV Recommendations of securities
I Collection of dividends II Safekeeping of securities III Appraisals of securities A broker-dealer can charge for clerical services such as collection of dividends; safekeeping of securities; and appraisals of securities. It cannot charge separately for recommendations. Any compensation for this is derived from commissions and mark-ups.
Which of the following are marginable? I Listed common stocks II Listed stock options III IPO of common stock that occurred 10 days ago
I Listed common stocks
Which of the following are violations of FINRA rules? I Sharing in the profits and losses of a customer's account without contributing proportional capital II Selling exempted securities to a customer with a written agreement to buy back the securities at a later date III Orally guaranteeing to buy back customer securities at a preset price
I Sharing in the profits and losses of a customer's account without contributing proportional capital AND III Orally guaranteeing to buy back customer securities at a preset price
When recommending securities, disclosure must be made to customers of: I Control relationships II Existence of financial advisory relationships III Fiduciary information
I and II The existence of control relationships and financial advisory relationships must be disclosed to customers when your firm recommends a security of an issuer where the relationship exists. Fiduciary information is "confidential" and cannot be disclosed without the express consent of the customer.
Customer complaint records must be kept: I in each branch office II in each Office of Supervisory Jurisdiction III for 4 years IV for 5 years
II and III Customer complaint records with their resolution must be kept on file in each Office of Supervisory Jurisdiction for 4 years.
A margin account shows the following: Long Market Value = $12,000 Debit = $4,000 Which statements are TRUE about the excess equity in the account? I Marginable stock can be purchased in an equal amount to the excess II Marginable stock can be purchased in an amount that is twice the excess III If the excess equity is withdrawn, the debit increases by an equal amount IV If the excess equity is withdrawn, the debit increases by twice the amount
II and III II Marginable stock can be purchased in an amount that is twice the excess III If the excess equity is withdrawn, the debit increases by an equal amount If an account has excess equity (SMA), the exact amount of SMA may be borrowed, or twice the amount may be purchased in marginable shares (when margin is 50%), known as "Buying Power."
Which statements are TRUE regarding the use of the FINRA name on a member firm's website? I The member is obligated to include the FINRA name on its website II The member is under no obligation to include the FINRA name on its website III When the FINRA name is present on a member's website, it must be accompanied by a hyperlink to the FINRA website IV When the FINRA name is present on a member's website, it must be accompanied by a statement that FINRA neither approves nor disapproves of the member's business practices or securities offerings
II and III I The member is under no obligation to include the FINRA name on its website III When the FINRA name is present on a member's website, it must be accompanied by a hyperlink to the FINRA website
Which of the following signatures appear on the New Account Form? I Customer II Registered Representative who performed the "Suitability Determination" III Manager or Principal
II and III II Registered Representative who performed the "Suitability Determination" III Manager or Principal The customer is not required to sign the new account form. He or she always signs the margin agreement and customarily signs the loan consent agreement if a margin account is opened. The registered representative signs the new account form only if he or she performed the suitability determination. If, for example, a customer opened an on-line account and completed the suitability information by him- or herself, then the registered representative's signature is not required. The manager must review and approve the account by signing the form (which can be done electronically), before any trades take place.
FINRA may summarily suspend a firm without prior notice if the firm is: I the subject of a written customer complaint II suspended by another securities exchange III in financial difficulty
II and III II suspended by another securities exchange III in financial difficulty
Which statements are TRUE regarding forwarding of proxy materials to customers? I Transmittal costs are paid by the customer II Transmittal costs are paid by the issuer III Proxies must be sent by the broker-dealer to cash customers that hold the stock in cash accounts IV Proxies must be sent by the broker-dealer to customers that hold the stock in margin accounts
II and IV II Transmittal costs are paid by the issuer and IV Proxies must be sent by the broker-dealer to customers that hold the stock in margin accounts Proxies are sent directly to registered owners by the issuer. Therefore, there is no responsibility for the broker-dealer to send proxies to cash account customers. For margin accounts (street name securities), the broker-dealer is obligated to forward proxies to the beneficial owners and is paid by the issuer for this.
Regulation T applies to which of the following? I U.S. Government bonds traded over-the-counter II Municipal bonds traded over- the-counter III Common stocks traded on exchanges IV Preferred stocks traded over- the-counter
III and IV III Common stocks traded on exchanges IV Preferred stocks traded over- the-counter Reg. T of the Federal Reserve Board only applies to non-exempt securities. Governments and municipals are exempt, so Reg. T does not apply. However, industry minimum margin rules still apply. Common stock and preferred stock is non-exempt. Therefore, Reg. T applies, as well as industry minimum margin rules.
Which of the following branch functions can be outsourced to a third party provider? I New account processing II New account approval III New account customer I.D. verification IV New account suitability determination
NEW ACCOUNT PROCESSING (I) AND NEW ACCOUNT CUSTOMER ID VERIFICATION (III) FINRA does not allow functions that must be performed by a registered person to be outsourced (unless the third party firm to whom the functions are outsourced is itself a registered broker-dealer). New account approval must be performed by a registered principal and suitability determinations can only be made by registered representatives (or registered principals). Customer account processing and verification of customer identity are functions that can be outsourced - there is no requirement for these to be performed by a registered person.
Member firms are obligated to review their AML compliance person designation record and update the information as necessary at least:
annually
Under FINRA rules, fixed fee accounts should be reviewed for appropriateness for customers at a minimum:
annually
A registered representative who participates in an internet chat room is defined as:
public appearance FINRA defines interactive (real-time) content on blogs, social networking sites and chat rooms as a public appearance. On the other hand, non-interactive (static) content on blogs, social networking sites and internet bulletin boards is defined as advertising.
Under Rule 10b-16, customers must be notified about free credit balances in their accounts at least:
quarterly
An attorney is defined as a "non-public arbitrator" if he or she has devoted: A. 20% or more of his or her professional work to securities firm clients within the past 2 years B. 20% or more of his or her professional work to securities firm clients within the past 3 years C. 50% or more of his or her professional work to securities firm clients within the past 2 years D. 50% or more of his or her professional work to securities firm clients within the past 3 years
A. 20% or more of his or her professional work to securities firm clients within the past 2 years
A registered representative posting on a blog is defined as: A. advertising B. sales literature C. public appearance D. correspondence
A. Advertising FINRA defines interactive (real-time) content on blogs, social networking sites and chat rooms as a public appearance. On the other hand, non-interactive (static) content on blogs, social networking sites and chat rooms is defined as advertising.
In a prime brokerage account, which statement is NOT true? A. The prime broker executes all transactions for the customer B. The prime broker settles all transactions for the customer C. The prime broker maintains custody of all positions taken by the customer D. The prime broker provides financing for all positions taken by the customer
A. The prime broker executes all transactions for the customer Prime brokerage accounts are demanded by large hedge fund customers, that use the "prime broker" to settle all trades, maintain custody of positions taken, and provide financing on those positions. However, the customer can (and does) "trade away" from the prime broker, sending trades to other executing brokers. One worry of large hedge fund customers is that if they sent all their trades through one executing broker, then that broker could figure out the hedge fund's trading strategy and use that information to do proprietary trading for the firm's benefit. If the hedge fund parcels out its trades to many different executing brokers, then each one only sees a piece of the puzzle and cannot put the hedge fund's whole trading strategy picture together.
All of the following statements are true about COD transactions EXCEPT: A. before accepting the order, the member firm must receive written assurance from the bank that the funds are available to pay upon delivery B. before accepting the order, the member firm must receive an agreement from the customer that the depository has been instructed to pay upon delivery C. the securities must be delivered by the broker-dealer within 35 calendar days after trade date D. if delivery is not made within 35 calendar days, the broker-dealer must apply to the self-regulatory organization for an extension
A. before accepting the order, the member firm must receive written assurance from the bank that the funds are available to pay upon delivery In a DVP transaction, the customer must agree to notify the bank receiving the delivery to pay upon delivery. There is no requirement for the broker-dealer to contact that bank directly. The customer must deposit the funds to pay for the securities under normal industry time frames - that is promptly, but no later than "Settlement + 2," which is 4 business days. The broker-dealer is obligated to deliver the securities to the bank against payment as soon as they are issued, but not later than 35 calendar days after trade date. If the securities have not been issued by this date, or the broker-dealer cannot effect delivery, it must request an extension from its self-regulatory organization.
In order to recommend a fee-based account to a customer, under FINRA rules, the customer must be provided with a(n): A. disclosure document, at or prior to, account opening B. disclosure document within 15 days of account opening C. investment adviser brochure, at or prior to, account opening D. investment adviser brochure within 15 days of account opening
A. disclosure document, at or prior to, account opening
SEC Regulation SP covers: A. notification to customers of a member firm's privacy policies and practices B. selective disclosure of material non-public information by issuers C. standardization of disclosure of financial and non-financial information by issuers D. registration filings with the SEC by small business issuers
A. notification to customers of a member firm's privacy policies and practices Regulation SP, passed in 2000, 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.
A registered representative makes an appointment to meet a customer at the local diner to discuss her portfolio. FINRA defines the meeting place as a(n): A. office of convenience B. branch office C. satellite office D. non-branch office
A. office of convenience A location where a registered representative meets a customer by appointment on a non-regular basis is an "office of convenience" and is not defined as a branch.
Advertisements dealing with which one of the following must be pre-filed with FINRA by an established broker-dealer? A. options B. CMOs C. Public DPPs D. Treasury securities
A. options All retail communications involving security futures (options) must be filed with FINRA 10 business days prior to first use. Also subject to the 10 day advance filing rule are mutual fund retail communications with member-prepared performance rankings. The retail communications that must be filed 10 days after first use (always) are CMO, publicly traded-structured product, DPP and other mutual fund retail communications. Also note that broadly-disseminated free-writing prospectuses must also be filed 10 days after first use. All other retail communications, after a firm's first year of operations, are not required to be filed, but are subject to spot check. For a firm's first year of operations, all other advertising and must be filed with FINRA 10 business days prior to use. Thereafter, no filing is required, but the firm is subject to spot check.
A Series 7 licensed registered representative has been called up for active duty in the military. The representative wants his licensed registered sales assistant to service his clients while he is away, and agrees to pay the sales assistant a weekly salary for this, out of commissions earned. This arrangement is: A. permitted under FINRA rules B. prohibited because a sales assistant is not Series 7 licensed C. prohibited because sales assistants cannot earn commissions D. is prohibited because representatives that are called up for active duty cannot be compensated while they are "out of the business"
A. permitted under FINRA rules A registered representative that has been called up for active duty in a foreign country can arrange for another representative at the same firm to service his or her customer account while away; and can share commissions with that representative. Notice that this sharing is only permitted with a representative at the same broker-dealer, not another broker-dealer.
The requirement for broker-dealers to maintain a "Chinese Wall" comes under: A. the most recent Insider Trading Act B. sec Rule 10b-5 C. the Uniform Securities Act D. the Patriot Act of 2002
A. the most recent Insider Trading Act
A customer buys 100 shares of ABC stock at $15 as an initial transaction in a margin account. The customer must deposit: A. $750 B. $1500 C. $2000 D. $3,000
B. $1500 Since this is the initial transaction in a new long account, normally minimum equity of $2,000 is required. However, because the customer is buying 100 shares at $15, full payment of $1,500 is the most that can be demanded, since this is the maximum that can be lost in the account.
Minimum margin in a day trading account is: A. 5% B. 25% C. 50% D. 100%
B. 25% Minimum maintenance is computed in a day trading account in a totally different manner than a regular margin account. It is computed as 25% of the value of trades performed that day (so the minimum is not computed as 25% of closing market value, as it would be in a regular margin account).
A registered representative in your office has been called-up for active military duty in the Persian Gulf for 1 year, during which time his Regulatory Element CE was scheduled to be completed. The registered representative returns from active duty to resume his civilian career. Which statement is TRUE? A. The registered representative's registration must be terminated by filing a U5 with CRD within 30 days of the individual's return to civilian status because the CE obligation was not completed B. The registered representative's registration became "inactive" during the period of military service and the CE obligation was suspended until the individual returned to his civilian career C. The registered representative's registration would have been terminated when the CE obligation was not completed and that individual must complete an updated U4 filing to re-register D. The registered representative's registration status and CE obligation were unaffected by his call-up for military service
B. The registered representative's registration became "inactive" during the period of military service and the CE obligation was suspended until the individual returned to his civilian career If a registered representative is called-up for active military duty, FINRA classifies that person as being "inactive" and his or her CE obligations are suspended. The employing broker-dealer must send a letter to CRD giving the registered representative's name and CRD number and the date the firm received notification of the call-up from the representative. Once the representative is discharged from military service, a copy of the discharge notice must be sent to CRD so that the individual can resume active registered status, basically starting from the point where he or she left off.
Which gift valued at more than $100 could be accepted by a registered representative? A. Dinner voucher received from a long standing client for the representative's excellent work B. Wedding present received from a family member that is a client C. Tickets to a ball game from a client seeking a large IPO allocation D. Transportation by limousine service to and from a conference held 70 miles away
B. Wedding present received from a family member that is a client. Regarding the gift limit, the $100 limit does not apply to gifts of a personal nature - such as a wedding gift or gift upon the birth of a child; and does not apply to promotional items that display the offeror's logo, such as golf balls, shirts, etc.
A representative is asked by the local PTA to make a speech on investing. About 100 people are expected to attend. If the representative includes analyses of specific stocks in the speech and the attendees use this information to determine whether to invest in those securities, then the speech is considered to be: A. advertising B. research report C. sales literature D. public forum
B. a research report Any communication analyzing individual stocks that provides information that allows an investment decision to be made, if it is distributed to at least 15 persons, is defined as a "research report."
Decisions rendered by the Hearing Panel under the Code of Procedure: A. cannot be appealed B. can be appealed to the FINRA Board of Governors' National Adjudicatory Council C. can be appealed to the Securities and Exchange Commission D. can be appealed to the supreme court
B. can be appealed to the FINRA Board of Governors' National Adjudicatory Council Hearing Panel decisions can be appealed to the National Adjudicatory Council. Only after this appeal is exhausted, can the decision be appealed to the SEC.
If a trade occurs in a customer account in a month, a statement must be sent: A. within 1 business day B. for that month C. at the end of the quarter D. at the end of the year
B. for that month
All of the following positions can be held in a portfolio margin account EXCEPT: A. listed stocks B. listed bonds C. listed options D. unlisted derivatives
B. listed bonds Portfolio margin, which is risk-based as opposed to strategy- based, reduces margins for hedged stock positions and hedged stock portfolios. To hedge stock positions, listed options, unlisted derivatives, securities futures, warrants and index warrants may be used. Portfolio margins cannot be used for bond positions. This is the case because they already have very low margins (for example, the margin on corporate bonds is the greater of 7% of face or 20% of market value).
A password-protected website is defined as: A. advertising B. sales literature C. public appearance D. correspondence
B. sales literature
All of the following are subject to FINRA advertising filing requirements EXCEPT a(n): A. advertisement on the firm's website B. tombstone announcement C. billboard placed in the window of a branch office D. television advertisement of the firm's general services
B. tombstone announcement
FINRA rules require broker-dealers to report customer and proprietary short positions in each OTC security: A. weekly B. twice monthly C. monthly D. quarterly
B. twice monthly FINRA rules requires broker-dealers to report "short interest" figures by the 15th of each month and on the last calendar day of each month.
All of the following gifts given by a mutual fund sponsor to a registered representative violate FINRA rules EXCEPT: A. a discount from the public offering price that is not included in the fund prospectus B. wholesale overrides on fund sales C. $100 a person per year D. a trip to Hawaii based solely on sales volume
C. $100 a person per year
Simplified arbitration is available for claims where the amount in dispute does not exceed: A. $10,000 B. $25,000 C. $50,000 D. $100,000
C. $50,000
If there is a customer complaint, FINRA retains jurisdiction over a resigned member for: A. 30 days B. 6 months C. 2 years D. 3 years
C. 2 years A resignation from FINRA is not effective for 30 days. However, if there is a customer complaint, FINRA retains jurisdiction for 2 years.
A customer who wishes to open a new account is asked by the registered representative for a government issued photo identification. The customer gives the representative a copy of his driver's license, which the representative notes has expired 3 months ago. Which statement is TRUE? A. Because the identification document was government issued, it can be used to verify the customer's identity B. As long as the identification has not expired more than 6 months ago, it can be used to verify the customer's identity C. As long as another non-documentary method is used to verify the customer's identity, the account can be opened D. This account cannot be opened unless the customer renews his or her driver's license and presents it to the member firm
C. As long as another non-documentary method is used to verify the customer's identity, the account can be opened The reason an expired ID cannot be used to verify customer identity is simple. Let's say that you were issued a new driver's license because your old one expired, so you toss the old one in the trash. The garbage man sees the old expired license, takes it and sells it to a person who specializes in identity theft. That thief would attempt to use the expired license to open accounts in your name!
Who initiates a complaint under the FINRA Code of Procedure? A. Member firm B. Customer C. Finra department of enforcement D. Finra market watch
C. FINRA department of enforcement e Code of Procedure is used by FINRA to discipline associated persons and member firms for serious rule violations. It starts with the FINRA Department of Enforcement serving a complaint on the member firm or associated person, and filing a copy of the complaint with the FINRA OHO - Office of Hearing Officers. The OHO will appoint a Chief Hearing Officer and, after the respondent answers, will decide whether a hearing is required.
A few weeks after FINRA has completed its inspection of a member firm, it sends the firm a request for copies of certain client files. Which method of delivery to FINRA is acceptable? A. Memory stick B. CD with a key code enclosed in the same envelope C. Hard copies sent via overnight delivery D. unencrypted email
C. Hard copies sent via overnight delivery In response to an information request from FINRA, the required documents can be shipped on paper or electronically. Regarding electronic delivery, the files must be sent in encrypted form, with the code or key sent separately. Thus, Choices A, B and D are all unacceptable forms of electronic delivery. So we are left with sending good, old, paper files!
All of the following meet the statutory definition of an "insider" EXCEPT: A. officer of a company B. Holder of 10% of the equity securities of a company C. Holder of 10% of the debt of a company D. Director of a company
C. Holder of 10% of the debt of a company The Securities Exchange Act of 1934 defines an "insider" as any officer; director; or 10% shareholder of the equity securities of the issuer.
A registered representative is called-up for active military duty. During the time period that the individual is on military leave, that person's registration is: A. Terminated B. Suspended C. Inactive D. Active
C. Inactive If a registered individual is called-up for military duty, his or her registration becomes "inactive" and basically sits there in suspense until he or she returns to the securities business. Then it simply picks up where it was left off.
All of the following functions can be performed by either a general principal or a general sales supervisor EXCEPT: A. approval of customer orders B. approval of sales related correspondence C. approval of advertising D. approval of new accounts
C. approval of advertising A general principal (Series 24) can perform all supervisory functions, whereas a general sales supervisor (Series 9/10) is limited to the supervision of customer accounts. Therefore, the sales supervisor can approve new accounts; approve customer correspondence relating to sales; and can approve orders. The sales supervisor can not approve advertising or sales literature; cannot supervise a trading desk; cannot approve financial reports of the firm; and cannot sign underwriting agreements.
At the account opening stage, which of the following customer actions would NOT be an indicator of potential money laundering? A. Concern regarding the firm's government reporting requirements B. Difficulty describing his or her work or lack of industry knowledge C. Uncertainty about his or her investment objectives and needs D. Ordering transactions that are inconsistent with his or her stated objectives
C. Uncertainty about his or her investment objectives and needs
A customer sends a written complaint to her broker-dealer that she did not receive her most recent cash dividend on ABCD stock and that the registered representative servicing the account is stealing from her. The BOM researches the situation and finds out that the dividend was mailed to the wrong address and that the registered representative had no involvement with the error. The BOM calls the customer and explains this to her, at which point she withdraws the complaint. Which statement is TRUE about this? A. A Form CTR must be filed with FinCEN within 15 days B. A Form SAR must be filed with FinCEN within 30 days C. A report must be filed with FINRA promptly D. No report is required to be filed with FINRA
C. a report must be filed with FINRA promptly Written allegations against a registered individual of theft, embezzlement, misappropriation of funds, etc. are reportable events to FINRA. FINRA states that even if such a written allegation is subsequently withdrawn, the report is still required. Finally, note that this rule only requires reports for written complaints - a complaint made over the phone does not count and would not be reported.
Who can sue to recover damages from convicted "insiders"? A. The entire investing public B. Any current owner of the issuer's securities C. Any person who traded the issuer's securities during the period of "inside trading" D. No public suits can be brought after conviction
C. any person who traded the issuer's securities during the period of "insider trading" Insider trading violators can be sued by any investor who held or traded the stock during the period that the violations took place.
Which of the following is NOT defined as an OSJ? A. A location where new issue offerings are structured B. A location where final review of new accounts occurs C. A location where advertising and sales literature is approved D. A location where orders are accepted from customers
D. A location where orders are accepted from customers
Customer fails to deliver must be bought in: A. 7 business days after trade date B. 7 business days after settlement date C. 10 business days after trade date D. 10 business days after settlement date
D. 10 business days after settlement date. If a customer fails to deliver on a sale, this is not known until settlement date. As of settlement, the customer has 10 business days to deliver the stock, or the position will be bought in by the brokerage firm.
Generally, arbitration panels to hear disputes between two associated persons where the amount is $100,000 or more, consist of: A. 3 public arbitrators B. 3 non-public arbitrators C. 1 public; 2 non-public D. 2 public; 1 non-pubic
D. 2 public; 1 non-public arbitrator Arbitration panels to settle disputes between two associated persons, or between an associated person and a member firm, where the amount in dispute is $100,000 or more, consist of 3 arbitrators - 2 public and 1 non-public.
If a registered individual is terminated, FINRA must be notified with a U5 Form within: A. 1 business day B. 5 business days C. 10 business days D. 30 business days
D. 30 days If an individual is terminated, FINRA must be notified by the firm within 30 days of termination on a U5 Form; and a copy of the form must be supplied to the ex-employee.
If the registered principal is suspicious about the activities of a new customer who is attempting to open an account, a(n): A. AML report must be filed with FINRA promptly B. AML report must be filed with FINRA within 30 days C. SAR report must be filed with FinCEN promptly D. SAR report must be filed with FinCEN within 30 days
D. SAR report must be filed with FinCEN within 30 days
A Series 7 licensed individual divulges questions from the exam to another trainee that is about to take the test. Who is subject to FINRA disciplinary action? A. The Series 7 licensed individual B. The trainee who is about to take the exam C. Both the Series 7 licensed individual and the trainee who is about to take the exam D. The Series 7 licensed individual and the trainee who is about to take the exam, along with the Series 9/10 supervisor of these individuals
D. The Series 7 licensed individual and the trainee who is about to take the exam, along with the Series 9/10 supervisor of these individuals
Which of the following 4 scenarios would cause the "taping rule" to be triggered? A. The broker-dealer does not comply with the "Do Not Call" list requirement under FINRA rules regarding unsolicited cold calls B. The broker-dealer hires a significant number of previously registered representatives from a broker-dealer that has ceased operations C. The broker-dealer distributes sales literature and other communications to customers via phone connections D. The broker-dealer hires a significant number of previously registered representatives from a member that was expelled due to "cold calling rule" violations
D. The broker-dealer hires a significant number of previously registered representatives from a member that was expelled due to "cold calling rule" violations The "taping rule" that requires member firms to tape the conversations of its registered representatives, is triggered if the member firm hires too many representatives from a firm that has been previously disciplined by FINRA.
A potential new hire candidate discloses to the branch manager that he was in a horrible car accident and that he was convicted of the felony charge of involuntary manslaughter 6 years ago. This individual: A. is not required to disclose the information on the U4 application B. must disclose the information on the U4 application and will be able to be registered with no further action taken C. can only be hired in a clerical capacity D. cannot be hired as a registered representative
D. cannot be hired as a registered representative Any misdemeanor conviction involving securities or monies and any felony must be disclosed on the U4 Form and is cause for statutory disqualification. Since this is a felony conviction, it must be disclosed on the U4 and it will automatically disqualify the individual from registration. (However, the individual can request an Eligibility Proceeding to overcome the statutory disqualification, but this is not asked in the question.)
Which of the following does NOT affect SMA in a long margin account? A. purchase of securities B. sale of securities C. increase in market value D. decrease in market value
D. decrease in market value
All of the following disputes that a registered representative has with his or her firm are excluded from arbitration EXCEPT: A. discrimination B. sexual harassment C. whistleblower retaliation D. hostile work environment
D. hostile work environment All disputes between registered representatives and their employers must be settled by arbitration except discrimination claims, sexual harassment claims, and whistleblower retaliation claims.
Research personnel are permitted to: A. offer to follow a company that is interested in using the services of that firm's investment banking department to go public by issuing quarterly research reports on that issuer. B. offer to issue a "buy" recommendation to a company that is interested in using the services of that firm's investment banking department to go public C. inform an issuer that if it does not use the firm's investment banking services, that the broker-dealer will stop issuing favorable research reports on that issuer D. inform an issuer that the broker-dealer is going to terminate coverage because of a management decision to stop following that industry
D. inform an issuer that the broker-dealer is going to terminate coverage because of a management decision to stop following that industry
A customer calls a registered representative to sell 500 shares of an OTC stock and tells the representative that he wants the trade done privately - not in the public market. This is: A. allowed without restriction B. allowed with the oral approval of the principal C. allowed If the trade is performed as "agent" D. not allowed unless there is a prior written agreement with the firm
D. not allowed unless there is a prior written agreement with the firm FINRA prohibits "private securities" transactions. Trades must be done with the knowledge of your firm in the public securities markets. The only way to effect a private securities trade is to get prior written approval of the firm; and for the firm to supervise the transaction as if it occurred through the firm.
Under FINRA rules, all of the following statements are true about each customer who is placed in a NMFBA EXCEPT: A. such an account type must be suitable for the customer taking into account services provided, anticipated costs and investment objectives B. a disclosure document must be provided to the customer prior to account opening C. account activity must be reviewed for appropriateness at least every 12 months D. the member firm must continuously compute account fees on a per trade basis, and if this is lower, charge that amount as the account fee
D. the member firm must continuously compute account fees on a per trade basis, and if this is lower, charge that amount as the account fee FINRA requires that when a "non-managed fee based account (NMFBA)" is recommended to a customer, the customer must be suitable for that account type; a disclosure document must be provided to the customer prior to account opening explaining how fees will be charged; and that all such accounts must be reviewed at least every 12 months for appropriateness. There is no requirement to compare account charges on fee based accounts to the charges that would have been incurred on a straight commission basis, and to charge the customer the lower amount.
Fidelity bond coverage maintained by brokerage firms: I Protects against loss due to employee theft II Protects against loss against falling markets III Is based upon the firm's net capital requirement IV Is based upon the commission income of the firm
I and III FINRA requires brokerage firms to maintain fidelity bond coverage to protect against loss due to employee theft, embezzlement, or misappropriation of funds. The coverage amount increases as the firm's net capital requirement increases.
An individual customer places an order with a broker at 12:30 PM Eastern Time to "Buy 10,000 shares of ABC stock whenever you think the time is best." This order: I must be entered immediately by the representative as a "Market-Not Held" order II should be entered by the representative at the moment that he or she thinks is appropriate for getting the best execution III must be filled by the close of the market on that trading day IV must be filled by 12:30 PM Eastern Time on the following trading day
I and III I must be entered immediately by the representative as a "Market-Not Held" order III must be filled by the close of the market on that trading day
Deposits of which TWO of the following by a customer could be indicators of potential money laundering? I Cash II Checks drawn on U.S. banks III Money orders IV Wire transfers from U.S. banks
I and III (cash and money orders) Particular attention must be given to deposits (or withdrawals) of cash; cashier's checks, money orders; and travelers checks, when looking for money laundering activity. Deposits of checks drawn on U.S. banks are not suspicious; and wire activity is suspicious generally when the wires are being sent to, or received from, countries that are not members of FATF (Financial Action Task Force).
Which statements about reverse convertible notes are TRUE? I The maximum potential loss is limited to the principal amount II The maximum potential loss is unlimited III At maturity, the holder must take delivery of shares of stock IV At maturity, the holder will receive stock if the share price is below the "knock in price"
I and IV I The maximum potential loss is limited to the principal amount IV At maturity, the holder will receive stock if the share price is below the "knock in price" A type of "structured product" is a reverse convertible note. These were created for customers looking for enhanced yield in a low interest rate environment. Of course, any enhanced yield comes with higher risk. The note is linked to the price movements of an underlying stock (or very rarely, an underlying index). At maturity, typically in 7-10 years, the holder will receive par value, as long as the price of the reference stock is above the "knock-in" price (typically 70-80% of the initial reference price). On the other hand, if at maturity, the reference stock falls below the "knock-in" price, then the holder will receive the shares of stock. Thus, the maximum gain potential for the holder is earning the coupon rate and getting 100% of principal back at maturity. On the other hand, the maximum risk is getting the reference stock at maturity, and that stock has become worthless. Investors accept this risk because they get a higher coupon rate and believe that this adequately compensates them for the risk of principal loss if the stock price declines. Basically, the buyer of a reverse convertible note is neutral or slightly bullish on the reference equity security, and is seeking a fixed coupon security that offers a higher level of income.
A portfolio margin account for an individual customer: I requires at least $100,000 of initial equity II requires at least $500,000 of initial equity III must be approved for covered options writing IV must be approved for naked options writing
I and IV (requires at least $100,000 of initial equity and must be approved fro naked options writing) Portfolio margin is "risk-based" so that a diversified or hedged portfolio (which will have lower risk) will get a much lower margin than regular strategy based margin. Remember that for an individual to open a portfolio margin account, at least $100,000 of equity must be deposited and the account must be qualified for naked options writing.
Membership in FINRA will be denied to which of the following? I A person who has been suspended by the Chicago Board Options Exchange II A person who had been convicted of securities fraud 5 years ago III A person who is enjoined from engaging in the securities business IV A person who is convicted of a traffic misdemeanor in the last 3 years
I, II, and III FINRA will deny membership to any person that has been suspended or expelled by another self-regulatory organization; to any person that has been convicted of a securities or money related misdemeanor, or any felony, within the past 10 years; or a person who has been enjoined from engaging in the securities business. FINRA does not consider non-money or non-securities related misdemeanors such as non-felony traffic offenses to be serious enough to deny membership.
Which of the following has the authority to suspend, expel or fine a member? I Hearing Panel II Uniform Practice Committee III FINRA National Adjudicatory Council IV Securities and Exchange Commission
I, III, and IV The FINRA Hearing Panel as well as the National Adjudicatory Council, have the power to suspend, expel, or fine a member. The Uniform Practice Committee is concerned with dealer to dealer practices such as settlements, and is not involved in trade practice disputes since these are handled through binding arbitration. Of course, the SEC always has the power to suspend or expel a member.
Which of the following are defined by FINRA as branch offices? I Any office with a resident general principal responsible for supervision II Any location where customers are met by appointment III Any office listed as a branch office on the website IV Any office where securities business with the public is regularly conducted
III and IV III Any office listed as a branch office on the website IV Any office where securities business with the public is regularly conducted FINRA defines a branch office as a location where securities business is conducted on a regular basis with the public. Also note that if a location is advertised as a branch, then it is defined as one. FINRA does not include an office occupied by a general principal where supervision is performed in the definition - this describes an Office of Supervisory Jurisdiction (which also must be registered with FINRA). So-called "offices of convenience" are excluded from the definition - these are locations where customers are met on an occasional basis and only by appointment - such as meeting a customer at the local Starbucks.
Under SEC Rule 15g-1, which of the following are defined as an "established customer" that is exempt from the provisions of the "Penny Stock Rule"? I A customer who has extensive equity trading experience II A customer who maintains a good credit relationship with another registered broker-dealer III A customer who has had an account with the broker-dealer for at least 1 year IV A customer who wishes to effect a penny stock trade in a transaction that was unsolicited
III and IV III A customer who has had an account with the broker-dealer for at least 1 year IV A customer who wishes to effect a penny stock trade in a transaction that was unsolicited
Minimum equity to open a regular margin account is ___________ than that for a day trading account
Minimum equity to open a regular margin account is LESS than that for a day trading account. The minimum equity required to open a regular margin account is $2,000; as opposed to $25,000 for a day trading account.
A mediator fails to resolve a dispute between a customer and a member firm. Under FINRA rules, the: I dispute will be handled under the Code of Arbitration Procedure II dispute will be handled under the Code of Procedure III mediator cannot participate in any subsequent hearing related to this matter IV mediator can participate in any subsequent hearing related to this matter
The dispute will be handled under the Code of Arbitration Procedure (I)and the mediator cannot participate in any subsequent hearings related to this matter (III). If both parties have agreed to attempt to settle a dispute by mediation and no resolution has been reached, then the dispute will be submitted to arbitration for resolution. The mediator in the unresolved dispute is prohibited from acting as one of the arbitrators on the panel that will hear the matter.
