Series 7 Chapter 17
A registered representative who leaves the industry must requalify by examination to return to the industry if he is unaffiliated with a broker/dealer for more than: A) 3 years. B) 10 years. C) 2 years. D) 5 years.
Your answer, 10 years., was incorrect. The correct answer was: 2 years. All securities licenses become null and void once an individual is unaffiliated for more than 2 years.
Under the Code of Procedure, the maximum fine for a minor rule violation (MRV) is: A) 2500. B) 10000. C) 1000. D) 7500.
Your answer, 1000., was incorrect. The correct answer was: 2500. According to the Code of Procedure, the maximum fine for a minor rule violation is $2,500.
An individual who has worked as a registered representative must requalify for registration if he subsequently takes a job outside the securities industry for more than: A) 12 months. B) 24 months. C) 18 months. D) 6 months.
Your answer, 24 months., was correct!. A resigned registered representative may reenter the industry without passing an examination if his resignation lapse is less than 2 years; after 2 years, he must requalify by examination.
A registered representative has been giving monthly lectures to various civic organizations on the pros and cons of investing in fixed-income securities. For what period must the employing broker/dealer keep records of these lectures? A) 3 years. B) 1 year. C) 5 years. D) 6 years.
Your answer, 5 years., was incorrect. The correct answer was: 3 years. Speeches and lectures are considered to be forms of communication with the public and must be kept for at least a period of three years in a format and media that complies with regulations.
If an individual fails a FINRA qualification exam three consecutive times, a fourth attempt may NOT be made for: A) 30 days. B) 6 months. C) 90 days. D) 60 days.
Your answer, 60 days., was incorrect. The correct answer was: 6 months. If a qualification exam is failed three consecutive times, a fourth attempt may not be made for 6 months.
Under the Code of Arbitration, all monetary awards must be paid within how many days of the decision date? A) 15. B) 30. C) 60. D) 45.
Your answer, 60., was incorrect. The correct answer was: 30. All monetary awards in a Code of Arbitration decision must be paid within 30 days of the decision date. If payment is not made, the amount of the award begins to accrue interest as of the decision date.
Your firm prepares a communications piece to be made available to several of your institutional customers only. Your broker/dealer is aware that some of these institutional customers will use the pieces your broker/dealer has prepared for them from time to time and distribute the pieces to their retail customers unaltered. How must the piece be handled by your broker/dealer regarding FINRA approval and filing requirements? A) As an internal piece intended for its own personnel B) As a retail communications piece C) As correspondence D) As an institutional communications piece
Your answer, As correspondence, was incorrect. The correct answer was: As a retail communications piece FINRA mandates that no member may treat a communication as having been distributed to an institutional investor if the member firm has reason to believe that the communication, or any part of it, will be forwarded or made available to any retail investor.
When making cold calls which of the following actions is NOT required? A) Asking the recipient of the call if they would like to placed on the Do-Not-Call list. B) Informing the prospect of the name and telephone number or address of the broker/dealer. C) Immediately recording the names and telephone numbers of those who ask not to be called again. D) Limiting calls to between the hours of 8:00 am and 9:00 pm in the prospect's time zone.
Your answer, Asking the recipient of the call if they would like to placed on the Do-Not-Call list., was correct!. The Telephone Consumer Protection Act (TCPA) requires that representatives contact prospects between 8:00 am and 9:00 pm in their time zone and disclose the member broker dealer's name and phone number or address. If a prospect asks not to be called again, their name and telephone number must be added to the firm's "Do-Not-Call" list. There is no requirement that the recipient of the call be asked if they would like to be placed on the "Do-Not-Call" list.
Which of the following violations could bar an agent from employment in the securities industry? A) Conviction for the misdemeanor of petty theft of money from a client. B) Failing to qualify by examination as an agent. C) Associating with a known felon. D) Being convicted of a traffic violation.
Your answer, Associating with a known felon., was incorrect. The correct answer was: Conviction for the misdemeanor of petty theft of money from a client. Conviction of a felony or a misdemeanor involving money within the past 10 years may subject an individual to a statutory disqualification from the industry. Failing to pass the exam would prohibit the individual from acting as an agent but would not disqualify that individual from performing other duties.
Which of the following are differences between the Code of Procedure and the Code of Arbitration Procedure? The Code of Procedure deals with violations of the Conduct Rules, whereas arbitration is used to settle disputes. Mediation is not required with the Code of Procedure but is mandatory with Arbitration. Code of Procedure decisions may be appealed, whereas decisions reached under Arbitration may not. Arbitration is used for violations that are more serious than those for which the Code of Procedure is used. A) I and III. B) I and II. C) III and IV. D) II and IV.
Your answer, I and II., was incorrect. The correct answer was: I and III. The Code of Procedure is used to deal with violations of the Conduct Rules, whereas the Code of Arbitration is used to settle disputes. Adverse decisions and penalties under the CoP can be appealed to the National Adjudicatory Council, then to the SEC, and, eventually, to the federal appellate court system. Settlements under arbitration are not subject to appeal, and mediation is not mandatory.
Which of the following accurately depicts communications with the public designated as correspondence? Review by a principal must occur before use Review by a principal can occur either before or after use in accordance with the firm's written procedures Filing with FINRA is required Filing with FINRA is not required A) II and IV B) I and IV C) I and III D) II and III
Your answer, I and III, was incorrect. The correct answer was: II and IV Correspondence review by a principal can occur either before or after use in accordance with the firm's written procedures. Filing of correspondence with FINRA is not required.
Regarding FINRA spot-checks of a member firm's communications with the public, which of the following statements is CORRECT? Only written communications are subject to spot-checks. Both written and electronic forms of communication are subject to spot-checks. Upon written request from FINRA, the member must submit the material requested within the time frame specified by FINRA. Upon written request from FINRA, the member has 10 business days to submit the requested material. A) I and III B) II and III C) II and IV D) I and IV
Your answer, II and III, was correct!. Each member's written and electronic communications may be subject to a spot-check procedure by FINRA. Upon written request from FINRA, each member must submit the material requested within the time frame specified by FINRA.
An individual is employed as a research analyst for a member firm that specializes in investment banking and has just completed a research report comparing two companies in the semiconductor business. Which of the following would be considered prohibited activities by this analyst, under FINRA rules? Purchasing shares of a semiconductor company before that issuer's IPO. Trading in these two stocks or their derivatives in a manner inconsistent with that analyst's recommendation. Purchasing shares of either of these two stocks for a personal account after the research report has been issued. Purchasing shares of the XYZ Semiconductor Fund, a fund qualifying as a diversified management investment company under the Investment Company Act of 1940 but not covered or analyzed in the research report. A) I and II. B) I and IV. C) II and III. D) III and IV.
Your answer, II and III., was incorrect. The correct answer was: I and II. FINRA rules restrict personal trading by research analysts. They are never permitted to acquire shares in advance of an IPO in a company in the same type of business that the analysts research. They are never permitted to engage in trading contrary to their opinions, as published in their firm's research reports. Once the report has been issued, they may trade in accordance with their recommendations. Purchasing shares of a mutual fund, even one that specializes in their field of research, is permitted.
Which of the following statements regarding communications with the public are CORRECT? Correspondence does not include email. Prior principal approval is required for all correspondence. Correspondence can include communications sent to existing customers. Correspondence can include communications sent to prospective customers. A) I and IV B) I and II C) III and IV D) II and III
Your answer, III and IV, was correct!. Correspondence includes both written and electronic forms of communications, such as email, and includes communications sent to existing or prospective retail customers. It must be supervised and reviewed by a principal but does not require prior principal approval.
A registered representative wants to place advertisements in his daughters youth athletic league quarterly sponsorship booklet and in the weekly bulletin at his church describing that he specializes in retirement planning and 529 plans. Which of the following statements regarding these advertisements is TRUE? A) The advertisement is considered institutional communications because it is placed in literature being distributed by organizations such as the youth athletic league and the church organization and therefore no principal pre-approval is required. B) The piece will be regulated as correspondence because it is only being forwarded to two organizations. C) No approval is required because both the youth athletic league and the church would be recognized as bona-fide non-profit organizations by the IRS. D) Pre-approval by a principal of the broker dealer is required.
Your answer, No approval is required because both the youth athletic league and the church would be recognized as bona-fide non-profit organizations by the IRS., was incorrect. The correct answer was: Pre-approval by a principal of the broker dealer is required. Any piece promoting securities services and / or products intended to be received by more than 25 retail customers within any 30 calendar-day period must be pre-approved by a principal before use. Given the intended placements of the piece there is no way to determine the exact number of retail customers who will be exposed to it and within what time frames and therefore it must be regulated as retail communications. It fits neither the definition of correspondence or institutional communications.
Which of the following materials is subject to FINRA's filing requirements? A) Internal memo describing the benefits of an investment in a certain unit investment trust. B) Prospectus for a face amount certificate company. C) Retail communications for an open-end management investment company. D) Prospectus for a closed-end management investment company.
Your answer, Prospectus for a closed-end management investment company., was incorrect. The correct answer was: Retail communications for an open-end management investment company. Retail communications for investment companies are subject to filing requirements with FINRA. Those that include a performance ranking that is either created by the investment company or from a source that is not regularly published require pre-filing. Those that do not include such a performance ranking can be filed within 10 business days of first use. Prospectuses and internal memos need not be filed with FINRA.
Which of the following statements regarding investment companies is TRUE? A) Pre-filing for investment company retail communications is never required. B) Retail communications for investment companies must be pre-filed 10 business days before first use when the communication does not include a performance ranking. C) Pre-filing for investment company retail communications is always required. D) Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking.
Your answer, Retail communications for investment companies must be pre-filed 10 business days before first use when the communication does not include a performance ranking., was incorrect. The correct answer was: Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking. Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking. For retail communications that do include a performance ranking, a 10 day pre-filing is required.
Which of the following best describes the disciplinary actions a self regulatory organization (SRO) such as FINRA or an exchange can impose upon a registered representative who has violated its rules? A) The SRO must coordinate all disciplinary actions with the employing member firm who must then impose them on the registered representative. B) The SRO has full authority to impose a jail sentence if warranted. C) The SRO has authority to censure, fine, or expel the registered representative. D) The SRO can only recommend disciplinary actions that must then be imposed by the SEC.
Your answer, The SRO can only recommend disciplinary actions that must then be imposed by the SEC., was incorrect. The correct answer was: The SRO has authority to censure, fine, or expel the registered representative. A self regulatory organization (SRO) such as FINRA or an exchange may censor, fine, or expel a representative directly, but it cannot impose a jail sentence.
When an agent explains mutual funds to a prospective investor, which of the following statements may be made? A) A fund always redeems shares at NAV, with little chance of a financial loss. B) Mutual funds must make payment within 7 days of a redemption request and guarantee a return of the original investment. C) Mutual fund shares are liquid and may be switched from fund to fund without tax liability. D) The redemption value of mutual fund shares fluctuates according to the fund's portfolio value.
Your answer, The redemption value of mutual fund shares fluctuates according to the fund's portfolio value., was correct!. Mutual fund redemption values fluctuate according to the value of the securities in the portfolio. The tax liabilities associated with mutual fund switching may not be glossed over. While the redemption rules of the Investment Company Act of 1940 do make mutual funds liquid, investors are not guaranteed to receive an amount equal to the original investment.
Your broker/dealer has received a written complaint from a customer. FINRA rules require that a record of the written complaint be kept on file by the BD for how long? A) 3 years B) 4 years C) Until the complaint is resolved D) As long as the broker/dealer is in existence or a continues to be a FINRA member firm
Your answer, Until the complaint is resolved, was incorrect. The correct answer was: 4 years FINRA rules require that records of written complaints be preserved or kept on file for a period of 4 years.
Which of the following is NOT a factor when a communication to be distributed to the public is either being reviewed or approved within the broker/dealer? A) The nature of the audience to which the communication is intended to be distributed B) Whether statements of benefits are balanced with statements of potential risks C) Whether the piece will be distributed in written form or via electronic media D) Whether achieving past performance results has been implied
Your answer, Whether statements of benefits are balanced with statements of potential risks, was incorrect. The correct answer was: Whether the piece will be distributed in written form or via electronic media FINRA holds BDs to certain general standards regarding all member firm communications. Consideration must be given to whether all statements in a communication are clear and not misleading, are balanced regarding the representation of risk and reward, do not omit material facts or make exaggerated claims, and do not imply that past performance can be projected to future outcomes. These standards would apply, and be the same, whether the communication was distributed in written or electronic form.
Which of the following observations may a registered representative make when giving a sales presentation based on performance statements and charts? A) The fund has consistently outperformed the market and should continue to do so. B) The portfolio's broad diversification will ensure the continuation of the 6% yield. C) Yield over the last 5 years has fluctuated between 6% and 8%, indicating it will continue at 6% or better. D) The fund has had a positive performance in the last few years.
Your answer, Yield over the last 5 years has fluctuated between 6% and 8%, indicating it will continue at 6% or better., was incorrect. The correct answer was: The fund has had a positive performance in the last few years. Predictions are strictly prohibited and conjecture about future trends or occurrences must be labeled as such.
A broker/dealer informs registered personnel that, to satisfy the annual compliance meeting requirements, they have recorded a Webcast that individuals can view at their own convenience. A Webcast of this type would be: A) allowed for all registered personnel if informed of the opportunity to submit questions and receive answers in a timely fashion. B) allowed for principals only. C) prohibited because this is recorded and not a live Webcast. D) allowed for registered representatives but not for principals.
Your answer, allowed for principals only., was incorrect. The correct answer was: allowed for all registered personnel if informed of the opportunity to submit questions and receive answers in a timely fashion. Using a recorded Webcast for the annual compliance meeting is allowed for all registered personnel so long as certain safeguards are in place. One such safeguard is the opportunity to ask questions and receive answers in a timely fashion; the firm's registered individuals should be made aware of this opportunity.
A registered representative has reproduced a research report prepared by an independent research analyst on his broker/dealer's letterhead, with no mention of the party who prepared the report. If this literature is forwarded to a select group of clients only, the registered representative's action is: A) not allowed. B) allowed only if the research report has been filed with FINRA. C) allowed with the written approval of a principal of the broker/dealer. D) allowed.
Your answer, allowed only if the research report has been filed with FINRA., was incorrect. The correct answer was: not allowed. A broker/dealer is prohibited from presenting to a client research reports, analyses, or recommendations prepared by other persons or firms without disclosing that they were prepared by a third party.
The regulatory element of continuing education must be completed: A) within 120 days of the 2nd registration anniversary and every 3 years thereafter. B) annually. C) every 3rd year. D) within 120 days of the 3rd registration anniversary and every 2 years thereafter.
Your answer, every 3rd year., was incorrect. The correct answer was: within 120 days of the 2nd registration anniversary and every 3 years thereafter. The regulatory element must be completed within 120 days of the person's 2nd registration anniversary and every 3 years thereafter.
Penalties resulting from a Code of Procedure hearing may include all of the following EXCEPT: A) censure. B) suspension. C) expulsion. D) prison sentence.
Your answer, expulsion., was incorrect. The correct answer was: prison sentence. Penalties under the Code of Procedure may include censure, expulsion, suspension, and/or fines but not a prison sentence.
Content having to do with the business of a broker/dealer or registered representative delivered electronically to the public on social networking Websites and blogs A) is not subject to the rules and regulations addressing communications with the public because it is delivered electronically B) is never subject to supervisory rules if it is static content such as a RR's profile or background C) can only be subject to supervisory rules but not filing rules D) is subject to all rules and regulations governing communications with the public
Your answer, is subject to all rules and regulations governing communications with the public, was correct!. Content having to do with the business of a BD or RR is subject to the rules and regulations governing communications with the public. Whether delivered in written form or by electronic means, it is the content for whom it is intended and the number of recipients that determines what category of public communications it falls under, and whether approval or supervision is applicable and/or filing with FINRA is required.
All of the following must be included in a testimonial made on behalf of a member firm and distributed to potential clients EXCEPT: A) qualifications of the person giving the testimonial if a specialized or an expert opinion is implied. B) whether compensation of more than $100 in cash or value was paid to the person giving the testimonial. C) length of time the testimonial covers. D) that the returns and investment performance cited in the testimonial may not be duplicated.
Your answer, qualifications of the person giving the testimonial if a specialized or an expert opinion is implied., was incorrect. The correct answer was: length of time the testimonial covers. When a member firm uses a testimonial, it must be accompanied by a statement that this person's results do not necessarily represent those of other customers; a disclosure regarding compensation paid; and the testimonial giver's qualifications if an expert opinion is implied. There is no time-of-coverage requirement.
During a period of suspension, a suspended member must: A) restrict its securities activities to mutual funds. B) have no securities dealings of any kind. C) be treated as a nonmember by other members. D) restrict its securities activities to investment banking.
Your answer, restrict its securities activities to mutual funds., was incorrect. The correct answer was: be treated as a nonmember by other members. A member firm under suspension is essentially a nonmember during the period of suspension. Accordingly, during that time period, other FINRA members must treat the suspended firm as a nonmember. For example, during the period of suspension, other firms may sell new issues to the suspended firm only at the public offering price.
A registered person leaves the securities industry and 18 months later reassociates with another member firm. FINRA requires that this person's cycle for determining the dates for the regulatory element portion of continuing education be based on: A) his original hire date. B) the date on his application for reregistration. C) his date of reassociation with his new firm. D) his initial registration date.
Your answer, the date on his application for reregistration., was incorrect. The correct answer was: his initial registration date. If reassociation occurs within 2 years, the cycle date remains associated with his original registration date. If it occurs after 2 years have elapsed, the new cycle is based on the reassociation date.