Series 7 Top-Off - Chapter 6 **copy**

Registered Representatives would be liable for damages in the use of material, non-public information in all of the following situations except: [A] The representative decides not to share the information and does not trade based on the information [B] The representative decides not to share the information with others but does make trades in his personal only [C] The representative trades using the information after notifying officers of the firm [D] The representative decides not to trade using the information but shares the information with others who do use the information for trading purposes.

[A] The representative decides not to share the information and does not trade based on the information Any use of inside information is a violation of the Insider and Trading Fraud Enforcement Act of 1988.

Which of the following persons would be allowed to take a "short" position? [A] a non-affiliated outsider who owns 2% of the outstanding shares of the company being "shorted" [B] the President of the corporation [C] a principal stockholder of a corporation [D] a director of a corporation

[A] a non-affiliated outsider who owns 2% of the outstanding shares of the company being "shorted" Insiders are prohibited from going short or short against the box; therefore, the non-affiliated outsider in answer "A" would be the only person allowed to take a short position.

The names and contact information for customers of a broker/dealer [A] can be shared with the consent of each individual client. [B] can only be shared with charitable organizations. [C] may not be shared with anyone under any circumstances. [D] may be shared with anyone as they are public record.

[A] can be shared with the consent of each individual client.

A corporation is going to go public and wishes to make their securities available throughout the United States. This initial public offering (IPO) [A] should be registered at the federal level with the Securities and Exchange Commission (SEC). [B] should be registered at the state level with the securities regulators of each individual state. [C] should be registered at the local level with the Municipal Securities Rulemaking Board (MSRB). [D] is exempt from all forms of registration.

[A] should be registered at the federal level with the Securities and Exchange Commission (SEC).

Under Regulation D Private Placement Rules the restricted securities that are issued may be sold to a maximum of [A] 35 accredited investors [B] 35 non-accredited investors [C] unlimited number of sophisticated investors [D] unlimited number of accredited and non-accredited investors

[B] 35 non-accredited investors Reg D Private Placement Rules allow the restricted securities to be sold to no more than 35 non-accredited investors and an unlimited number of accredited investors.

During the past three months, Mr. No Ledge, a customer, has acquired more than 10% of the outstanding shares of the Nudele Corporation. If Mr. Ledge indicates a desire to sell these shares immediately, the registered representative should inform him that: [A] By exercising a put, he can sell the stock without any consequences. [B] Any profit from the sale may have to be forfeited. [C] If the stock is sold to more than 35 buyers, he can make the sale. [D] The position can be sold without any consequences if he files a Form 144.

[B] Any profit from the sale may have to be forfeited. Because Mr. Ledge owns more than 10% of the outstanding shares, he is considered an affiliated person of the company. Any profit he realizes from a short swing (profit within 6 months of purchase) is recoverable by the company.

It can correctly be stated concerning state laws related to intrastate offerings and sales of securities that they: [A] Do require registration of all securities registered or exempt under the Securities Act of 1933. [B] Generally contain either antifraud provisions or provisions that prohibit misrepresentations or misleading statements. [C] Are completely uniform throughout the United States. [D] Generally allow a registered representative registered in a particular state to make sales in any other state where registration is required.

[B] Generally contain either antifraud provisions or provisions that prohibit misrepresentations or misleading statements. State laws, or "blue-sky" laws, usually contain anti-fraud or misrepresentation provisions. Registered Representatives must be registered in a state before they can do business there.

Which of the following is not true about Regulation A Offerings? [A] It is limited to $50,000,000 in any 12 month period. [B] The securities issued are restricted. [C] Limited partnerships can use them. [D] Filing with SEC is required.

[B] The securities issued are restricted. All choices are true except that the securities issued under Regulation A are not restricted since Reg A is short form registration.

Which of the following describes statutory disqualification of a registered person under SEC rules? [A] An investor invests enough to qualify for the sales load discount required by a mutual fund. [B] The suspension of a registered person from registration with a FINRA member due to SEC rule violations. [C] The failure to determine adequate suitability information from a customer as required by securities law. [D] Violations of a broker-dealer firm's policies by a registered person.

[B] The suspension of a registered person from registration with a FINRA member due to SEC rule violations. Statutory Disqualification results in suspension of a registered person with an FINRA member firm for violation of SEC rules. Reinstatement of registration would have to come from the SEC.

The disclosure requirements of the Securities Act of 1933 are intended to provide investors with [A] an objective third party review by the SEC of all new issues. [B] a basis for judging the merits of new issues of securities. [C] financial information on new issues, the accuracy of which has been verified by the SEC. [D] financial information on the broker/dealer offering the new issue.

[B] a basis for judging the merits of new issues of securities. The SEC requires full and fair disclosure to potential investors on new issues but does not take responsibility for anything concerning the new issue.

The Securities Exchange Act of 1934 gave the Securities and Exchange Commission jurisdiction to enforce federal securities laws over: I. Broker/Dealers II. The OTC market III. Stock exchanges IV. Corporate insiders [A] I only [B] I and II only [C] I, II and III only [D] I, II, III and IV

[D] I, II, III and IV

Self-regulatory organizations (SROs) are required by federal securities laws to do all of the following EXCEPT: [A] established rules of fair practice [B] determine fair market prices [C] establish arbitration procedures [D] establish standards of professional qualification

[B] determine fair market prices They do not determine fair market prices. They are determined by supply and demand.

According to the Securities Exchange Act of 1934, insiders are prohibited from all of the following activities except: [A] shorting the stock of the companies which they are an insider. [B] voting the outstanding shares owned by the insider in the companies' stock. [C] going short against the box in the companies' stock. [D] instructing the CFO of the corporations to sell calls on the companies' stock.

[B] voting the outstanding shares owned by the insider in the companies' stock. An insider voting the outstanding shares they own is an acceptable practice since they are shareholders as well as insiders but selling the stock of their own company short or short-against-the-box is prohibited. Also, the use of non-public information is prohibited.

A private placement may be sold to a maximum of? [A] 15 Non-accredited investors. [B] 15 accredited investors. [C] 35 Non-accredited investors. [D] 35 accredited investors.

[C] 35 Non-accredited investors.

Your firm has securities available from a SEC Reg D private placement of variable life policies, which are unregistered. One of your fellow RRs would like to place an ad in a financial newspaper regarding the availability of the securities. Reg D allows which of the following in this situation? [A] Because it's a private placement, Reg D advertising is limited to hedge fund sales literature only. [B] As long as accredited investors are the only ones allowed to invest in the products, general advertising is acceptable, even if it reaches non-accredited members of the public. [C] Accredited investors who are pre-qualified for the purchase of the security may be invited to a sales seminar by the RR. [D] As long as the RR focuses advertising toward investors with sizeable net worth, advertising is acceptable.

[C] Accredited investors who are pre-qualified for the purchase of the security may be invited to a sales seminar by the RR. In this situation, the only acceptable scenario would be the sales seminar conducted for pre-approved customers with accredited investor status. Advertising is NOT allowed on Reg D Private Placements.

A customer who is a resident of State X calls and wants to buy a security which is not registered in State X. The order may be taken under which of the following circumstances? I. The security is exempt from registration in State X. II. The security is listed on a Canadian or Mexican Stock Exchange. III. The security is listed on a national securities exchange in the United States. IV. The security had a public offering during the past year. [A] I and II [B] III and IV [C] I and III [D] II and IV

[C] I and III I is correct. A transaction may be done if the security is exempt from registration. II is incorrect. III is correct. Being listed generally causes a security to be exempt from further registration requirements. IV is incorrect.

What are the purposes of the Securities Exchange Act of 1934? I. Created the SEC II. Provided for the regulation of credit III. Provided for the regulation of exchanges IV. Provided for the regulation of new issues [A] II, III and IV [B] I and IV [C] I, II and III [D] I and III

[C] I, II and III IV is incorrect because it is the Securities Act of 1933, which regulates new issues.

A registered representative teaches an investment class at a local college and secures a small amount of income from teaching. Which of the following is true with regard to the income received by the representative? [A] The representative would not be required to report the income since it is received from teaching about the investment business [B] The representative is in violation of the rules for securing compensation based on outside business activity [C] The representative would be required to notify his firm that he is securing income from outside business activities. [D] The income would not have to be reported since it is a small amount.

[C] The representative would be required to notify his firm that he is securing income from outside business activities.

All of the following are purposes of the 1933 Act, EXCEPT: [A] To require registration of securities with the SEC before distribution. [B] To disclose important information to prospective investors by means of a prospectus. [C] To authorize the SEC to determine which securities are offered to the public. [D] To prohibit fraud in the sale of securities in interstate commerce.

[C] To authorize the SEC to determine which securities are offered to the public. The SEC does not: Approve of issues Disapprove of issues Review merits Pass on accuracy of statements filed with it Pass on adequacy of statements filed with it

All of the following offerings are exempt from the FINRA filing requirement of offering documents for private placements EXCEPT offerings made: [A] To most types of institutional investors [B] Of exempt securities [C] To individual investors [D] To commodity pools operated by registered commodity pool operators

[C] To individual investors The general rule is that offerings of private placements to individuals requires the filing of the offering documents with FINRA. The other transactions would be exempt from the filing requirement.

All of the following are normally considered insiders in a corporation under security industry regulations EXCEPT: [A] An officer of the corporation. [B] A director of the corporation. [C] A person who owns 10% of the common stock of the corporation. [D] A person who owns 10% of a debt issue of the corporation.

[D] A person who owns 10% of a debt issue of the corporation. A person who owns 10% of the common stock of the corporation is considered an insider because stock represents ownership. A person who holds 10% of a debt issue is a creditor of the corporation, therefore not considered an insider.

Which of the following are required to be registered in a state when selling securities in the state? I. Resident broker-dealers II. Non-resident broker-dealers III. Resident salesmen IV. Non-resident salesmen [A] I only [B] I and III only [C] I, III, and IV only [D] All of the above

[D] All of the above

The president of XYZ Corporation owns restricted stock. Under security industry regulations, the restricted shares could be sold in all of the following transactions EXCEPT: [A] A 144 offering. [B] A private placement. [C] A registered offering. [D] An exchange offering.

[D] An exchange offering. The stock cannot be "sold" through an exchange offering because an exchange swaps a security with value for different security which also has value and does not constitute a "sale".

In accordance with Regulation S-P, when must privacy notices must be sent by broker-dealers? [A] With account statements quarterly [B] Only when customers request the notice in writing [C] With each trade confirmation [D] Whenever a relationship is established with a customer and a minimum of once per year following

[D] Whenever a relationship is established with a customer and a minimum of once per year following

Securities sold under the provisions of Regulation A are [A] restricted for one year [B] sold only to residents of the state of issue [C] held for 30 days prior to sale [D] registered and freely transferable upon issuance

[D] registered and freely transferable upon issuance Reg A is "short form registration" therefore the securities issued are registered and freely transferable upon issuance.