SIE - Regulations - Securities Exchange Act of 1934

The SEC requires financial reports from all of the following EXCEPT: A municipal issuers B corporate issuers C municipal broker-dealers D corporate broker-dealers

A Municipal issuers are exempt from the provisions of the Securities Acts, as are all other governmental issuers. The SEC has authority over corporate issuers, and requires financial reports from corporations. Broker-dealers, including municipal broker-dealers, are registered through FINRA under SEC oversight; and their financial reports are filed with both FINRA and the SEC.

A "short swing" profit is defined as a profit achieved by an insider who trades his or her company's stock within: A 3 months B 6 months C 9 months D 12 months

B A "short swing" profit is defined as one achieved by an insider (officer, director or 10% shareholder) trading that company's stock within a six month period. Short swing profits must be returned to the corporation under the Act.

Which of the following usually acts as the stabilizing market maker? A Issuer B Managing underwriter C Any member of the syndicate D Any member of the selling group

B Only 1 stabilizing bid is permitted at any time, typically placed by the manager of the syndicate

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

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

Who is NOT required to be fingerprinted at a broker-dealer? A Registered representative B Securities trader C Payroll processing clerk D Secretary

D The individuals who must be fingerprinted at a brokerage firm include all salespersons, traders, officers, and anyone who handles cash, securities, or the books and records of original entry and their supervisors. That leaves out clerical employees who do not have access to cash, securities or the books and records of original entry - such as a secretary.

An issuer is required to make an 8K filing with the SEC for all of the following events EXCEPT: A declaration of a cash dividend B election of new members of the Board of Directors C declaration of bankruptcy D proposal of a merger with another corporation

A An 8K filing with the SEC is required by a corporation if a "major event" happens at the company. These include if there is a change in the composition of the Board of Directors; if the company declares bankruptcy; if there is a major acquisition or divestiture of assets; if the company proposes a merger; or if any other major corporate event occurs. The notice must be filed no later than 4 business days after the event. Declaration of a dividend is a regular event, and no filing is required when this occurs.

If a broker-dealer holds fully paid customer securities, which statement is TRUE? A The securities must be segregated and held in safekeeping B The securities may be lent out to short sellers. C The securities can be rehypothecated to a bank D The securities are held in physical form

A Broker-dealers are obligated to segregate fully paid customer securities and hold them in safekeeping under the 1934 Act. These securities cannot be rehypothecated to a bank or lent out to short sellers. The vast majority of securities are held electronically at a depository.

When is a foreign broker-dealer permitted to solicit U.S. based clients? A If the foreign broker-dealer establishes an SEC-registered U.S. subsidiary B If the foreign broker-dealer only offers exempt securities C If the foreign broker-dealer only deals with Non-U.S. citizens who are residing within U.S. borders D If the foreign broker-dealer only deals with accredited individual investors

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

All of the following statements are true about listed securities EXCEPT: A listed securities trade in the Second Market B under Regulation T, all listed securities are marginable C listed securities are subject to Regulation SHO D listed companies must be registered with, and report their results to, the SEC

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

Municipal market participants are subject to which of the following rules? A Anti-fraud Rule 10b-5under the Securities Exchange Act of 1934 B Prospectus delivery rules under the Securities Act of 1933 C Issuer reporting requirements under the Securities Exchange Act of 1934 D Indenture requirements of the Trust Indenture Act of 1939

A Municipal bonds are "exempt" securities and thus are not subject to the provisions of the Securities Acts with the exception of the "anti-fraud" provisions. Municipal bonds do not have to provide a trust indenture; municipalities do not report to the SEC; no prospectus is required when selling a new municipal issue. However, fraudulent activities in the municipal market are covered by the Act of 1934.

The director of a public corporation wishes to sell stock of that company in compliance with Rule 144. Which statement is FALSE? A Registered control stock must be held for 6 months, fully paid, before it can be sold B Unregistered restricted stock must be held for 6 months, fully paid, before it can be sold C If the sale is for 5,000 shares or less, worth $50,000 or less, no SEC filing is required D Any short swing profits (within 6 months) from trading the stock must be returned to the corporation

A Rule 144 requires that unregistered shares be held fully paid for 6 months before they can be sold under the rule. Registered shares held by officers can be sold without meeting the holding period requirement, but are subject to the other provisions of the rule. No filing is required if 5,000 shares or less, worth $50,000 or less, are sold every 3 months. Under the Securities Exchange Act of 1934, any short swing profits (achieved within a 6-month time frame) that officers derive from trading that company's stock must be repaid to the company.

The determination of which stocks are marginable is made by (the): A FRB B SEC C FINRA D SIPC

A The Federal Reserve Board decides which non-exempt securities are marginable. The Fed has decided that all listed securities are marginable and over-the-counter securities which it approves are marginable.

The provisions of the Securities Exchange Act of 1934 cover all of the following activities EXCEPT: A Trading rules for exempt securities B Trading rules for non-exempt securities C Anti-fraud provisions for exempt securities D Anti-fraud provisions for non-exempt securities

A The Securities Exchange Act of 1934 relates to the secondary (trading) market. The provisions of the Act apply to non-exempt securities only, with the exception of the "anti-fraud" provisions of the Act. The "anti-fraud" provisions apply to both exempt and non-exempt securities.

A research analyst at PDQ Securities mentions to a registered representative at that firm that a new research report is coming out about ACME Corporation that is "highly positive." Prior to the issuance of the research report, the registered representative calls his customers and tells them to buy ACME stock. Based on this information, which statement is TRUE? A Both the research analyst and the registered representative have violated the insider trading rules B Only the research analyst has violated the insider trading rules C Only the registered representative has violated the insider trading rules D Neither have violated the insider trading rules

A Under the Insider Trading Act of 1988, any person who uses material non-public information to trade in a company's stock for profit can be considered to be an "insider." In addition, the Act extends the definition of an insider to "controlling" persons - in this case, the provider of the information. A person who "communicates" material non-public information can be held liable under the Act unless "that person acted in good faith and did not directly or indirectly induce the act constituting the violation." Therefore, both the person trading on the inside information (the "tippee") and the communicator of the information (the "tipper") can be held liable under the Act.

Under Rule 10b-5-1, pre-arranged trading plans by insiders are: A permitted only if the provisions cannot be altered during the plan's life B permitted only if the plan has been voted on and agreed to by the majority of disinterested shareholders C given a safe harbor to officers and directors against an "insider trading" under all circumstances D given a right of rescission for any trades that are deemed to be a violation of the insider trading rules

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

If an event occurs which requires an issuer to make an 8K filing with the SEC, the filing must be made: A promptly B 1 business day after the event C 2 business days after the event D 4 business days after the event

An 8K filing with the SEC is required by a corporation if there is a change in the composition of the Board of Directors; if the company declares bankruptcy; if there is a major acquisition or divestiture of assets; if the company proposes a merger; or if any other major corporate event occurs. The notice must be filed no later than 4 business days after the event.

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

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

SEC Rule 10b-5-1: A is the "catch all" fraud rule that makes any deceptive or manipulative practice in connection with the sale of a security potentially fraudulent under the Securities Exchange Act of 1934 B gives officers of publicly held companies a safe harbor from being charged with an insider trading violation if they establish a pre-arranged trading plan for that issuer's securities C prohibits the purchase or sale of an issuer's securities based on material nonpublic information in breach of duty of trust owed to the issuer or shareholders of that security D prohibits any person, in connection with a tender offer for securities, to bid for or purchase the security which is subject of the tender offer through any means other than via the offer

B SEC Rule 10b-5-1 allows officers of publicly held companies (statutory insiders) to establish "pre-arranged trading plans" that set future transaction dates and amounts of that issuer's securities; or that specify algorithms that establish the transaction dates and amounts. As long as the officer does not deviate from the plan, the officer is given a "safe harbor" from being accused of insider trading based on those trades.

Which statement is FALSE about stabilizing bids? A A stabilizing bid is placed by the syndicate manager B Stabilization is permitted during the 20-day cooling off period C Only 1 stabilizing bid is permitted at any time D A stabilizing bid can be placed at or below the Public Offering Price

B Stabilization of new issue prices in the aftermarket is permitted under Regulation M. The bid cannot be placed until the effective date; it is not permitted during the 20-day cooling off period. The bid must be placed at, or below the Public Offering Price - never above. Only 1 stabilizing bid is permitted at any time. The manager of the syndicate places the stabilizing bid on behalf of the syndicate.

Under the "penny stock rule," a customer is considered to be "established" and does not have to sign a suitability statement to buy a penny stock if that customer has bought how many penny stock issues previously from that broker-dealer? A 2 B 3 C 5 D 10

B Suitability statements are not required under the "penny stock rule" for so called "established customers." These are customers who have either had cash or securities in custody of that broker-dealer for at least 1 year; or customers who have bought 3 or more "penny stock" issues previously from that broker-dealer.

A "penny stock" is a designation that applies to a: A debt security B equity security C long call option D mutual fund share

B The "penny stock" designation only applies to equities that are not listed on an exchange or NASDAQ; and that are under $5 per share. To solicit the purchase of such securities requires that a detailed suitability determination be performed; that the customer be sent the determination; and that the customer sign and return this form before the sale can be confirmed.

All of the following are covered under the Securities Exchange Act of 1934 EXCEPT: A registration of broker-dealers B registration of new issues C stabilization of new issues D registration of exchanges

B The Securities Act of 1933 requires registration of non-exempt new issues. The Securities Exchange Act of 1934 requires registration of exchanges and their members with the SEC, and allows stabilization of new issues in the secondary market under prescribed conditions.

The Securities and Exchange Commission was created by the: A Securities Act of 1933 B Securities Exchange Act of 1934 C Trust Indenture Act of 1939 D Investment Company Act of 1940

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

The Securities and Exchange Commission was: A created under the Securities Act of 1933 B created under the Securities Exchange Act of 1934 C established after the 1929 market crash as the first self- regulatory organization D given regulatory authority over futures exchanges

B The Securities and Exchange Commission was created under the Securities Exchange Act of 1934. It has overall regulatory authority over the securities markets and securities market participants. It has no power over the futures markets - these are regulated by the CFTC - the Commodities Futures Trading Commission. FINRA, not the the SEC is an SRO. The SEC is part of the Federal Government.

Under Federal law, stock may NOT be tendered from which of the following accounts? A Restricted margin account B Short margin account C Long margin account D Cash account

B Under the "short tender rule," a person cannot tender borrowed shares. To tender stock, the person must be in a "net long" position in that security. Long stock can be held in a cash or margin account. Restriction (an account below 50% initial Regulation T margin) has no bearing on tendering shares. If shares are tendered from a margin account, the account must still meet the exchange minimum maintenance margin after those shares leave the account. If not, a maintenance call will be generated to bring the account back to minimum margin

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

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

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

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

If an individual is found guilty of insider trading, the civil penalty imposed can be how many times the profit achieved or loss avoided? A 1X B 2X C 3X D 4X

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

If a foreign broker-dealer that does not have U.S. based operations wishes to solicit customers in the United States, the broker-dealer: A may only deal with retail accounts B is not required to establish an SEC-registered U.S. subsidiary C can effect its business through another registered U.S. broker-dealer D can effect its business directly as long as the foreign broker dealer only solicits accredited individuals.

C In order for a broker-dealer to solicit in the U.S., it must be registered with the SEC. For foreign broker-dealers, this means setting up an SEC-registered U.S. subsidiary; or establishing a correspondent relationship with a registered U.S. based broker-dealer. Note that there is no exception offered for foreign broker-dealers that only wish to offer exempt securities in the United States; nor is there an exemption for solicitation of accredited investors.

An investor who accumulates a 5% or greater position in the common stock of a registered issuer must file which of the following forms with the SEC? A 8K B 10K C 13D D 144

C Investors who accumulate a 5% or greater position in the common stock of one registered issuer are required to file a 13D notice with the SEC within 10 business days of date that the 5% threshold was passed. This information is made public (and is of great interest to the management of the company, since the new large stockholder will probably want a say in how the company is being run!)

Which statement is FALSE about listed securities? A Under Regulation T, all listed securities are marginable B Listed securities are subject to Regulation SHO C Listed securities trade in the Second Market D Listed companies must be registered with, and report their results to, the SEC

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

Stabilizing bids may NOT be entered: A below the public offering price B at the public offering price C above the public offering price D by the syndicate manager

C Stabilizing bids may only be entered at or below the public offering price, never above. If the bid were allowed to be placed above the public offering price, it would make the issue instantly "hot" and this is prohibited. The manager of the syndicate places the stabilizing bid on behalf of the syndicate.

All of the following meet the statutory definition of an "insider" EXCEPT: A an officer of a company B the holder of 10% of the equity securities of a company C the holder of 10% of the debt of a company D a director of a company

C The Securities Exchange Act of 1934 defines a statutory "insider" as any officer, director, or 10% shareholder of the equity securities of the issuer.

Which statement is TRUE regarding the Securities Exchange Act of 1934? A The anti-fraud provisions of the Act apply only to exempt securities B The anti-fraud provisions of the Act apply only to non-exempt securities C The anti-fraud provisions of the Act apply to both exempt and non-exempt securities D The anti-fraud provisions of the Act do not apply to either exempt or non-exempt securities

C The anti-fraud provisions of the Act apply to both exempt and non-exempt securities. Thus, if a person fraudulently trades municipal bonds (an exempt security), this person is in violation of the Act. In contrast, the general provisions of the Securities Exchange Act of 1934 apply to non-exempt securities only. For example, holders of municipal bonds (an exempt security) cannot be considered to be "insiders" while a holder of corporate stock (a non-exempt security) can be an "insider."

All of the following statements are true about a tender offer for common shares EXCEPT: A The offer must remain open for at least 20 business days B Each "sweetening" of the offer must extend the offer for an additional 10 business days C During the life of the offer, the issuer can buy the stock in the market in addition to buying shares via the offer D During the life of the offer, any subscribing investors' shares that are tendered are held in escrow pending the outcome of the offer

C When a tender offer is made for the common shares of an issuer, the maker of the offer is attempting to buy a majority stake in the company. To attract shareholders to tender, the maker usually prices the offer at a premium to the current market price. Such offers are typically contingent on a minimum number of shares being tendered. If the minimum number is not met, the maker might "sweeten" the offer by raising the tender price, or could simply cancel the offer and return the tendered shares to the subscribing shareholders. Note that an escrow agent is used to hold the tendered shares, pending the outcome of the offer. During the life of the offer, the maker of the offer and its agents are treated as "insiders," since they have information on how the tender offer is progressing that the general public does not know about. This means that, during the offer, they are prohibited from buying the stock in the market. The initial offer must be held out for a minimum of 20 business days under SEC rules. Each sweetening of the offer must extend the life of the offer by another 10 business days.

Which statement is TRUE about a tender offer for common shares? A The offer must remain open for at least 10 business days B The offer must remain open for at least 30 business days C Each "sweetening" of the offer must extend the offer for an additional 10 business days D Each "sweetening" of the offer must extend the offer for an additional 20 business days

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

All of the following requires filing with the SEC EXCEPT: A Purchase of a 5% position in one company's stock B An officer selling 1% of that company's stock C Corporation declaring bankruptcy D Corporate marketing materials

D All of the items listed are filed with the SEC. Anyone who accumulates a 5% position in one company must make a 13D filing with the SEC; officers must report their sales of that company's stock under the insider rules by filing a Form 4 within 2 business days of the trade; a corporate 8K filing is required for any unusual corporate announcements such as a merger or divestiture, or bankruptcy declaration; and corporate proxy materials must be filed with the SEC 10 business days before use.

All of the following are included in the 10K report filed by corporate issuers with the SEC EXCEPT: A income statement B balance sheet C retained earnings statement D net capital computation

D Corporate annual reports contain the following audited financial statements - Income Statement; Balance Sheet; Statement of Changes to Retained Earnings (this shows earnings added for the year and dividends paid from retained earnings for that year); and Statement of Sources and Uses of Cash (this shows cash received that year from income earned; stock and bond offerings; and disposals of equipment; and cash paid that year for equipment purchases, pay-down of debt; dividends, etc.). Net capital computations are only required for broker-dealers registered with the SEC.

An officer of a company has been invited by a large mutual fund company to give a talk to the fund company's analysts about its business plans and prospects. At the talk, the officer inadvertently discloses material information that could affect the stock's price. Which statement is FALSE? A The officer is considered to be a "tipper" B The analysts are considered to be "tippees" C The company must file an 8K report immediately with the SEC disclosing the information to avoid insider trading liability D The company must file a 10K report immediately with the SEC disclosing the information to avoid insider trading liability

D If an officer of a company makes an accidental disclosure of material non-public information at a presentation to analysts, Regulation FD considers the officer to be a tipper and the analysts to be tippees. To avoid insider trading liability, the company can either make an immediate public disclosure of the information or can file an 8K Report (a special report of significant events with the SEC, which makes the information public). A 10K is the corporation's annual audited financial statements and has nothing to do with Regulation FD.

Information barriers are required between which brokerage firm departments? A Margin and Reorganization B Research and Accounting C Investment Banking and Payroll D Trading and Investment Banking

D Information barriers, so called "Chinese Walls," as used in the securities industry, are the complete separation of a broker-dealer's investment banking unit from its trading and research units. In its normal operations, an investment banking unit may advise on takeovers; or receive other confidential information that could influence the price of an issuer's securities once the information is public. Broker-dealers establish a "wall" between the investment banking unit and the trading unit, so that this information is not received by the firm's traders in advance of its release to the public. A wall is put between research and investment banking because research should not be influenced by pending investment banking deals - e.g., research could "help" the deal by putting out a "buy" recommendation on that stock. In addition, research personnel might buy the stock themselves, which can be viewed as trading on "inside information."

Municipal market participants are subject to which of the following? A Indenture requirements of the Trust Indenture Act of 1939 B Issuer reporting requirements under the Securities Exchange Act of 1934 C Prospectus delivery rules under the Securities Act of 1933 D Anti-fraud Rule 10b-5under the Securities Exchange Act of 1934

D Municipal bonds are "exempt" securities and thus are not subject to the provisions of the Securities Acts with the exception of the "anti-fraud" provisions. Municipal bonds do not have to provide a trust indenture; municipalities do not report to the SEC; no prospectus is required when selling a new municipal issue. However, fraudulent activities in the municipal market are covered by the Act of 1934.

The Securities Exchange Act of 1934 established "self regulatory organizations" (SROs) and empowered these organizations to do all of the following EXCEPT: A set guidelines for fair dealing with the public B handle complaints against broker-dealers for securities law violations C take administrative action against broker-dealers that violate industry regulations D establish courts of justice for aggrieved customers to settle disputes

D Originally, the exchanges, such as the NYSE and NASD (National Association of Securities Dealers) were both marketplaces and regulators of their member firms. This changed when FINRA was created in 2006. Each exchange now only regulates its trading operation; and FINRA regulates the broker-dealer member firms and is its own SRO (Self Regulatory Organization). FINRA sets guidelines for fair dealing with the public with its Conduct Rules; its handle complaints against broker-dealers for securities law violations under the Code of Procedure; it can take administrative action against broker-dealers that violate industry regulations; and it establishes arbitration procedures to settle intra-industry disputes. FINRA does not have the power to establish a court system. This is the jurisdiction of local, state, and federal governments. FINRA has created a Code of Arbitration for settling disputes; and has a Code of Procedure for taking action against firms and representatives who are "bad actors."

A corporate executive holds a meeting with a select group of high-producing registered representatives and gives information about the company's expected revenue and income for the upcoming quarter that is extremely positive. The representatives are permitted to: A buy the stock for their personal accounts only B recommend that their customers buy the stock C recommend that their family members buy the stock D do nothing with the information and should report the situation to the firm's compliance department

D Regulation FD (Fair Disclosure), passed in 2000, is basically an elaboration of the insider trading rules. It prohibits issuers from making selective disclosure of non-public information to research analysts, mutual fund managers, and other industry professionals, unless at the same time, the information is broadly disseminated to the public If such selective disclosure is made and trades result, the corporate officers giving the information become "tippers" and the recipients become "tippees."

The Securities and Exchange Commission is empowered to administer all of the following Acts EXCEPT: A Securities Act of 1933 B Securities Exchange Act of 1934 C Trust Indenture Act of 1939 D Uniform Securities Act

D The SEC administer the Securities Act of 1933; the Securities Exchange Act of 1934; the Trust Indenture Act of 1939; and the Investment Company Act of 1940. The Uniform Securities Act (USA) is more commonly known as the "blue sky" state law, and is adopted "state by state." The SEC, a federal agency, has no jurisdiction over activities within each state and does not administrate this Act.

The Securities Exchange Act of 1934 regulates all of the following markets EXCEPT: A First market B Second market C Third market D Primary market

D The Securities Act of 1933 regulates the new issue (primary) market. The Securities Exchange Act of 1934 regulates the secondary market (the trading market). The trading markets consist of the first market (trading of listed securities on an exchange), second market (over-the-counter trading of securities not listed on an exchange), third market (over-the-counter trading of securities listed on an exchange floor), and fourth market (direct trading of securities between institutions via ECNs and ATSs).

The Securities Exchange Act of 1934 regulates which of the following markets? A Exchanges only B Listed issues only C Exchanges and ECNs only D All of the above

D The Securities Act of 1933 regulates the new issue (primary) market. The Securities Exchange Act of 1934 regulates the secondary market (the trading market). The trading markets consist of the first market (trading of listed securities on an exchange), second market (over-the-counter trading of securities not listed on an exchange), third market (over-the-counter trading of securities listed on an exchange floor), and fourth market (direct trading of securities between institutions on ECNs and ATSs).

The Securities Exchange Act of 1934 regulates trading of all of the following EXCEPT: A Corporate Stock B Corporate Bonds C Options D Commodities Futures

D The Securities Exchange Act of 1934 regulates trading of all non-exempt securities, including common stocks, preferred stocks, corporate bonds, options on securities, etc. It does not regulate the trading of commodities, since these are not securities, and thus, are not regulated under the Securities Acts. Rather, futures (commodities) are regulated by the CFTC - the Commodities Futures Trading Commission. Please note, also, that the Securities Exchange Act of 1934 states that manipulation is fraud under the Act, whether the manipulation involves either non-exempt or exempt securities.

Under the provisions of the Securities Exchange Act of 1934, which of the following are NOT required to be registered? A The exchanges that trade securities B Member firms C Sales employees of member firms D Clerical employees of member firms

D The Securities Exchange Act of 1934 requires the registration of each securities exchange, so that it now becomes a "self-regulatory organization" (SRO), subject to SEC oversight. In addition, FINRA and the MSRB are SROs. The Act requires that member firms register with FINRA; that their officers register; and that their sales employees and traders register. (Now you know where the term "registered representative comes from! And to be registered, you must pass both the SIE and the appropriate Top-Off Exam - these exams are corequisites.) There is no requirement for clerical employees to register.

All of the following statements are true regarding "insiders" EXCEPT: A insiders are prohibited from selling short the stock of the related corporation B insiders must report changes in their holdings to the SEC C if a trade results from the receipt of inside information, the person that transmitted the inside information can be held liable D insiders are prohibited from holding or exercising options on the related company's stock

D There is no prohibition on "insiders" holding or exercising call options on the related company's stock - as long as the transactions are not effected using inside information. Insiders are prohibited from selling their own company's stock short; must report their holdings to the SEC within 2 business days of the trade; and if a trade results from insider information, both the person who traded and the person who transmitted the "inside" information can be held liable.

Who determines if an OTC stock is marginable? A FRB B FINRA C SEC D OTCBB

A The Federal Reserve Board (FRB) is given the power to control margin on securities under Regulation T. Under Regulation T, all listed securities are marginable, and securities on the "OTC Margin List" published by the FRB are marginable.

The definition of a "short swing" profit under the Securities Exchange Act of 1934 is a completed round turn trade effected at a profit within: A the same day by any investor B six months by any investor C six months by an insider D within one year by an insider

C A "short swing" profit is defined as one achieved by an insider (officer, director, or 10% shareholder) trading that company's stock within a six month period. Short swing profits must be returned to the corporation under the Act.

Regarding the notification of a broker-dealer's financial condition to customers, a brokerage firm must send semi-annual statements which include the firm's: A List of lawsuits B Income statement C Net capital computation D Propreitary trading positions

C Broker-dealers must send their customers a semi-annual balance sheet and Net Capital computation. There is no requirement that the customer be sent the income statement, proprietary trading positions or a list of lawsuits that the broker-dealer is party to.

A corporate issuer is obligated to file an 8K report of significant events within how many business days of the event? Incorrect answer A. You did not choose this answer. A 1 day Incorrect answer B. You did not choose this answer. B 2 days Correct answer C. You did not choose this answer. C 4 days Incorrect answer D. You chose this answer. D 10 days

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

An individual who made a profit of $1,000,000 from insider trading would be subject to a civil penalty of: A $1,000,000 B $2,000,000 C $3,000,000 D $4,000,000

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

Which of the following meets the definition of insider trading? A A registered representative knows of an institutional order that is about to be placed to buy 5,000,000 shares of XYZ stock at the market and immediately places an order to buy 1,000 shares of XYZ at the market for his wife's account B A registered representative with discretion places orders to buy 1,000 shares of XYZ at the market in a client account; later that day places an order to sell 800 shares of XYZ at the market in that account; and finally, towards the end of the day, places an order to buy 600 shares of XYZ at the market in that account C A registered representative has been told by his client, the Vice-President of DEF Corporation, that this quarter is looking bad and the representative immediately places an order to sell 1,000 shares of DEF at the market for his wife's account D A registered representative enters a 1,000,000 share order to buy DEF at the market without a valid account number and when the execution report comes back, the representative allocates the order to her customer accounts based on each customer account profile

C Insider trading requires that an individual be in possession of material non-public information, and that the individual trades on the information - and this is the situation in Choice C. It makes no difference that the trade was done in the wife's account - the trade was done (or directed) by the registered representative who had the material non-public information. Choice A is prohibited front running; Choice B is prohibited churning; and Choice D is simply prohibited - all orders placed must have a valid account number at the time of sending the order for execution.

The main purpose of the Securities Exchange Act of 1934 is to: A regulate the sale of new issue securities B create the Securities and Exchange Commissions C establish anti-fraud rules for securities market participants D establish anti-money laundering rules for securities market participants

C There are 2 correct answers to this question, but one is more correct! The Securities Exchange Act of 1934 regulates the securities markets, with the main intent being to prevent fraud and manipulation. It also created the SEC as the regulatory authority over the markets and market participants. In contrast, it is the Securities Act of 1933 that was enacted to prevent fraud in the sale of new issue securities by requiring registration with the SEC and full and fair disclosure with a prospectus (unless the securities are exempt or are offered in an exempt transaction, such as a private placement).

Under Regulation M, which statement is TRUE regarding stabilizing bids entered by market makers? A Stabilizing bids may only be maintained for 5 consecutive business days B Stabilizing bids may be maintained by multiple market makers C A stabilizing bid cannot be placed unless a "Notice of Stabilization" is included in the prospectus D A stabilizing bid cannot be placed unless an "Official Notice of Sale" is published in a national publication

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

The anti-fraud provisions of the Securities Exchange Act of 1934 do NOT apply to: A Individuals trading exempt securities B Individuals trading non-exempt securities C Broker-dealer firms trading exempt securities D Broker-dealer firms trading commodities

D The anti-fraud provisions of the Securities Exchange Act of 1934 apply to the trading of both exempt and non-exempt securities. Both individuals and firms trading securities are subject to the rules .Commodities transactions are not covered by the Act.