Unit 17
Which of the following statements could legally appear in mutual fund advertising or sales literature? A) Our managers are dedicated to giving you the very best service. B) Our growth fund net asset value will increase faster than the market in general. C) Our management is unequaled in the investment industry. D) The fund never yielded less than 8% and will continue at that rate in the future.
A) A statement such as, "Our managers are dedicated to giving you the very best service," makes no promises and is, therefore, not in violation of the Conduct Rules. Exaggerated claims about the management's investment expertise are prohibited, as are predictions of future fund performance or unsubstantiated claims of superiority.
All of the following records must be kept for 6 years EXCEPT A) communications with the public B) customer account records, like monthly statements C) blotters D) the general ledger
A) Of the answer choices listed, it is important to recognize that communications with the public must be maintained on file for 3 years by a member firm, and therefore, would not fall under the 6-year record retention requirement.
All research reports issued by a member firm must disclose certain information. Regarding those disclosures, all of the following statements are true EXCEPT A) whether the member firm has any position in the security must be disclosed B) the price at the time the original recommendation was made must be disclosed C) any control relationship with the issuer must be disclosed D) the name of the member firm providing the recommendation must be disclosed
A)The source of the recommendation, the security's price, and that the member firm is a market maker in the security, as well as if a control relationship exists between the member and the company being recommended, must be disclosed in the research report. However, only positions in the issuers securities of 1% or more need be disclosed.
Compensation paid to research analysts may: I. be tied to specific investment banking transactions. II. not be tied to specific investment banking transactions. III. be tied to the firm's investment banking revenue. IV. not be tied to the firm's investment banking revenue.
B) Compensation may never be tied to a specific investment banking transaction because the conflict of interest is too severe. However, compensation may be tied to the firm's overall investment banking revenue, but it must be disclosed in research reports.
Which of the following accurately depicts communications with the public designated as correspondence? I.Review by a principal must occur before use II.Review by a principal can occur either before or after use in accordance with the firm's written procedures III.Filing with FINRA is required IV.Filing with FINRA is not required
B) 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? I.Only written communications are subject to spot-checks. II.Both written and electronic forms of communication are subject to spot-checks. III.Upon written request from FINRA, the member must submit the material requested within the time frame specified by FINRA. IV.Upon written request from FINRA, the member has 10 business days to submit the requested material.
C) 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.
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 treated by your broker/dealer regarding FINRA approval and filing requirements? A) As an institutional communications piece B) As correspondence C) As a retail communications piece D) As an internal piece intended for its own personnel
C) 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.
Which of the following would NOT be considered institutional communications with the public? A) A communication with an individual designated to act on behalf of your institutional customer B) A letter to another broker/dealer C) An internal memo promoting a new product that will be offered to your firm's institutional customers only D) A letter to a municipality offering your firm's services as an underwriter
C) Institution communications specifically exclude internal communications. Communications with another member firm, a government entity, such as a municipality or with someone designated to act on behalf of one of your firm's institutional customers, would all fall within the definition of institutional communications.
Which of the following statements regarding investment companies is TRUE? A) Retail communications for investment companies must be pre-filed 10 business days before first use when the communication does not include a performance ranking. B) Pre-filing for investment company retail communications is always required even if only generic. C) Retail communications for investment companies must be filed within 10 business days of first use if the communication does not include a performance ranking. D) Pre-filing for investment company retail communications is never required.
C) 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. In instances where the communication is only generic (i.e. describes fund types such as balanced or growth), no filing is required.
Which of the following are differences between the Code of Procedure and the Code of Arbitration Procedure? I.The Code of Procedure deals with violations of the Conduct Rules, whereas arbitration is used to settle disputes. II.Mediation is not required with the Code of Procedure but is mandatory with Arbitration. III.Code of Procedure decisions may be appealed, whereas decisions reached under Arbitration may not. IV.Arbitration is used for violations that are more serious than those for which the Code of Procedure is used. A) III and IV B) I and II C) I and III D) II and IV
C) 1 and 3 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.
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) the date on his application for reregistration. B) his date of reassociation with his new firm. C) his original hire date. D) his initial registration date.
D) 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.
Employees of a FINRA member firm must be fingerprinted if involved in any of the following EXCEPT: A) the transfer of securities. B) cashiering. C) sales. D) customer account processing.
D) Under SEC Rule 17f-2, persons registered with FINRA, persons involved in handling customer funds or securities (including employees of transfer agents), and persons involved in preparing the firm's original books and records must be fingerprinted. Mere processing of customer accounts does not involve any of these.
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?
FINRA rules require that records of written complaints be preserved or kept on file for a period of 4 years.
If an individual fails a FINRA qualification exam three consecutive times, a fourth attempt may NOT be made for:
If a qualification exam is failed three consecutive times, a fourth attempt may not be made for 6 months.
If a member wishes to appeal an adverse decision in a Code of Procedure hearing, the member first must appeal to the National Adjudicatory Council within how many days of the decision date?
If either side is displeased with a Code of Procedure decision, an appeal must be made within 25 days of the decision date.