Other Federal and State Regulations

Securities Investor Protection Corporation protects brokerage: A. firm employees from employer mismanagement B. accounts against investment mismanagement C. accounts against broker-dealer failure D. firms from employee theft and embezzlement

The best answer is C. SIPC insures customer accounts holding cash and/or securities against loss if a broker-dealer fails.

A customer has opened the following accounts: Individual cash account Individual margin account Joint cash account with husband Custodian Account for minor child This is treated as how many "covered accounts" in an SIPC liquidation? A. 1 B. 2 C. 3 D. 4

The best answer is C. Securities Investor Protection Corporation coverage is applied "per customer name." If a customer has both an individual cash and margin account, they are treated as one account. The joint account with someone else is treated as a separate account. Finally, the custodian account for a minor child is treated as a separate account.

Which of the following securities are typically exempt from state registration requirements? I U.S. Government issues II Municipal issues III Securities listed on a national stock exchange ("blue chips") IV New securities for an issuer who has filed registration statements previously in the state A. I and II B. II and IV C. I, II, III D. I, II, III, IV

The best answer is C. State registration is not required for those securities that are exempt under the Federal Securities Acts, such as U.S. Government and Municipal debt. State laws typically exempt listed companies from registering in the state under what is known as a "blue chip exemption." The reasoning is that if the company is solid enough to be listed on an exchange and it is registered with the SEC, then that is sufficient. Because an issuer has filed registration statements previously in a state does not exempt that issuer from filing for a new proposed issue (the logic for this is that the State wants to collect a registration fee for that issue!)

The Trust Indenture Act of 1939 applies to: I U.S. Government Bonds II Municipal Bonds III Corporate Bonds A. I only B. II only C. III only D. I, II, III

The best answer is C. The Trust Indenture Act of 1939 applies to corporate bond issues of more than $50,000,000.

A trust indenture is required for a(n): A. Treasury bond B. Agency bond C. Corporate debenture D. General Obligation bond

The best answer is C. The Trust Indenture Act of 1939 requires a trust indenture for all non-exempt bond offerings in excess of $50,000,000. Because Treasuries, Agencies, and Municipals are exempt securities, they are not required to have a trust indenture. Corporate bonds are non-exempt securities, so these must be issued with a trust indenture. Also, please note that most municipal revenue bonds have a trust indenture, not because it is legally required, but rather, because the market demands it.

The Trust Indenture Act of 1939 was enacted to: A. regulate the activities of Real Estate Investment Trusts not included in the Investment Company Act of 1940 B. require the registration of Trust Company issues with the Securities and Exchange Commission C. protect holders of non-exempt bond issues from issuer misconduct D. require that trustees in bankruptcy, where new securities will be issued, are subject to the Securities Act of 1933

The best answer is C. The primary purpose of the Trust Indenture Act of 1939 is to protect corporate bondholders from being taken advantage of by the issuing corporation. It provides for the appointment of a substantial independent trustee to protect the interests of the bondholders.

If an unsolicited facsimile is sent to a potential client, all of the following information must be included EXCEPT the: A. identity of sender B. time, place and address from which sent C. date and number of sheets D. phone number from which sent

The best answer is C. Unsolicited phone calls, even by fax, come under the Federal Telephone Consumer Protection Act of 1991. This Act requires that the caller identify his name, the firm name, and phone number or address from which the communication is being sent. There is no legal requirement to give the date and number of sheets on a fax transmission (though this is commonly done).

The Trust Indenture Act of 1939 applies to which of the following offerings? I $100,000,000 of Sewer Revenue Bonds sold interstate II $100,000,000 of Corporate Debentures sold interstate III $10,000,000 of Corporate Debentures sold interstate IV $100,000,000 of 30 day commercial paper sold interstate A. I and IV B. II only C. II and III D. II, III, IV

The best answer is B. The Trust Indenture Act of 1939 applies solely to non-exempt interstate securities offerings over $50,000,000. Sewer revenue bonds are exempt, as is commercial paper. Corporate debentures are non-exempt, but only the $100,000,000 offering is subject to the Act. The $10,000,000 corporate debt offering is under the $50,000,000 limit.

The Trust Indenture Act of 1939 protects: A. municipal bondholders from being taken advantage of by the issuing municipality B. corporate bondholders from being taken advantage of by the issuing corporation C. government bondholders from being taken advantage of by the issuing governmental unit D. all bondholders from being taken advantage of by the issuing entity

The best answer is B. The Trust Indenture Act of 1939 protects corporate bondholders from being taken advantage of by the issuing corporation. It provides for the appointment of a substantial independent trustee to protect the interests of the bondholders. Since we tend to trust our government (plus, the legislators write the laws!), issues of governments and municipalities are exempt from this Act.

New non-exempt debt issues in excess of $50,000,000 are subject to which of the following requirements? I Registration of the issue with the SEC under the Securities Act of 1933 II Sale of the securities with a prospectus under the Securities Act of 1933 III Appointment of an independent trustee to protect the bondholders under the Trust Indenture Act of 1939 IV Anti-fraud Rule 10b-5 under the Securities Exchange Act of 1934 for any subsequent resales of the securities A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

The best answer is D. Non-exempt new issues must be registered with the SEC and sold with a prospectus under the Securities Act of 1933. If the issue is a non-exempt debt security, in excess of $50,000,000, then the Trust Indenture Act of 1939 applies, and requires that an independent trustee be appointed to protect the interest of the bondholders from corporate misconduct. Transactions in all securities (whether exempt or not) are subject to the anti-fraud provisions of the Securities Exchange Act of 1934.

The legislation that requires a broker-dealer's research analysts to be completely separated from that firm's investment banking department the: A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Trust Indenture Act of 1939 D. Sarbanes-Oxley Act of 2002

The best answer is D. The Sarbanes-Oxley Act of 2002 requires that research analysts at broker-dealers be completely separated from investment banking, so that the analysts are not "encouraged" or "intimidated" by the firm's investment bankers to write favorable reports to get future investment banking business.

A customer wishes to place a buy order for a security that has not been registered in the state. The security may be purchased if the security: I is exempt from state registration II falls under a "Blue Chip" exemption by being listed on a recognized national stock exchange III is traded by at least 2 market makers IV has been trading in the market for at least 1 year A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

The best answer is A. Generally, securities that are exempt from Federal registration are also exempt from state registration. For example, government and municipal securities do not have to be registered in each state. States also allow for "Blue Chip" exemptions for non-exempt securities. Under this exemption, stocks listed on national stock exchanges are exempt from state registration. The logic for this exemption is that the issuer must meet stringent exchange listing and reporting requirements, as well as Federal registration requirements. Therefore, separate state registration is overkill. There is no exemption offered from state registration for securities trading for at least 1 year or securities traded by at least 2 market makers.

Which statements are TRUE about banks that have customer accounts holding both exempt and non-exempt securities? I The bank must be registered as a broker-dealer under the Securities Exchange Act of 1934 II The bank does not need to be registered as a broker-dealer under the Securities Exchange Act of 1934 III The bank must be member of the Securities Investor Protection Corporation IV The bank does not need to be a member of the Securities Investor Protection Corporation A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. Insurance coverage for customer accounts at any broker-dealer that must be registered under the Securities Exchange Act of 1934 is provided by SIPC - Securities Investor Protection Corporation. The broker-dealers that must be registered are those that handle non-exempt securities. Thus, if a bank has customer accounts that hold both exempt and non-exempt securities, it would be obligated to register as a broker-dealer under the Securities Exchange Act of 1934; and would be obligated to join SIPC as well.

Securities Investor Protection Corporation coverage limits per customer account are: I $500,000 total in cash and securities II $5,000,000 total in cash and securities III inclusive of $250,000 cash maximum IV inclusive of $500,000 cash maximum A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit.

A customer has a margin account at a failed broker-dealer. The securities were purchased for $50,000. As of the date that SIPC filed in court to be the trustee in the bankruptcy, the securities were worth $30,000. The account has a debit balance of $10,000. SIPC coverage will be: A. $20,000 B. $30,000 C. $40,000 D. $50,000

The best answer is A. The "valuation date" for coverage purposes in an SIPC liquidation is the date that SIPC files in court to be the trustee in the bankruptcy of the failed broker-dealer. As of that date, the securities were valued at $30,000. However, because the customer had a $10,000 loan against the securities (debit balance), SIPC will cover the customer account only for $20,000 of equity.

All of the following communications fall under the Federal Telephone Consumer Protection Act of 1991 EXCEPT: A. U.S. Mail B. Facsimile transmission C. Telephonic via pre-recorded message D. Telephonic via live human voice

The best answer is A. The Federal Telephone Consumer Protection Act of 1991 does not apply to offers made through the U.S. mail. It does apply to any unsolicited offers made through the phone - whether these are made by fax, pre-recorded messages, or personal contact.

A registered representative conducts a seminar about investing in the meeting room of a local apartment complex. At the end of the talk, he hands out his business card and tells the attendees that if they want additional information, please write their contact information on the reverse side of the business card and return it to him. When he gets back to the office and starts to re-contact some of the attendees who returned the business card, he finds that one of them is blocked because the client name is on the National Do Not Call Registry. Which statement is TRUE? A. This prospect can be called by the registered representative B. This prospect cannot be called by the registered representative C. This prospect can only be called by the registered representative between the hours of 8:00 AM and 9:00 PM D. This prospect can only be called by the registered representative with written approval of the Branch Office Manager

The best answer is A. There are 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list. These are the: Established Business Relationship ("EBR") Exception; Prior Express Written Consent Exception; and Personal Relationship With The Associated Person Exception. Because this prospect gave written permission by returning the business card with his contact information, this qualifies for the "Prior Written Consent" exception. Furthermore, if the prospect has given such consent, the prohibition on making solicitations before 8:00 AM and after 9:00 PM does not apply.

A customer in New Jersey calls a registered representative (agent) in New York and inquires about buying common stock. The customer wishes to place the order. Which statements are TRUE? I The agent must be registered in the State of New York to accept the order II The agent must be registered in the State of New Jersey to accept the order III The agent is not required to be registered in the State of New York to accept the order IV The agent is not required to be registered in the State of New Jersey to accept the order A. I and II B. III and IV C. I and IV D. II and III

The best answer is A. This question gets at a fine point of State law. Under State law, there is an "unsolicited transaction exemption" that gives an exemption from State registration to any security involved in an unsolicited transaction. However, it does NOT give an exemption from registration to the agent involved in the transaction! Because the agent is resident in New York, he or she must register there. Because the agent is dealing with a customer in New Jersey, the agent must be registered in New Jersey as well!

The "valuation date" for securities in a SIPC liquidation is the date the: A. court appoints a trustee in bankruptcy B. security was acquired by the claimant C. security is distributed to the claimant D. claim is received from the harmed customer

The best answer is A. To determine the amount of SIPC coverage given to each customer name, the securities owned by each customer are valued as of the date the court is petitioned to appoint a trustee in bankruptcy. It may take the trustee years to clean up the mess and distribute any assets found to these customers. If the securities subsequently go up in value, the customer wins (if they went down in value, the customer loses).

When a sales representative wishes to sell an exempt security to an out of state customer, which of the following statements are TRUE? I The broker-dealer must be registered in the state where the sale of the exempt security is going to be made II The broker-dealer does not have to be registered in the state where the sale is going to be made because the security is exempt III The sales representative must be registered in the state where the sale of the exempt security is going to be made IV The sales representative does not have to be registered in the state where the sale is going to be made because the security is exempt A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. While exempt securities are not registered under both Federal and State law, broker-dealers and their sales employees that sell these bonds must still be registered under state law in any state in which the securities are offered. It makes no difference that the security being offered is exempt; the agent and broker-dealer offering them in the state must still be registered in the state (since they can offer these securities fraudulently, and the state wants to know where to find these persons if they do so!).

A registered representative in Minnesota has a customer that has recently moved to Texas. The registered representative: A. can deal with the customer without restriction B. must be registered in Texas in order to deal with the customer C. must be registered in Minnesota in order to deal with the customer D. must be registered in each state between Minnesota and Texas in order to deal with the customer

The best answer is B. In order to deal with a customer in a Texas, the representative must be registered in the State of Texas. An exception is permitted if the representative were only accepting unsolicited trades from customers in Texas, but this is not mentioned in the question. Also note that because the representative is physically in the State of Minnesota, he or she must be registered in Minnesota as well.

A primary offering of $200,000,000 of ACME Corporation 10% debentures with a 20 year maturity would be regulated under the: I Securities Act of 1933 II Securities Exchange Act of 1934 III Trust Indenture Act of 1939 IV Investment Company Act of 1940 A. I only B. I and III C. II and IV D. I, II, III, IV

The best answer is B. New corporate bond issues are non-exempt securities under the Securities Act of 1933 and thus must be registered and sold under a prospectus. In addition, corporate bond offerings in excess of $50,000,000 fall under the Trust Indenture Act of 1939, requiring that the bonds be sold under a Trust Indenture. The Securities Exchange Act of 1934 regulates the trading markets (secondary market) - not the primary market. Investment companies fall under the Investment Company Act of 1940; regular corporate securities are not subject to this Act.

In an SIPC liquidation, the trustee has distributed all securities registered in customer name. After this distribution, a customer has a claim for $590,000 in securities and another $260,000 of cash (free credit balance). Which statement regarding SIPC coverage limits is TRUE? A. The customer is covered for the total amount of $850,000 B. The customer is covered for $500,000 total, and becomes a general creditor for $350,000 C. The customer is only covered for $500,000 of the securities; cash is not covered D. The customer is only covered for $250,000 of the cash; securities are not covered

The best answer is B. SIPC coverage is limited to $500,000 total, inclusive of maximum cash coverage of $250.000. This customer has a total of $590,000 of securities and $260,000 of cash, for a total claim of $850,000. Cash is covered to a maximum of $250,000, so $10,000 of the claim for cash is uncovered. Since total coverage is $500,000 and $250,000 of this has been used for the cash claim, only another $250,000 of coverage is available against the securities claim of $590,000, leaving $340,000 of the securities claim uncovered. The customer becomes a general creditor for the uncovered claim amount of $10,000 + $340,000 = $350,000.

A customer has an account with a brokerage firm that is in receivership. The account holds $350,000 of securities and has a $150,000 debit. Which statement is TRUE regarding SIPC coverage? A. The customer must deposit $150,000 to receive the $350,000 of securities B. The account is covered for $200,000 C. The account is covered for $350,000 D. The account is covered for $500,000

The best answer is B. SIPC covers the equity in a customer's account, with coverage not to exceed $500,000 equity per account in securities. However, cash coverage is limited to $250,000. This account has $350,000 of securities and a $150,000 debit, so the equity is $200,000. The customer will receive $200,000 worth of securities in the liquidation.

General creditor status in the liquidation is given to any customer claims that are: A. below Securities Investor Protection Corporation coverage limits B. above Securities Investor Protection Corporation coverage limits C. for securities held in margins accounts that had a debit balance D. for cash balances below $250,000

The best answer is B. Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit. For any uncovered claim amounts above these limits, the customer becomes a general creditor of the failed broker-dealer. Coverage limits apply to both cash and margin accounts.

Which of the following securities are typically subject to state registration requirements? A. U.S. Government issues B. Intrastate offerings C. State chartered bank issues D. Municipal issues

The best answer is B. State registration is not required for those securities that are exempt under the Federal Securities Acts, such as U.S. Government debt, municipal debt, and state chartered bank issues. Intrastate offerings are exempt from Federal (SEC) registration, but are still subject to registration within the state where the offer is being made, unless the security being sold is exempt; or the transaction in which the security is being sold is exempt.

Which of the following would be defined as an "Investment Adviser" that must register under the Investment Advisers Act of 1940? A. A magazine of general circulation on investing B. A subscription investment letter that gives advice tailored to specific customer situations C. A weekly economic forecasting report available by subscription D. A daily newspaper column on personal investing

The best answer is B. The Investment Advisers Act of 1940 defines an "investment adviser" as any person that sells advice about securities for a fee. Advisers must be registered with the SEC. Excluded from the definition are magazines or newspapers about investing that have a general paid circulation. Economic forecasting newsletters do not fall under the definition, since investment recommendations are not being made. Subscription investment letters do fall under the definition of an "Investment Adviser" if they are giving advice tailored to specific customer situations. (Also note that the subscription investment letter that gives tailored advice will only be required to register with the SEC as a federal covered adviser if the adviser has $100 million or more of assets under management. If it does not meet the threshold, then it must register in the State and not with the SEC.)

A registered representative has mailed promotional material and response cards to potential clients in near-by affluent neighborhoods. The registered representative receives a returned signed response card from one of the prospects, and when calling the phone number provided, finds that it is on the National Do-Not-Call List. Which statement is TRUE? A. This prospect cannot be called by the registered representative B. This prospect can be called by the registered representative C. This prospect can only be called by the registered representative between the hours of 8:00 AM and 9:00 PM D. This prospect can only be called by the registered representative with written approval of the #24 General Principal

The best answer is B. There are 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list. These are the: Established Business Relationship ("EBR") Exception; Prior Express Written Consent Exception; and Personal Relationship With The Associated Person Exception. Because this prospect signed and returned the response card, this qualifies for the "Prior Written Consent" exception. Furthermore, if the prospect has given such consent, the prohibition on making solicitations before 8:00 AM and after 9:00 PM does not apply.

A registered representative is considering prospecting a wealthy family member to see if she will open a brokerage account at his firm. The registered representative checks the National Do-Not-Call List and finds the family member there. The registered representative checks the firm's Do-Not-Call list and does not find the family member there. Which statement is TRUE? A. This prospect cannot be called by the registered representative B. This prospect can be called by the registered representative C. This prospect can only be called by the registered representative between the hours of 8:00 AM and 9:00 PM D. This prospect can only be called by the registered representative with written approval of the #24 General Principal

The best answer is B. There are 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list. These are the: Established Business Relationship (EBR) Exception; Prior Express Written Consent Exception; and Personal Relationship With The Associated Person Exception. Because this prospect is a family member, she comes under the "personal relationship" exemption, as long as she is not on the firm's Do-Not-Call list - which is the case here. Note that if the family member were on the firm''s Do-Not-Call list, then she could not be solicited.

Which statements are TRUE about trustees performing their duties under the Trust Indenture Act of 1939? I The trustee is appointed by the issuer II The trustee is elected by the bondholders III The trustee protects the interests of the issuer IV The trustee protects the interests of the bondholders A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. Under the requirements of the Trust Indenture Act of 1939, trustees are appointed by the issuer (who pays the trustee); however, the trustee is appointed to protect the interests of the bondholders.

A customer wishes to place a buy order for a security that has not been registered in the state. The security may be purchased in all of the following instances EXCEPT where the security: A. is exempt from state registration B. falls under a "Blue Chip" exemption by being listed on a recognized national stock exchange C. is traded by at least 2 market makers D. falls under a "Manual Exemption" by being included in Standard & Poor's Manual

The best answer is C. Generally, securities that are exempt from Federal registration are also exempt from state registration. States also allow for "Blue Chip" exemptions for non-exempt securities. Under this exemption, stocks listed on national stock exchanges are exempt from state registration. The logic for this exemption is that the issuer must meet stringent exchange listing and reporting requirements, as well as Federal registration requirements. The same logic applies to those issues listed in Moody's or Standard & Poor's Manual. There is no exemption offered from state registration for securities traded by at least 2 market makers.

All of the following must be registered under state blue sky laws EXCEPT: A. Sales Representatives B. Broker-Dealers C. U.S. Government Issues D. Real Estate Investment Trust Issues

The best answer is C. Issues that are exempt from registration under Federal laws are also exempt under state laws, so U.S. Governments do not have to be registered with the state. However, sales representatives, broker-dealers, and non-exempt issues (such as REITs) must be registered.

Which of the following MUST be registered under state blue sky laws? I Sales Representatives II Broker-Dealers III U.S. Government Issues IV Real Estate Investment Trust Issues A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV

The best answer is C. Issues that are exempt from registration under Federal laws are also exempt under state laws, so U.S. Governments do not have to be registered with the state. However, sales representatives, broker-dealers, and non-exempt issues (such as REITs) must be registered.

Which of the following actions taken by a fiduciary would be consistent with the obligations imposed by the "Prudent Man Rule"? I Purchasing new issues of low price speculative stocks II Writing naked calls to profit from an anticipated downward market move III Selling covered calls to generate extra income during a period of expected market stability IV Diversifying a debt portfolio with securities of varying maturities A. I and II only B. II and III only C. III and IV only D. I and IV only

The best answer is C. The "prudent man rule" is part of Uniform State Law, and it requires fiduciaries to make investments for accounts under their control as would a "prudent man." This makes sense, since fiduciaries are investing for the benefit of others, and the investments are supposed to provide a long term future benefit to these persons. Investing in unproven, speculative new issues would not be consistent with the "prudent man rule," nor would selling naked call options that expose the writer to unlimited loss potential. Diversifying a portfolio, and writing covered calls against stock positions for extra income are both proven, prudent investment strategies.

Which of the following actions taken by a fiduciary would be consistent with the obligations imposed by the "Prudent Man Rule"? I Diversifying a fixed income portfolio with securities of varying maturities II Selecting AA rated corporate convertible bond investments to meet an investment objective of both income and capital gains III Investing in small capitalization unlisted new issue investments for long term growth IV Writing covered calls against securities positions held in the account to increase income A. I and II only B. III and IV only C. I, II, IV D. I, II, III, IV

The best answer is C. The "prudent man rule" is part of Uniform State Law, and it requires fiduciaries to make investments for accounts under their control as would a "prudent man." This makes sense, since fiduciaries are investing for the benefit of others, and the investments are supposed to provide a long term future benefit to these persons. Investing in unproven, speculative new issues would not be consistent with the "prudent man rule." Diversifying a portfolio, investing in AA rated convertible bonds to meet an objective of both income and growth, and writing covered calls against stock positions are all proven, prudent investment strategies.

Which of the following callers is EXEMPT from the provisions of the Federal Telephone Consumer Protection Act of 1991? A. Telemarketing Firm B. Real Estate Company C. Non-profit Organization D. Securities Firm

The best answer is C. The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited "commercial" phone calls. Charitable (not-for-profit) institutions are exempt from the Act's provisions.

The Federal Telephone Consumer Protection Act of 1991 permits unsolicited calls to be made: I before 8:00 AM in the time zone of the recipient II after 8:00 AM in the time zone of the recipient III before 9:00 PM in the time zone of the recipient IV after 9:00 PM in the time zone of the recipient A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. The Federal Telephone Consumer Protection Act of 1991 does not allow unsolicited calls to be made before 8:00 AM, nor after 9:00 PM, in the time zone of the recipient. Thus, unsolicited calls may be made after 8:00 AM, but not after 9:00 PM in the time zone of the recipient

Which statements are TRUE about SIPC coverage for customer accounts at banks that solely handle exempt securities? I The bank must be registered as a broker-dealer under the Securities Exchange Act of 1934 II The bank does not need to be registered as a broker-dealer under the Securities Exchange Act of 1934 III The bank must be a member of the Securities Investor Protection Corporation IV The bank does not need to be a member of the Securities Investor Protection Corporation A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. Dealers who solely handle exempt securities are not required to be SIPC members. Therefore, customer accounts at firms that deal solely in U.S. Government securities or municipal securities, are not covered by SIPC. If a bank dealer were to handle non-exempt securities, then it would have to register under the Securities Exchange Act of 1934 as a broker-dealer, and thus, would be obligated to be an SIPC member as well.

Which statement is TRUE about insurance coverage on customer brokerage accounts maintained at banks registered solely as municipal securities dealers? A. Insurance coverage is provided solely by the Federal Deposit Insurance Corporation (FDIC) B. Insurance coverage is provided solely by the Securities Investors Protection Corporation (SIPC) C. Insurance coverage is provided by both the FDIC and by the SIPC D. No insurance protection is offered on customer municipal accounts maintained at bank broker-dealers

The best answer is D. Insurance coverage for customer accounts at any broker-dealer that must be registered under the Securities Exchange Act of 1934 is provided by SIPC - Securities Investor Protection Corporation. However, dealers who solely handle exempt securities are not required to be SIPC members. Therefore, customer accounts at firms that deal solely in U.S. Government securities, are not covered by SIPC. Similarly, customer accounts at banks who are municipal securities dealers, are also not required to be covered under SIPC. Please note that if a bank dealer were to handle non-exempt securities, then it would have to register under the Securities Exchange Act of 1934 as a broker-dealer, and thus, would be obligated to be an SIPC member as well. The FDIC - Federal Deposit Insurance Corporation - does not insure brokerage accounts, that is securities positions held at banks. It only insures bank accounts (deposits) maintained by customers at banks.

A customer has a cash account and a margin account at a brokerage firm. In a liquidation under SIPC: A. only the equity in the margin account is covered B. only the cash account value is covered C. each account is covered separately up to $500,000 total coverage per account D. both accounts are treated as one account with coverage limited to $500,000

The best answer is D. SIPC coverage limits are applied by customer name; thus if John Jones has both a cash account and a margin account at a firm, they are treated as one account under SIPC. If John and Mary Jones also have a joint cash account and a joint margin account, these are lumped together and considered to be one account under SIPC rules.

A customer has an account with a brokerage firm that is in receivership. The account holds $90,000 of securities and has a $50,000 debit. Which statement is TRUE regarding SIPC coverage? A. The account is covered for $90,000 B. The customer must deposit $50,000 to receive the $90,000 of securities C. The account is covered for $50,000 D. The account is covered for $40,000

The best answer is D. SIPC covers the equity in a customer's account, with coverage not to exceed $500,000 equity per account in securities. However, cash coverage is limited to $250,000. This account has $90,000 of securities and a $50,000 debit, so the equity is $40,000. The customer will receive $40,000 worth of securities in the liquidation.

John Jones has an individual cash account; a joint margin account with his wife; a custodian account for his minor daughter; and a custodian account for his minor son; all at the same brokerage firm. If the firm should fail, Securities Investor Protection Corporation will cover: A. all of the accounts as a single account B. the individual and joint accounts as one account; and the custodian accounts as one account C. the individual and joint accounts as one account; and each custodian account separately D. each account separately

The best answer is D. Securities Investor Protection Corporation coverage is applied "per customer name." If a customer has an individual cash account, that is one name; the joint margin account is a second name; the custodian account for the daughter is the third name; and the custodian account for the son is the fourth name.

A customer is very satisfied with the service provided by his registered representative and gives the representative the name and telephone number of a good friend that needs investment advice. When the representative enters the telephone number of the friend, it comes up as blocked since this person is on the firm's "Do Not Call" list. Which statement is TRUE? A. Because the friend's name was given as a referral, this individual can be solicited by the representative B. Because the friend's telephone number was given as part of the referral, this individual can be solicited by the representative C. Because the referral was made by an existing customer of the firm, this individual can be solicited by the representative D. Because this individual is on the firm's "Do Not Call" list, no solicitation by the representative is permitted

The best answer is D. The permitted exception to the Federal "Do Not Call" rule is if there is a personal relationship between the registered representative and the person being called - as long as that person is NOT on the firm's "Do Not Call" list. However, since this person is on the firm's "Do Not Call" list, he can't be called!

Which of the following persons MUST be registered under State "Blue Sky" Laws? I Brokers soliciting customers in that State II Dealers soliciting customers in that State III Salespersons soliciting customers in the State IV Investment advisers soliciting customers in that State A. III only B. I and II only C. I, II, III D. I, II, III, IV

The best answer is D. Under the Blue Sky laws of each state, any broker, dealer, or agent (registered representative) that solicits in that State must be registered. Agents must pass the Series 63 exam to comply with this requirement in most states. In addition, the laws require that any Investment Adviser in the State be registered as well. In many states, these persons must pass the Series 65 examination.

In most states, uniform state law requires that individuals representing broker-dealers that sell managed accounts: I register as agents in the state II register as investment adviser representatives in the state III pass the Series 63 examination IV pass the Series 65 examination A. I and III only B. II and IV only C. I, II, III D. I, II, III, IV

The best answer is D. Uniform state law, in most states, requires individuals who sell securities in a state to register as an agent and pass the Series 63 examination. In addition, most states define managed accounts as "investment advisers" and individuals who sell these accounts must register as "investment adviser representatives" and pass the Series 65 examination.

Which of the following is a securities account opened by legal person? A. Individual B. Joint Tenants With Rights of Survivorship C. Tenants in Common D. Trust

The best answer is D. When it comes to legal terms, you have to know the details! A "natural person" is a human being. A "legal person" is a legally-created entity, such as a corporation, limited partnership or trust, that has the same legal abilities as a human being (a natural person), such as the ability to sue, own property, and enter into contracts.