Regulations: FINRA Rules

All of the following gifts given by a mutual fund sponsor to a registered rep violate FINRA rules EXCEPT: a. a discount from the public offering price that is not included in the fund prospectus b. wholesale overrides on fund sales c. $50 per person per year d. a trip to Hawaii based solely on sales volume

$50 per person per year

If a member firm acts as the managing underwriter in an initial public offering of an issue's securities, then the member is prohibited from issuing a research report on that company for: a. 3 days following the effective date b. 5 days following the effective date c. 10 days following the effective date d. 25 days following the effective date

10 days following the effective date

A research report on an issuer CANNOT be published by the underwriter of that issuer's securities for the time period encompassing: I. 10 days following the effective date for an initial public offering II. 25 days following the effective date for an initial public offering III. 10 days following the effective date for a secondary offering IV. 3 days following the effective date for a secondary offering

10 days following the effective date for an initial public offering 3 days following the effective date for a secondary offering

In a secondary offering, a member who acted as manager or co-manager CANNOT issue a research report on that company within how many days following the effective date? a. 3 calendar days b. 5 calendar days c. 10 calendar days d. 25 calendar days

3 calendar days

Under FINRA rules, copies of order tickets must be kept for: a. 6 months b. 2 years c. 3 years d. 5 years

3 years d. 5 years

Which of the following gifts CANNOT be accepted by a registered representative from a mutual fund sponsor? I. All expenses paid trip to Bermuda II. $50 gift certificate III. $500 cash IV. $1,000 towards the purchase of fund shares

All expenses paid trip to Bermuda $500 cash $1,000 towards the purchase of fund shares

FINRA enforces regulations in which of the following markets? I. first market II. second market III. third market IV. fourth market

All of them

Notification to FINRA is required for which of the following events? I. A registered representative is arrested for embezzlement II. A registered representative is indicted under the Securities Exchange Act of 1934 for "insider" trading violations III. A written customer complaint is received about a registered employee misappropriating customer funds IV. A registered representative is arrested for assault and battery

All of them

Under FINRA Rule 5130, which of the following are prohibited from buying a new issue directly from an underwriter? I. A FINRA registered representative II. A person who is financially dependent on a FINRA registered representative III. A financially independent sibling of a FINRA registered representative

All of them

Which of the following practices are prohibited under FINRA rules? I. trading mutual fund shares II. selling dividends III. making blanket recommendations of low price speculative stocks IV. recommending purchases beyond a customer's financial capacity

All of them

The Firm Element component of the "Continuing Education" requirement: I. is administered by the compliance department II. must be completed by all registered persons III. must be completed annually IV. must communicate information that is understood by the participants

All of them The Firm Element of the Continuing Education requirement obligates member firms to deliver annual training to all registered representatives on product, regulation, and compliance issues. The firm must maintain a record that shows that the participant understood the information presented.

Under FINRA rules, which of the following accounts would be considered to be "discretionary"? A. An omnibus account run by an investment adviser for his clients B. An account where a third party power of attorney has been given by the customer to another individual C. An account where the broker has the power to decide when and what to trade without specific customer authorization D. A partnership account where only one of the partners has trading authorization

An account where the broker has the power to decide when and what to trade without specific customer authorization A discretionary account is one where the broker has the power to decide what and how much to trade. The customer gives a written power of attorney to the broker allowing discretion to be exercised.

Which statements are TRUE regarding FINRA Rule 5130 that restricts equity IPO purchases? I. An investment club is permitted to buy an equity IPO directly from an underwriter II. An investment club is prohibited from buying an equity IPO directly from an underwriter III. An investment club that has registered representatives as owners is permitted to buy an equity IPO directly from an underwriter if their total ownership is 10% or less IV. An investment club that has any ownership by registered representatives is prohibited from buying an equity IPO directly from an underwriter

An investment club is permitted to buy an equity IPO directly from an underwriter An investment club that has registered representatives as owners is permitted to buy an equity IPO directly from an underwriter if their total ownership is 10% or less

Which statement is TRUE? A. A registered representative can sign the name of a customer on an arbitration agreement B. A registered representative can sign the name of a customer on a margin agreement C. A customer can sign her name on a trading authorization, allowing a registered representative to trade her account D. A third party can sign the name of a customer on a joint account agreement

A customer can sign her name on a trading authorization, allowing a registered representative to trade her account A customer's signature cannot be forged, even if the customer were to give permission to do so. Legally, the customer's signature is required in order to have a binding contractual agreement that will have standing in a court of law. Thus, Choices A, B, and D are wrong. Customers can sign trading authorizations, allowing anyone (including registered representatives) to trade their account.

Which statements are TRUE? I. A registered representative is permitted to buy a new issue directly from the underwriter(s) II. A registered representative is prohibited from buying a new issue directly from the underwriter(s) III. A registered representative is permitted to buy a new issue once it starts trading in the secondary market IV. A registered representative is prohibited from buying a new issue once it starts trading in the secondary market

A registered representative is prohibited from buying a new issue directly from the underwriter(s) A registered representative is permitted to buy a new issue once it starts trading in the secondary market

Which of the following decisions by a registered representative require specific customer authorization? I. Determining price and time of execution in a cash account II. Determining price and time of execution in a margin account III. Determining price and the number of shares traded in a cash account IV. Determining price and the number of shares traded in a margin account

Determining price and the number of shares traded in a cash account Determining price and the number of shares traded in a margin account

The enforcement authorities for the U.S. securities markets and market participants include: I. FINRA II. SEC III. MSRB

FINRA SEC Both FINRA and the Securities and Exchange Commission (SEC) regulate, and have enforcement capability over, the U.S. securities markets and market participants. The Municipal Securities Rulemaking Board creates rules for municipal market participants, but has no enforcement ability - enforcement of MSRB rules is performed by FINRA.

Which of the following are violations of FINRA's Conduct Rules? I. Selling a customer an exempt security with a written agreement to buy back that security at a fixed price II. Guaranteeing a customer account against loss III. Making blanket recommendations of low price speculative stocks to customers IV. Selling dividends to customers by inducing customers to buy stocks just prior to the ex date

Guaranteeing a customer account against loss Making blanket recommendations of low price speculative stocks to customers Selling dividends to customers by inducing customers to buy stocks just prior to the ex date

Which of the following would constitute violations of the FINRA Conduct Rules? I. Opening a cash account for a customer without obtaining that customer's signature II. Offering to trade mutual fund shares for a customer III. Recommending to a customer that he should get a group of friends together to buy mutual fund shares at a breakpoint IV. Discussing the purchase of mutual fund shares with a customer before sending a prospectus

Offering to trade mutual fund shares for a customer Recommending to a customer that he should get a group of friends together to buy mutual fund shares at a breakpoint

Which of the following would be considered to be a "retail communication"? A. Direct mailing sent to 15 existing retail clients B. Password-protected website maintained by a broker-dealer C. Institutional communication D. Correspondence to an individual client

Password-protected website maintained by a broker-dealer

Which statements are TRUE regarding the purchase of a new issue directly from the underwriter by industry personnel? I. Purchase of IPOs directly from the underwriter that open for trading in the secondary market at a discount price is permitted II. Purchase of IPOs directly from the underwriter that open for trading in the secondary market at a premium price is permitted III. Purchase of IPOs directly from the underwriter that open for trading in the secondary market at a discount price is prohibited IV. Purchase of IPOs directly from the underwriter that open for trading in the secondary market at a premium price is prohibited

Purchase of IPOs directly from the underwriter that open for trading in the secondary market at a discount price is prohibited Purchase of IPOs directly from the underwriter that open for trading in the secondary market at a premium price is prohibited

Which of the following statements are TRUE regarding electronic communications sent by registered representatives at member firms that have a communications compliance program in place? I. Registered representatives must be trained by the firm about what content is permitted in such communications II. Registered representative communications must be supervised and reviewed by the member firm III. Registered representative communications must be approved in advance by the member firm IV. Registered representative communications may only be sent from a location supervised by the member firm

Registered representatives must be trained by the firm about what content is permitted in such communications Registered representative communications must be supervised and reviewed by the member firm Registered representative communications may only be sent from a location supervised by the member firm

Which of the following is NOT defined as correspondence? A. E-mail distributed to 15 existing retail customers B. Seminar text for a speech that will be delivered to 30 prospective retail clients C. E-mail sent to 10 prospective retail clients D. Prospecting letter sent to 5 sales leads

Seminar text for a speech that will be delivered to 30 prospective retail clients

Which of the following is defined as sales literature? A. E-mail distributed to 15 existing retail customers B. Seminar text for a speech that will be delivered to 30 prospective retail clients C. E-mail sent to 10 prospective retail clients D. Prospecting letter sent to 5 sales leads

Seminar text for a speech that will be delivered to 30 prospective retail clients

Which of the following are violations of FINRA rules? I. Recommending the purchase of put options to protect a stock position from a downwards market move II. Sharing in the profits and losses of a customer's account III. Selling exempted securities to a customer with a written agreement to buy back the securities at a later date IV. Orally guaranteeing to buy back customer securities at a preset price

Sharing in the profits and losses of a customer's account Orally guaranteeing to buy back customer securities at a preset price A registered representative cannot guarantee a customer's account against loss nor share in the account unless he or she opens a joint account with the customer; contributes capital proportional to any sharing agreement; and obtains the approval of a principal for the account. Selling exempted securities such as U.S. Governments with a written agreement to buy them back at a later date is a "repurchase" agreement, and is allowed (however, such repurchase agreements are typically for very large amounts, and are entered into by U.S. Government securities dealers). Recommending the purchase of a put option to protect against a downwards market move is perfectly acceptable, since that is what the option will do, and thus does not violate FINRA rules.

Which of the following is (are) prohibited in mutual fund advertising? I. Showing past performance II. Showing projected performance III. Showing past performance against a benchmark index

Showing projected performance

Which of the following activities can be performed by an assistant representative at a FINRA member firm? I. Take new account information II. Make a cold call III. Accept an unsolicited order IV. Open a new account

Take new account information Accept an unsolicited order An Assistant Representative - Order Processor is an individual that has a Series 11 license. This person can only accept unsolicited customer orders. He or she cannot solicit customers. This person can take new account information (e.g., customer name, address, social security number, etc.) but cannot perform a suitability determination or sign the new account form, opening an account for a customer. This person can be paid a salary, but cannot be paid commissions.

A registered representative is a 5% participant in an investment club formed by members of the local Elks Club. The Elks Club investment club has opened a securities account at ABC Brokerage. The account wishes to buy an IPO being offered by an underwriter. Which statement is TRUE? A. The account can buy the issue without restriction B. The account can buy the issue if the branch manager approves C. The account can buy the issue if the registered representative agrees not to share in the profit on the position D. The account is prohibited from buying the new issue

The account can buy the issue without restriction Registered representatives are prohibited from buying new issues from underwriters. This is true for any account in which registered representatives or other restricted persons have a greater than 10% participation as well. Thus, this account would NOT be prohibited from buying the IPO.

A customer instructs a registered representative to "Buy 500 shares of ADP whenever you think the price is right." Which of the following statements are true about this order? I. The order is the same as a not held order II. The order is the same as a limit order III. Acceptance of the order requires a prior written discretionary power of attorney from the customer IV. The order can be accepted without a prior written discretionary power of attorney from the customer

The order is the same as a not held order The order can be accepted without a prior written discretionary power of attorney from the customer This order states the number of shares to be bought and the security to be purchased. The registered representative is left to choose price and time of execution. This is the same as a "not held" order and can be accepted as given. If the representative were to choose the number of shares or the security, then the order would be discretionary, and would require a written power of attorney on file from the customer.

A registered representative employed by ABC broker/dealer is good friends with an independent venture capitalist. The venture capitalist asks the registered representative to obtain investors for a private placement that he is forming. Which statement is TRUE? A. The registered representative can direct customers to the private placement since this is an exempt transaction B. The registered representative cannot direct customers to the private placement since his broker-dealer is not the private placement sponsor C. The registered representative can direct customers to the private placement only if the venture capitalist is a member of FINRA D. The registered representative can direct customers to the private placement only with the prior written approval of his employer

The registered representative can direct customers to the private placement only with the prior written approval of his employer

A registered representative is employed by a broker-dealer that is a subsidiary of a publicly traded company, listed on the New York Stock Exchange. Which statements are TRUE? I. The registered representative may recommend the purchase of the parent company's common stock II. The registered representative cannot recommend the purchase of the parent company's common stock III. The registered representative may accept unsolicited orders for the parent company's common stock IV. The registered representative may not accept any orders - solicited or unsolicited - for the parent company's common stock

The registered representative cannot recommend the purchase of the parent company's common stock The registered representative may accept unsolicited orders for the parent company's common stock

Which statements are TRUE about a registered representative that wishes to promote him- or herself on the Internet? I. The representative can create a website with approval of the principal II. The representative can create a website with approval of FINRA III. The FINRA name must be used on the website IV. The FINRA name, when used, must be hyperlinked to the FINRA website

The representative can create a website with approval of the principal The FINRA name, when used, must be hyperlinked to the FINRA website

Which statements are TRUE about a registered representative that wishes to promote him- or herself on the Internet? I. The representative can participate in an Internet Chat Room only with approval of the principal II. The representative can participate in an Internet Chat Room only with approval of FINRA III. The representative can create a website with approval of the principal IV. The representative can create a website with approval of FINRA

The representative can participate in an Internet Chat Room only with approval of the principal The representative can create a website with approval of the principal

Which statements are TRUE? I. a registered rep is permitted to buy a new issue directly from the underwriter II. a registered rep is prohibited from buying a new issue directly from the underwriters III. a registered rep is permitted to buy a new issue once it starts trading in the secondary market IV. a registered rep is prohibited from buying a new issue once it starts trading in the secondary market

a registered rep is prohibited from buying a new issue directly from the underwriters a registered rep is permitted to buy a new issue once it starts trading in the secondary market

A representative gives a seminar to investors, making a presentation about successful hedge fund strategies. It is attended by 30 retail clients and 20 institutional clients. FINRA defines this as: A. an advertisement B. a solicitation C. a retail communication D. correspondence

a retail communication

A website maintained by a member firm that is not password protected is considered to be: a. advertising b. sales literature c. public form d. correspondence

advertising

Websites established by brokerage firms are considered to be: A. advertising B. sales literature C. correspondence D. educational material

advertising

A decision is reached by the District Hearing Panel under the Code of Procedure. Which statement is TRUE? a. the decision is binding and non-appealable b. an appeal may be filed with the national adjudicatory council c. an appeal may be filed with SEC d. an appeal may be filed with the federal court

an appeal may be filed with the national adjudicatory council

All of the following are prohibited practices under FINRA rules EXCEPT: a. backing away b. interpositioning c. free riding d. arbitrage trading

arbitrage trading

If a customer wishes to find out about a registered representative's disciplinary history, this information is: A. sealed and cannot be given to customers B. available from the Securities and Exchange Commission C. available in the Federal Register D. available from the Central Registration Depository on the BrokerCheck website

available from the Central Registration Depository on the BrokerCheck website FINRA maintains a "BrokerCheck" website, where retail customers can input a registered representative's name and see that individual's employment history for the last 10 years, disciplinary record, licenses held, states in which that person is registered, and outside business activities. In addition, pending serious customer complaints that are not yet resolved are included. For customers without web access, a toll-free "hot line" to BrokerCheck is available.

To take a second job, under FINRA rules, a registered rep must obtain prior written approval from (the): a. FINRA b. SEC c. branch manager d. financial and operations principal

branch manager

An order ticket is filled out and sent to the NYSE floor for execution. After being executed on the floor, it is discovered that the account number is incorrect. Under FINRA rules, the account number may be changed to the correct one by the: a. registered rep b. specialist c. branch office manager d. floor governor

branch office manager

A brokerage firm is permitted to hold fully paid customer securities if the: A. customer gives a full power of attorney to the brokerage firm and signs a rehypothecation agreement B. brokerage firm segregates those positions from margin securities and places them in safekeeping C. customer identifies in writing the specific securities that he wishes the brokerage firm to hold D. brokerage firm sends the customer a written receipt for the securities being held

brokerage firm segregates those positions from margin securities and places them in safekeeping Brokerage firms can hold fully paid customer securities as long as the positions are segregated from other margin securities and are kept in safekeeping.

All of the following statements about e-mail sent by a registered representative to 50 retail clients are true EXCEPT the communication: A. must be reviewed and approved in advance by a principal B. can recommend a new issue C. can be sent from the branch office where the representative works D. can recommend stocks

can recommend a new issue

A widely-followed research analyst is going to issue a "Buy" recommendation on a company. The analyst and immediate family: I. can buy the stock prior to the release of the research report II. cannot buy the stock prior to the release of the research report III. can buy the stock after the research report has been widely distributed IV. cannot buy the stock after the research report has been widely distributed

cannot buy the stock prior to the release of the research report can buy the stock after the research report has been widely distributed

FINRA's 5% policy applies to which of the following? a. sales charges on mutual fund offering b. mark-ups charged on principal transactions of municipal bonds c. underwritings spreads charged on new issue offerings effected over-the-counter d. commissions charged on transactions effected over-the-counter

commissions charged on transactions effected over-the-counter

A registered representative of a member firm markets private placements to wealthy accredited investors. Before the member firm can market these private placement securities, it MUST: A. conduct a reasonable investigation concerning the security and the issuer's representations about it B. register the securities with the SEC C. determine that each potential purchaser is sophisticated D. list the issue on a recognized stock exchange

conduct a reasonable investigation concerning the security and the issuer's representations about it

All of the following time stamps are on an order ticket EXCEPT the time of order: a. entry b. execution, if executed c. cancellation, if cancelled d. confirmation

confirmation

All of the following are violations of FINRA rules EXCEPT: a refusal to trade at a stated quote unless the quote has been identified as nominal b. selling mutual fund shares to customers in quantities just below breakpoint levels c. pledging fully paid customer securities to a bank to secure a loan d. exchanging customer margin securities with other collateral to secure a debt balance

exchanging customer margin securities with other collateral to secure a debt balance

Specific compliance approval is needed for a registered rep to send out all of the following to 40 retail customers EXCEPT: a. 3rd party research report on a stock not followed by the firm obtained by the rep b. photocopy of a newspaper article about good stock picks c. existing research report prepared by that firm d. research report prepared by that rep about stocks that she likes

existing research report prepared by that firm

The FINRA 5% policy requires that consideration be given to all of the following when determining mark-ups and commissions EXCEPT: a. financial condition of customer b. dollar amount of the transaction c. level of service provided by the firm d. type of security involved in the transaction

financial condition of customer

If an analyst makes a public appearance, under Regulation AC, the analyst MUST: a. make a verbal certification to the group being addressed b. distribute a written certification to each person in the group addressed c. give a blanket certification to all appearances made each month d. give a blanket certification to all appearances made each quarter

give a blanket certification to all appearances made each quarter

All of the following would be considered to be a "retail communication" EXCEPT a(n): A. direct mailing sent to 30 existing retail clients B. password-protected website maintained by a broker-dealer C. institutional communication D. internet bulletin board

institutional communication

Under FINRA rules, a barrier must be put in place between a member firm's: A. institutional sales department and its retail sales department B. institutional communications distribution list and its retail communications distribution list C. institutional trading desk and its retail trading desk D. compliance department and its research department

institutional communications distribution list and its retail communications distribution list

A registered rep reads in that morning's newspaper that "Asian securities markets appear to have finally bottomed out." Based on this information, the registered rep calls each of her customers and says "Now is the time to buy Asian Fund." This action by the registered rep is: a. defined as a communication with the public and must be approved in advance by a compliance officer b. is a prohibited practice, since this is churning c. is a prohibited practice, since a suitability determination was not made for each client d. is a prohibited practice, since the recommendation did not come from the member firm's research department

is a prohibited practice, since a suitability determination was not made for each client

Under FINRA rules, if an institutional communication is distributed to retail clients: I. it is considered to be an institutional communication II. it is considered to be a retail communication III. it must be approved by a principal prior to distribution IV. it is subject to post use review and approval by a principal

it is considered to be a retail communication it must be approved by a principal prior to distribution

Arbitration is preferred over litigation as a means for settling disputes because: a. it is less time consuming and less expensive b. it allows the parties involved to get a hearing of their grievances c. the decision cannot be appealed d. the arbitration panel is more knowledgeable about industry practices

it is less time consuming and less expensive

A registered representative is prospecting customers for a new mutual fund being sponsored by his firm. All of the following information items mailed to customers must be accompanied by a prospectus EXCEPT: A. letter stating the fund's objective(s) B. sales literature that promotes the fund C. research report recommending the fund D. advertisement about the fund

letter stating the fund's objective(s) Because mutual funds are "prospectus offerings," nothing can be sent to customers that can be considered an offer or advertisement of the security unless the material is preceded or accompanied by a prospectus. Sales literature, advertising, and research reports fall into the category of items that are "offers" of the security and must be accompanied by a prospectus.

Customers may be charged for all of the following services EXCEPT: a. collection of dividends on street name stock b. safekeeping of securities c. mailing of proxies on street name stock d. collection of interest on bonds held in safekeeping

mailing of proxies on street name stock

Under FINRA rules, a registered rep: a. may borrow money from a customer only with permission of FINRA b. may borrow money from a customer only with permission of the branch manager c. may borrow money from a customer only with permission of the customer d. may not borrow money from a customer

may not borrow money from a customer

Under FINRA rules, research reports must be approved in advance by the: A. member firm's investment banking department B. member firm's supervisory analyst C. FINRA communications department D. company that is the subject of the report

member firm's supervisory analyst

If a registered representative fails to complete the Regulatory Element of the Continuing Education requirement within the stated time period, that person: A. can continue to perform all of the functions of a registered representative B. can only accept unsolicited orders from customers C. can only be compensated on a salary basis; commission compensation is prohibited D. must cease performing all of the functions of a registered representative

must cease performing all of the functions of a registered representative If a registered representative fails to complete the Regulatory Element of the Continuing Education requirement within 120 days of the notification date, that person's registration is suspended and that person cannot continue to perform any of the functions of a registered representative.

A customer calls a registered rep to sell 500 shares of an over-the-counter stock and tells the rep that he wants the trade done privately - not in the public market. This is: a. allowed without restriction b. allowed with the oral approval of the principal c. allowed if the trade is performed as "agent" d. not allowed

not allowed

A widely-followed research analyst is going to issue a 'buy' recommendation on a company. Prior to the release of the recommendation, the analyst and immediate family can: a. buy the stock without restriction b. buy the stock only if the purchase conforms to their normal investment profile c. buy the stock only if the company is exchange listed d. not buy the stock

not buy the stock

A registered rep would like to increase his production by working from home at nights and on weekends. As part of this effort, the rep wants to use his home e-mail account to send his customers information and recommendations. This action is: a. permitted as long as the rep uses his personal email account b. permitted with prior permission of the branch manager c. not permitted because the member firm has no way of auditing the rep's personal email account d. not permitted because the rep has not registered his personal email account with the SEC

not permitted because the member firm has no way of auditing the rep's personal email account

The Regulatory Element component of the "Continuing Education" requirement must be completed: I. on the registrant's 1st anniversary of registration II. on the registrant's 2nd anniversary of registration III. every 2 years after the initial review IV. every 3 years after the initial review

on the registrant's 2nd anniversary of registration every 3 years after the initial review The Regulatory Element of the Continuing Education requirement must be completed by registered persons on their 2nd anniversary of registration and every 3rd year thereafter. This involves completing a computerized "training experience" that covers relevant rules and regulations.

Which of the following gifts is the maximum permitted under FINRA rules? a. one gift of $100 value per person per year b. unlimited number of gifts of $100 value per person per year c. one gift of $200 value per person d. unlimited number of gifts of $200 value per person per year

one gift of $100 value per person per year

A registered rep takes a customer out to dinner and a show, spending $180. This activity is: a. a violation of FINRA rules b. permitted because less than $100 was spent on a per-person basis c. permitted if it complies with the firm's policies and procedures d. permitted under all circumstances

permitted if it complies with the firm's policies and procedures

A representative wishes to invite 30 prospective customers to a buffet dinner, to be followed by a presentation that the representative will make on investing. If the representative includes analyses of specific stocks in the speech; and the attendees use this information to determine whether to invest in those securities; then the: I. presentation is considered to be a research report II. presentation is not considered to be a research report III. representative is required to make all of the disclosures required of research analysts IV. representative is not required to make all of the disclosures required of research analysts

presentation is considered to be a research report representative is required to make all of the disclosures required of research analysts

A registered representative recommends the purchase of a new issue to the customer, and believing that the prospectus is too difficult for the customer to understand, prepares an abstract of the prospectus to send for the customer to read. This action is: A. permitted because it helps the customer better understand the nature of the investment B. permitted only if the communication is pre-filed with FINRA C. permitted only with the permission of the issuer D. prohibited

prohibited

Fidelity bonds are maintained by brokerage firms to: a. protect against loss due to employee theft b. protect against loss against falling markets c. insure against causality losses d. meet minimum net capital standards

protect against loss due to employee theft

All of the following are defined as "institutional clients" for purposes of the FINRA communications rules EXCEPT: A. bank B. investment company C. insurance company D. real estate company

real estate company

All of the following are prohibited practices under FINRA rules EXCEPT: A. selling enough mutual funds to a customer to obtain a breakpoint B. backing away from a quote C. interpositioning another firm between a customer and market maker D. withholding new issues from sale to the public

selling enough mutual funds to a customer to obtain a breakpoint Selling enough of a mutual fund to a customer that would qualify for a breakpoint in the sales charge is not prohibited - this is desired. It allows a customer to get a reduced sales charge for large dollar purchases. Backing away from quotes (not honoring the quote) is prohibited; interpositioning another firm between a customer and the market maker is prohibited (this would increase the cost of the transaction because 2 middlemen must be paid); and withholding new issues from sale to the public is prohibited.

Which of the following are violations of FINRA rules? I. sharing in the profits and losses of a customer's account without contributing proportional capital II. selling exempted securities to a customer with a written agreement to buy back the securities at a later date III. orally guaranteeing to buy back customer securities at a preset price

sharing in the profits and losses of a customer's account without contributing proportional capital orally guaranteeing to buy back customer securities at a preset price

Which statements are TRUE about the use of the FINRA name on a member firm's or associated person's website? I. the FINRA name can be shown II. the FINRA name must be shown III. if the FINRA name is shown, it must be hyperlinked to the FINRA website IV. If the FINRA name is shown, it must be stated that FINRA does not sponsor the website

the FINRA name can be shown if the FINRA name is shown, it must be hyperlinked to the FINRA website

If a brokerage firm receives a written customer complaint, then: a. the complaint must be forwarded to the firm's self regulatory organization (SRO) for resolution b. the firm must resolve the complaint and keep a separate file of the complaints, with action taken, for inspection by the SRO c. the registered rep is responsible for resolving the customer complaint and keeping the records of actions taken d. no action need be taken unless the customer has also complained directly to the self regulatory organization

the firm must resolve the complaint and keep a separate file of the complaints, with action taken, for inspection by the SRO

A registered rep has written a research report about oil stocks that he wishes to mail to customers. Which statement is TRUE? a. the report must be approved by the SEC b. the report must be approved by a supervisory analyst c. the report must be approved by FINRA d. no prior approval is required

the report must be approved by a supervisory analyst

A registered rep at a FINRA member firm is giving a talk about investing attended by 13 customers and 4 prospects. The speech includes recommendations of specific securities. Which statement is TRUE? a. the speech can be given without prior approval b. the speech content must be approved by the supervisory analyst c. the speech content must be approved by FINRA d. the speech content must be approved by the branch manager

the speech content must be approved by the supervisory analyst

A golf pro at the country club where a registered rep is a member wants to refer prospective clients to the rep in exchange for a small fee. Which statement is TRUE? a. this is permitted since the referral payment is small b. this is permitted if the rep discloses the existence of the relationship to each referred client c. this is permitted as long as the payment is limited to less than 8 1/2% of the amount invested d. this is prohibited

this is prohibited

Regulation AC requires that research analysts at member firms MUST give a: I. written certification on each published research report II. written certification on each week's published research reports III. must give a blanket certification to all appearances made each month IV. must give a blanket certification to all appearances made each quarter

written certification on each published research report must give a blanket certification to all appearances made each quarter

Under FINRA rules, the maximum permitted annual gift from a registered representative to another person in the securities business or financial information media is: A. $0 B. $50 C. $100 D. $250

$100 Under FINRA rules, the maximum permitted gift that can be given to another person in the securities business or the financial news media is $100 per person per year.

To make a public offering of a Direct Participation Program, which statements are TRUE? I. The offering must be registered with the SEC II. The offering does not have to be registered with the SEC III. The offering is subject to regulation by FINRA IV. The offering is not subject to regulation by FINRA

The offering must be registered with the SEC The offering is subject to regulation by FINRA

FINRA's IPO purchase restrictions that prohibit industry personnel from buying new issues in the primary market apply to: I. Common stock offerings II. Preferred stock offerings III. Non-convertible bond offerings IV. Convertible bond offerings

Common stock offerings The FINRA rule restricting member firms and their employees from buying IPOs from underwriters only applies to equity offerings. This is the case because the pricing of equity issues has a large "expectations" component that is difficult to quantify - and substantial price increases in the aftermarket due to overblown "expectations" for the issue are not uncommon. The rule does not apply to preferred stock or bond offerings, where the pricing is determined by the present value of the income flows to be received over the life of the security. For these issues, there is no "expectations" component to pricing. Note that if the preferred stock or bond offering is convertible, the rule still does not apply. This is true since at issuance, the conversion feature has no value - these securities are priced based on their income (dividend or interest) stream.

Which of the following is a record that must be retained on file by a broker-dealer? A. Prospectuses B. Recommendations C. Complaints D. Solicitations

Complaints Broker-dealers are not required to retain, as a record, recommendations made to clients. Customer complaints, account statements, and advertising are all records that must be retained by broker-dealers.

A communication sent to fewer than 25 existing or prospective retail clients is defined as (a): A. Correspondence B. Retail Communication C. Public Appearance D. Advertising

Correspondence

Which of the following is NOT required to be disclosed when a brokerage firm makes a securities recommendation? A. Whether the firm is an investment banker for that issuer B. Whether the firm is a market maker in that issuer's securities C. Whether the firm's officers own that issuer's securities D. Whether the issuer's employees own that issuer's securities

Whether the issuer's employees own that issuer's securities

Notification to FINRA is required for all of the following EXCEPT: a. a written customer complaint is received about a registered employee misappropriating customer funds b. a registered representative is arrested for assault and battery c. a registered rep is committed to a mental institution d. a registered rep is indicted under the Securities Exchange Act of 1934 for "insider trading" violations

a registered rep is committed to a mental institution

The FINRA 5% Policy requires that consideration be given to which of the following when determining mark-ups and commissions? I. Level of service provided by the firm II. Type of security involved in the transaction III. Financial condition of customer IV. Dollar amount of the transaction

Level of service provided by the firm Type of security involved in the transaction Dollar amount of the transaction A customer's ability to pay has no bearing on the amount of commission or mark-up that is charged. The dollar amount of the transaction, level of service provided by the firm, and the type of security involved are all considerations under the 5% Policy when determining a fair and reasonable commission or mark-up.

Which of the following statements are TRUE regarding fidelity bonds? I. Member firms are required by FINRA to maintain fidelity bond coverage II. Member firms are not required by FINRA to maintain fidelity bond coverage III. A fidelity bond is insurance against loss due to employee theft IV. A fidelity bond is insurance against casualty losses

Member firms are required by FINRA to maintain fidelity bond coverage A fidelity bond is insurance against loss due to employee theft

A registered representative wishes to give a speech to a group of 35 potential retail clients. The speech is scripted and explains the differences between investing in growth versus value stocks. All of the following statements are true about giving the speech EXCEPT: A. the content must be approved in writing by a compliance officer or principal prior to giving the speech B. the speech must be truthful and in good taste C. a copy of the speech must be pre-filed with FINRA D. the speech must be informational, not promotional, in nature

a copy of the speech must be pre-filed with FINRA

A newly hired registered representative finds a standard form letter on the firm's intranet and wants to send it to 20 of his friends. Which statements are TRUE? I. The letter must be filed with FINRA prior to use II. The letter must be used without change III. The letter must include the FINRA logo IV. The letter must be maintained on file by the firm for at least 3 years after use

The letter must be used without change The letter must be maintained on file by the firm for at least 3 years after use

Which of the following statements are TRUE regarding a customer's securities held in a margin account at a brokerage firm? I. The brokerage firm can charge for safekeeping the securities II. The brokerage firm cannot charge for safekeeping the securities III. The brokerage firm can charge for collecting dividends and interest on the securities IV. The brokerage firm cannot charge for collecting dividends and interest on the securities

The brokerage firm can charge for safekeeping the securities The brokerage firm can charge for collecting dividends and interest on the securities Brokerage firms can charge for clerical services such as safekeeping of securities. Since margin securities are held in "street" name, the brokerage firm is the owner of record to receive dividend and interest payments from the issuer. After they are received by the broker, they are credited to the customer's margin account. This is another clerical service, for which a broker may charge the customer.

A customer wishes to open an account that will be used primarily to buy initial public offerings (IPOs). Which statement is TRUE regarding the proper procedure for prequalifying the account? A. The customer must sign a representation letter that he or she is not restricted from buying IPOs B. The registered representative must determine that the customer is not restricted from buying IPOs and must sign the new account form to demonstrate compliance C. The branch manager must determine that the customer is not restricted from buying IPOs and must sign the new account form to demonstrate compliance D. There are no special procedures to follow when opening an account that will purchase IPOs

The customer must sign a representation letter that he or she is not restricted from buying IPOs In order for a customer to buy IPOs (Initial Public Offerings) of common stock, the customer must sign a representation letter that he or she is not restricted from buying the issue under FINRA rules (FINRA prohibits industry "insiders" from buying the issue from the underwriter). Annually thereafter, the customer must be sent a notice that the firm has the customer's representation on file that he or she is not restricted, and that if this has changed, the customer must notify the firm so that the account file can be amended.

Which of the following statements are TRUE regarding a registered individual who recently left the employment of a FINRA member firm? I. The individual is allowed to maintain his license at another member firm without being employed by that firm II. The individual cannot maintain his license at another member firm without being employed by that firm III. The license remains active for an indefinite time period if the individual does not affiliate with another member firm IV. The license lapses if the individual remains unaffiliated for 2 years

The individual cannot maintain his license at another member firm without being employed by that firm The license lapses if the individual remains unaffiliated for 2 years FINRA prohibits "parking" of licenses when an individual is not affiliated with a member firm. If that person remains unaffiliated for 2 years, all licenses lapse.

A customer has marginable securities held in account that has a debit balance at the brokerage firm. Which statements are TRUE? I. The securities must be segregated and placed in safekeeping II. The securities can be commingled with those of other margin customers III. The securities may be rehypothecated to a bank for a loan by the broker IV. The securities cannot be rehypothecated to a bank for a loan by the broker

The securities can be commingled with those of other margin customers The securities may be rehypothecated to a bank for a loan by the broker Fully paid customer securities must be segregated by the brokerage firm and placed in safekeeping. Such fully paid customer securities cannot be commingled with customer margin securities; cannot be commingled with firm positions; and cannot be rehypothecated to a bank. However, margin securities are pledged to the broker-dealer as collateral for the margin loan (debit balance). It is these securities that may be commingled with other customer margin securities; and these securities can be rehypothecated to a bank for a loan by the broker.

A FINRA member firm has placed a "Buy" recommendation on ABCD stock. In his presentation to customers, a registered representative wishes to use a third party research report that recommends the stock as well. The representative believes that showing that other firms are bullish on the stock will make the customers more at ease with this recommendation. Which statement is TRUE about the use of the third party research report? A. Representatives are prohibited from using third party research reports in presentations to customers B. The use of a third party research report requires prior approval of the supervisory analyst of the member firm C. The use of a third party research report requires prior approval of FINRA D. The use of a third party research report is permitted without restriction since it is independently prepared

The use of a third party research report requires prior approval of the supervisory analyst of the member firm Any research report issued by a FINRA member firm must be approved in writing by a Supervisory Analyst. This is true even if the firm "buys" that research report from an outside vendor (so-called "third party" research). Also note that if the research report were distributed to more than 25 existing or prospective clients, it is also a "retail communication" that requires prior principal approval.

Registered representatives may be compensated based on which of the following? I. Trading commissions paid by the brokerage firm to the representative II. Trading commissions paid by the customer to the representative III. Salary paid by the brokerage firm to the representative IV. Salary paid by the customer to the representative

Trading commissions paid by the brokerage firm to the representative Salary paid by the brokerage firm to the representative Compensation cannot be paid by the customer to the registered representative. Only the broker-dealer may pay compensation to the registered representative.