Series 7 - New Accounts & Issuing Securities
To be designated as an accredited investor under Regulation D, a married couple investing in a joint account must have income of at least: A) $200,000. B) $500,000. C) $100,000. D) $300,000.
$300,000
Under which of the following circumstances may a member firm sell a new equity issue to one of its nonregistered employees? A) Under no circumstances. B) Amount purchased is small and not disproportionate to the size of the issue. C) Transaction is consistent with the employee's normal investment practice. D) Permission of a principal is obtained.
A) Under no circumstances. Member firms and employees of members (registered and nonregistered) are prohibited from buying a new equity issue at the public offering price.
A corporation wants to issue new shares in a primary offering. Included in the issue, existing shareholders are also offering shares that they own. This is known as A) a split offering B) a shelf offering C) a secondary offering exclusively D) a primary offering exclusively
A) a split offering
Which of the following securities is NOT exempt from the registration provisions of the Securities Act of 1933? A) A U.S. government bond. B) An equity security issued in only one state solely to residents of that state. C) A high-quality corporate zero-coupon bond maturing in 180 days. D) A new stock being offered in three states.
D) A new stock being offered in three states. Government securities, money-market instruments, and intrastate offerings are exempt from the registration provisions of the 1933 Act. A stock being offered in three states would have to register with the SEC and with those states.
Under the rules regarding the sales of new equity issues, which of the following are restricted purchasers? I.Aunts and uncles. II.In-laws. III.Supported persons. IV.Grandparents. A) II and IV. B) I and III. C) I and IV. D) II and III.
D) II and III.
In reviewing prospectuses and registration statements, the SEC: A) certifies the accuracy of the disclosures made in a prospectus. B) passes on the merits of a particular security covered by a registration statement. C) guarantees the adequacy of the disclosures made in a prospectus. D) does not approve or disapprove of the issue.
D) does not approve or disapprove of the issue.
All of the following must be part of a registration statement EXCEPT: A) the signatures of CEO, CFO, CAO, and majority of the board. B) a statement as to whether the company is involved in any legal proceedings. C) a prospectus. D) identification of investors who own 5% or more of the company.
D) identification of investors who own 5% or more of the company. The registration statement must identify investors who own 10% or more of the company.
In account transfers, how many days does a firm have to validate positions? To complete the transfer?
One day to validate Three days to complete transfer
Who is required to sign when opening a cash account?
Only the principal
Another name for cash accounts
Special accounts Crash of 1929 - called special accounts before this
Which act created the SEC?
The Securities Exchange Act of 1934
What does the SDI list published by OFAC do?
The is a list of individuals and companies who are acting on behalf, or for, targeted countries or individuals who are threats. When somebody appears on the SDI list, his/her assets get blocked
Transfer and ship Transfer and hold in safekeeping Hold in street name Delivery versus payment
Transfer and ship - securities are registered in the customer's name and shipped to them Transfer and hold in safekeeping - securities are registered in the customer's name and the broker holds them in safekeeping Hold in street name - securities are registered in the broker's name and held by the owner (broker is nominal owner and customer is beneficial owner) DVP - securities that are delivered to a bank against payment. Usually for institutional accounts
True/false When opening a cash account, the ONLY signature required is that of the principal accepting the account
True
When should you mark an order as "unsolicited"?
When a customer wants to make a transaction that registered representative considers unsuitable or does not recommend
Regulation S-P - who enacted? What is it?
Enacted by the SEC Firms must provide a privacy notice upon account opening and annually thereafter. It also gives obligations to firms to safeguard customer information.
What does the USA Patriot Act of 2001 say to brokers/dealers? What does it require they maintain?
Financial institutions are responsible for monitoring client activity for money laundering and terrorist financing They are required to maintain a Customer Identification Program (CIP) to prevent these actions. Al customer names must be checked against the Specially Designated Nationals (SDN) list maintained by the Office of Foreign Asset Control (OFAC)
Updating customer information? which two pieces of information change the most for clients?
Firms must furnish to each customer within 30 days of opening an account a copy of the account record to double check info (any changes must be corrected within 30 days of notice) Account updating is required every 36 months after an account opening Employment and financial status change most frequently
An affiliate holding restricted stock wishes to sell shares under Rule 144. He has held the shares, fully paid, for 6 months, and the issuer has 2.4 million outstanding shares. Form 144 is filed on Monday, April 10, and the average weekly trading volume for the last four weeks is 24,500 shares per week. The maximum number of shares the customer can sell with this filing is: A) 23,000. B) 24,000. C) 24,250. D) 24,500.
24,500 Under Rule 144, after holding the fully paid restricted shares for 6 months, the affiliate can begin selling. For affiliates, volume restrictions always apply. They can sell the greater of 1% of the total shares outstanding or the weekly average of the prior 4 weeks' trading volume (the 4 weeks preceding the Form 144 filing). In this case, 1% of the total shares outstanding is 24,000 (1% × 2.4 million). The weekly average of the prior 4 weeks' trading volume is 24,500. Therefore, the most the affiliate can sell during the 90 days following the Form 144 filing is 24,500 shares.
If a member firm is underwriting an initial public offering of common stock for ABCD Corp., a new issue that qualifies for Nasdaq listing, a prospectus must be provided to all purchasers for how many days following the effective date? A) 40. B) 90. C) 25. D) 60.
25 For new issues that qualify for listing on an exchange or Nasdaq, the prospectus delivery requirement period in the aftermarket is 25 days. For non-listed and non-Nasdaq securities the period is 40 days. If the new issue will be specifically quoted on the OTCBB or the electronic OTC Pink, the period is 90 days.
An affiliate or insider holding unregistered shares can sell under Rule 144: A) 4 times a year. B) 12 times a year. C) 1 time a year. D) 2 times a year.
4 times a year Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last four weeks' trading volume with each Form 144 filing. The filing is good for 90 days, which would allow for as many as four filings per year.
XYZ Corporation is preparing a registration statement for a new issue consisting of 300,000 new shares and 200,000 existing shares held by officers. The offering price is $30 per share and the spread taken by the underwriters is $2 per share. After the offering is complete, XYZ will receive: A) 15000000. B) 14000000. C) 8400000. D) 9000000.
8,400,000 XYZ Corporation will receive $28 per share for each of the 300,000 new shares being issued ($30 per share price less the $2 spread). The proceeds from the 200,000 shares sold by the officers will benefit the officers themselves, not XYZ Corporation.
Which of the following exemption provisions of the Act of 1933 may NOT be used for an initial offering of securities? A) Rule 147. B) Regulation D. C) Rule 144. D) Regulation A.
C) Rule 144. Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities.
Prudent Investor Rule
A legal maxim that restricts discretion in a fiduciary account to only those investments that are reasonable and a prudent person would make
When the SEC rules that an offering has become effective, the SEC has: A) approved the offering for registration. B) not verified the accuracy of each statement in the registration statement but has approved of the offering. C) cleared the offering for sale. D) verified the accuracy of the statements in the registration statement.
C) cleared the offering for sale.
If an officer of a bank wants to purchase new issues, which of the following statements is TRUE? A) He may not purchase a new issue because he is considered a restricted person. B) He may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering. C) He may purchase a new issue because anyone is allowed to purchase new issues. D) He may purchase a new issue because no banking rules prohibit it.
A) He may not purchase a new issue because he is considered a restricted person. Under the rules regarding the purchase of new issues bank officers would be characterized as restricted persons. They may not, therefore, purchase new issues.
To which of the following firms could a member grant concessions or other allowances? I. Another member firm. II. A suspended member firm. III. A foreign nonmember broker/dealer ineligible for FINRA membership. IV. A U.S. nonmember broker/dealer. A) I and III. B) III and IV. C) I and II. D) II and IV.
A) I and III. A member can grant discounts and other concessions only to other member firms
A company is offering a private placement with the intent of selling shares to nonaccredited investors up to the 35 allowed for in Regulation D. Which of the following is TRUE? A) The offering may not be advertised B) Anyone may be solicited C) The offering can be advertised to all except the 35 nonaccredited investors D) While the offering can be advertised to anyone, only accredited investors could be solicited to purchase shares
A) The offering may not be advertised
The Act of 1933 applies to all of the following EXCEPT: A) full and fair disclosure. B) prospectus preparation. C) regulation of insider trading. D) registration of new issues .
C) regulation of insider trading. The regulation of insider trading is covered under the Act of 1934. The Act of 1933 deals with new issues and related disclosures.
Before the filing of a registration statement for a new issue, an investment representative may NOT:I. solicit indications of interest for the security. II. solicit orders. III. confirm the sale of the security to a customer. A) II only. B) I, II and III. C) II and III. D) I only.
B) I, II and III.
The Act of 1934 applies to all of the following EXCEPT: A) the extension of credit on purchase of securities. B) registration of broker/dealers. C) regulation of new issues. D) secondary market trading.
C) regulation of new issues.
Your customer informs you that he has shares of stock restricted under Rule 144. He suggests that he wants to sell covered calls against the shares he owns to bring additional income into his account. Which of the following should you advise? A) This is prohibited because the customer may need to sell the stock before the restriction is lifted. B) Selling calls against restricted (Rule 144) shares is prohibited because the restricted shares could not be delivered if the calls were exercised by the buyer. C) This is permitted because there is no restriction against using covered calls to bring income into any account. D) This is permitted, as the calls would be considered covered by the restricted shares.
B) Selling calls against restricted (Rule 144) shares is prohibited because the restricted shares could not be delivered if the calls were exercised by the buyer.
Securities issued outside the United States by US issuers and sold to non-US residents A) are considered to be offered in a nonexempt transaction B) are considered to be offered in an exempt transaction C) must be registered with the SEC D) are considered to be offered by an exempt issuer
B) are considered to be offered in an exempt transaction
The Securities Act of 1933 covers all of the following EXCEPT: A) prospectus requirements. B) blue-sky laws. C) full and fair disclosure. D) liabilities for misleading filings.
B) blue-sky laws. The purpose of the Securities Act of 1933 is to provide investors with full disclosure about a new securities issue. The act is federal in scope, whereas blue-sky laws refer to state securities regulations.
During the cooling-off period, a registered representative (in order to highlight key points) marks a preliminary prospectus and sends it to a client. This action is: A) permitted if approved by a principal. B) prohibited. C) permitted if the customer is an accredited investor. D) permitted without restriction.
B) prohibited. Under no circumstances may a registered representative mark a preliminary or final prospectus.
Rule 144A regulates: A) personal trading by research analysts. B) the sale of restricted stock to institutional investors. C) the sale of restricted stock by control persons. D) companies traded on the NASDAQ Global Select Market.
B) the sale of restricted stock to institutional investors.
Top Notch Securities is the managing underwriter for a new issue of 1 million shares of ABC common on a firm-commitment basis. If part of the ABC issue remains unsold and results in a loss, the loss will be divided proportionately among the: A) underwriting firms and the issuer. B) underwriting firms. C) underwriting firms and the selling group firms. D) selling group firms.
B) underwriting firms.
Under the provisions of Rule 144, what percentage of outstanding stock may a control person sell every 90 days? A) 0.05. B) 0.03. C) 0.01. D) 0.04.
C) 0.01.
An investor and his father own 20% and 10%, respectively, of a corporation's outstanding shares, and the father wants to sell his holding. According to Rule 144, which of the following statements are TRUE?I. He must file Form 144 to sell the shares. II. He does not have to file Form 144 to sell the shares. III. He is considered an affiliated person. IV. He is not considered an affiliated person. A) I and IV. B) II and III. C) I and III. D) II and IV.
C) I and III. Under Rule 144, an affiliate is a person in a control relationship with an issuer. Because the investors own at least 10% of the stock, they are control persons under Rule 144 and must sell in compliance with the rule.
Question ID: 606196 A prospectus must be delivered to customers who purchase which of the following new issues? I. U.S. government bonds. II. Corporate bonds. III. Fixed annuities. IV. Unit Investment Trusts. A) I and IV. B) II and III. C) II and IV. D) I and III.
C) II and IV. Fixed annuities are not considered securities as the risk is borne by the insurance company issuer
FINRA rules require anybody with 10% or more of a publicly traded company who is a director, officer, or shareholder to identify themselves
Just a note
What is required when opening a corporate account?
Copy of the corporate charter and the corporate resolution charter - proof corp. exists resolution - authorizes the opening of the account and the officers designated to enter orders
KYC When can a registered representative make recommendations?
Know your customer - advisors must know all relevant facts about their client and the client's financial history Recommendations can only be made once suitability of the client has been established
Uniform Transfer to Minors Act
Legislation that permits a gift of money or securities to be given to a minor in a custodial account that an adult manages on the minor's behalf
What needs to be completed when a broker/dealer opens an account?
New account form Client and broker dealer NOT required on this form
What is trading authorization? What are the types of trading authorization accounts?
Trading authorization, aka power of attorney, is when an account is opened by someone and somebody other than the owner has authority to buy and sell on the owner's behalf Discretionary - another person has given written authorization to make trading decisions for a customer Custodial - an adult has been instructed to act on behalf of a child Fiduciary - third party has been appointed to manage accounts on behalf of another person
