Understanding, Trading, Customer Accounts, and Prohibited Activities Part 2
An investor owning 500 shares of MES stock received notice that the stock had undergone a 2:1 forward split when the stock's market price was $10 per share. The investor now owns
1,000 shares worth $5 per share A forward split increases the number of shares and reduces the price proportionately so that the stock's total value is the same before and after the split. A 2:1 split in this case doubles the number of shares to 1,000 (the investor receives 2 shares for every 1 owned) and halves the price to $5 per share.
Which of the following could be granted a selling concession or commission by a FINRA member firm, though the recipient lacks registration?
A foreign nonmember firm, provided it agrees to abide by FINRA rules
A member firm suspects financial exploitation of a senior customer. Which of the following is true regarding actions that can be taken?
A trusted contact person if one was named can be contacted and a temporary hold on disbursements from the account can be administered.
Distinguishing between a sell stop order and a sell stop limit order, which of the following are TRUE? The sell stop limit order becomes a sell limit once triggered. The sell stop order becomes a sell limit order once triggered. The sell stop limit order becomes an order to sell at the market triggered. The sell stop order becomes an order to sell at the market triggered.
I and IV
Which of the following orders need NOT be immediately filled in their entirety? Immediate or cancel (IOC) Fill or kill (FOK) Market at open All or none (AON)
I and IV
Which of the following would NOT be considered violations? As soon as a customer opens a margin account and signs the loan consent agreement, the BD lends all of the securities in the customer's account to other customers for the purpose of selling short. A BD temporarily lends a customer's securities to another customer with no loan consent on file. A registered representative transfers funds from Mr. Smith's account to the account of his spouse, Mrs. Smith, in order to meet a margin call she has received. The intent is to move the funds back to Mr. Smith once Mrs. Smith makes her required margin call deposit. Mr. Smith makes a deposit into his spouse's account for the purpose of meeting a margin call.
I and IV
For each transaction, a customer must be sent or given a written confirmation of the trade at or before the completion of the transaction, the settlement date. Information on that trade confirmation would include the markup (markdown) charged on a principal transaction the commission charged on an agency transaction the number of bonds purchased in a bond trade the CUSIP number (if any)
II and IV
Which of the following are available to participants in a 401(k) plan that are not available to IRA holders? Tax deferral on the earnings Hardship withdrawals The catch-up provision for those who are age 50 and older Loans against the vested balance
II and IV
A registered representative is appointed the fiduciary for a trust account. Which of the following is TRUE?
Investment decisions must be made in accordance with the prudent investor rule.
Your firm must provide a privacy notice describing its privacy policies to customers
whenever a new account is opened and annually thereafter
If a registered representative allows a customer to unknowingly buy investment company shares in an amount just under a dollar bracket that would qualify for a reduced sales charge, or encourages such a purchase, this is known as
a breakpoint sale violation
An investor owning 400 shares of stock receives notice that the stock will be split. When the split is complete, the customer owns 1,200 shares of stock. The split must have been
a forward, even split
An investor owning 400 shares of CDS stock receives notice that the stock will be split. When the split is complete, the customer owns 600 shares of stock. The split must have been
a forward, uneven split
SKRAM corporation is appealing directly to the shareholders of IDNIC corporation to acquire shares of IDNIC stock. This appeal is best described as
a hostile takeover with IDNIC the target company
The regulation enacted by the SEC to protect the privacy of customer information is known as
Regulation S-P
Which of the following statements about rights and warrants is TRUE?
Rights are short term; warrants are long term.
An investor needs to decide whether or not they would like to maintain their percentage of ownership in a company that has decided to increase the number of outstanding shares. Which of the following is the best description of what is taking place?
Rights will be distributed to existing stockholders with an exercise price lower than the current market value
Generally before borrowing from or lending to a customer, a registered representative must advise the firm in writing and receive written permission. Which of the following would be an exception to the written notice and approval requirement?
The customer is an immediate family member of the RR.
For securities held in "street name," which of the following is TRUE?
The customer is the beneficial owner.
Which of the following is a nonfinancial investment consideration?
The customer's place of employment and status
An investor purchased an MJS corporation 6% 20-year bond for $950. Two years later, the investor sold the bond for $925. This investor experienced
a $25 capital loss
A corporation divests itself of all of the shares of another company it owns. This is known as A)
a spin-off.
A fiduciary would be best described as
any person legally appointed and authorized to represent another person, act on that person's behalf, and make whatever decisions are necessary to the prudent management of the account.
Recommendations regarding investment strategies under the "know your customer" (KYC) rule would NOT apply to recommendations to
buy or sell commodities
Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as
covered
A company's board of directors (BOD) approves a dividend payment. When this occurs it is recognized as the
declaration date
In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct EXCEPT
earnings from referred business from existing clients would be eligible for payment
Should a member firm or an associated person be found in violation of FINRA's Conduct Rules, a number of sanctions may be imposed. However, under the Code of Procedure, FINRA may NOT
impose a prison sentence on the violator
An investor purchased and then sold a security 8 months later for a gain. This gain
is considered to be a short-term gain, and it will be taxed at the same rate as the taxpayer's other ordinary income
Ownership of a security indicates that one is
long the position and bullish
Which of the following is not a category of communications with the public designated by FINRA?
market letters
On behalf of a customer, a broker-dealer requested an extension for payment that was not granted. The broker-dealer must
sell out the securities purchased and freeze the account for 90 days
Regulation T, the initial margin requirement, is set by
the Federal Reserve Board (FRB)
When making unsolicited cold calls to prospects, a registered representative must disclose all of the following to the individual called EXCEPT
the address of any securities issuer mentioned during the call
Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by
the broker-dealer on behalf of the short-selling customer
The term investment strategy applies to all of the following EXCEPT
the customer's position in real estate
All of the following are true regarding breakpoints for mutual funds EXCEPT
the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold
An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33. The order would be executed and the investor would receive a price of
31 This is a sell stop order with a limit of 30. Once the stock trades at 30 or lower, the order is elected (triggered) and becomes a live working order. This occurs at 29. The order will then be executed at its limit (30) or better. This occurs at 31.
All of the following are considered unique or nonstandard corporate actions EXCEPT
3:1 stock split
Records relating to a currency transaction report must be retained for
5 years
A customer has requested that your BD hold mail for them while they are traveling. Which of the following is TRUE?
Firms may choose or choose not to hold customer mail when requested to.
A stock trade took place on Tuesday, July 2. When would regular way settlement normally take place?
Friday, July 5 Regular way settlement for a stock trade is T + 2 (trade date plus 2 business days). This would normally make settlement for this transaction Thursday July 4, but because July 4 is not a business day (national holiday), regular way settlement would have to be Friday, July 5.
An exception report would be most likely generated by which of the following observations? Seeing activity in the account of a deceased person Noting that a customer's telephone area code matches the ZIP code provided Receiving an execution for 300 shares when the order was for only 100 Receiving a written complaint from a customer
I and III
The tax rate on qualified dividends depends on which of the following? The current IRS tax code The financial status of the issuer The tax bracket of the shareholder The price per share of the stock
I and III
A customer of a securities firm has concluded that selling short would be an effective trading technique to reach his investment goals. Assuming the firm's principal agrees to permit the customer to effect short sales, what type of account would be most suitable for short selling?
Margin account
A corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might the corporation take?
Offer a warrant on the stock with each bond
Regarding capital gains, which of the following is TRUE?
Short-term gains are those realized on positions held for 12 months or less.
he Conduct rules permit specific types of lending arrangements between RR's and their firms and customers. Which arrangement below would not be permitted?
The firm lends the customer's securities without a consent agreement.
An investor is long MJS stock. For this investor, which of the following is TRUE?
The risk is that the stock falls in price.
Which type of accounts bills a single fee annually for a group of services that might include asset allocation, portfolio management, and executions?
Wrap account.
