Unit 8

Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Self-clearing B) Introducing C) Market maker D) Fully disclosed

A) Self-clearing

A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A depository trust B) A carrying firm C) An investment company D) A fully disclosed introducing firm

B) A carrying firm

A stock's market value is directly determined by which of the following? A) Vote of the stockholders B) Company's financial condition C) Board of directors D) Supply and demand

D) Supply and demand

Carrying firms may not A) execute transactions for their customers. B) send trade confirmations and statements to customers. C) clear and settle transactions for their customers. D) mix customer funds and securities with their own.

D) mix customer funds and securities with their own.

All of the following are benefits of using a prime broker except A) consolidation of records. B) cost savings. C) multiple executing brokers. D) research.

D) research.

All of the following would be secondary market transactions except A) securities sold on both the OTC and NYSE. B) securities bought and sold on the NYSE. C) securities bought and sold on the OTC. D) securities sold to the public by the issuer.

D) securities sold to the public by the issuer.

Carrying firms, those that carry customer accounts, must A) not disclose its net capital if it is higher than noncarrying firms. B) commingle customer funds and securities with the firms' funds and securities. C) maintain levels of net capital equal to or lower than noncarrying firms. D) segregate customer funds and securities from the firms' funds and securities.

D) segregate customer funds and securities from the firms' funds and securities.

A firm designated as self-clearing can I. act in a back-office capacity for an introducing firm. II. not act in a back-office capacity for an introducing firm. III. clear and settle transactions executed by other firms. IV. only clear transactions it executed.

I and III

A broker-dealer that executes trades and settles transactions for another broker-dealer is called

a carrying firm

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as

a custodian.

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as

a market maker

A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as

a market maker.

Having been told that a firm incorporates proprietary trading in its business model buying and selling securities into and out of its own inventory you would know that it is

a market maker.

An individual who purchases securities for a personal account is called

a retail investor.

An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is best described as

a trustee.

Anyone who, as part of their business, gives investment advice for compensation must register as

an investment adviser under the Investment Advisers Act of 1940.

When investors buy and sell securities to and from one another, these transactions occur

in the secondary market.

A fully disclosed broker-dealer

is one that introduces its business to a carrying firm to clear transactions

For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are

made by the clearing firm.

In a prime brokerage account, the prime broker

provides custody and clearing services, as well as margin loans.

All of the following are true regarding the term market except A) it can be a physical place or an electronic venue. B) it is unique to the U.S. securities industry. C) it is where buyers and sellers come together for the purpose of trading assets. D) it includes stock exchanges.

B) it is unique to the U.S. securities industry.

Secondary market transactions would include all of the following except A) sale of $10 million of U.S. Treasury bonds by a broker-dealer acting as a market maker. B) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter. C) sale of $10 million of corporate stock by a broker-dealer acting as a market maker. D) sale of $10 million of municipal bonds by a broker-dealer acting as a market maker.

B) sale of $10 million of corporate bond by a broker-dealer acting as an underwriter.

Which of the following statements would describe the Fourth Market? A) These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals B) These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely as principals C) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers D) The after-hours market

C) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers

A market in which exchange-listed securities are traded in the over-the-counter (OTC) market would best be described as A) the Fourth Market. B) the First Market. C) the Third Market. D) the Second Market.

C) the Third Market.

A broker-dealer's business model allows for only the purchase and sale of securities for retail customer accounts. It does not execute, settle, or clear its customer's transactions, nor does it tend to any back-office functions such as sending trade confirmations or forwarding proxies. This broker-dealer would best be described as what type of firm?

Introducing/fully disclosed

An institutional investor selects a single Financial Industry Regulatory Authority (FINRA)/NYSE member firm to provide for financing and custody of securities while orders to buy or sell are placed with executing brokers. This is an example of

a prime brokerage account.

Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as

A carrying firm

The transfer agent for a corporation is responsible for each of the following except A) maintaining records of ownership. B) ensuring that its securities are issued in the correct owner's name. C) acting as an intermediary between the buy and sell sides of a transaction. D) canceling old and issuing new certificates.

C) acting as an intermediary between the buy and sell sides of a transaction.

All of the following are associated with being a carrying firm except A) being able to clear customer transactions. B) accepting customer funds. C) being a fully disclosed firm. D) accepting customer securities.

C) being a fully disclosed firm.

Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following? A) Fully disclosed firm B) Carrying firm C) Introducing firm D) Limited broker-dealer

B) Carrying firm

It is expected that financial markets A) be nonregulated to allow for free trade. B) have transparent pricing for assets. C) be limited to stocks and bonds and not include derivatives like options. D) have securities prices determined by a board of directors.

B) have transparent pricing for assets.

A broker-dealer has a line of business restricted solely to the purchase and sale of securities with trade executions being handled by another member firm. Which of the following would best describe this type of firm? A) Clearing/carrying B) Prime/executing C) Introducing/fully disclosed D) Market making

C) Introducing/fully disclosed

Which of the following is true regarding a member firm operating under Financial Industry Regulatory Authority (FINRA) membership or the membership of another self-regulatory organization (SRO)? A) Member firms may never incorporate proprietary trading into their business model. B) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals. C) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a few. D) Member firms are required to be full-service broker-dealers.

C) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a few.

Which of the following would be a secondary market transaction? A) A broker-dealer arranges for a customer to purchase an APO B) A broker-dealer arranges for a customer to purchase an IPO C) A broker-dealer arranges for a customer to purchase mutual fund shares D) A broker-dealer arranges for a customer's order to be executed on the NYSE

D) A broker-dealer arranges for a customer's order to be executed on the NYSE

A clearing corporation agent or depository for securities transactions A) must be a broker-dealer. B) can never be a corporation. C) can be a bank or corporation only if they are also a broker-dealer. D) can be a commercial bank.

D) can be a commercial bank.

All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities except A) the National Securities Clearing Corporation (NSCC). B) carrying firms. C) the Depository Trust Company (DTC). D) credit unions.

D) credit unions.

A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) canceling old certificates and issuing new ones. B) replacing lost or destroyed stock certificates. C) maintaining records of shareholder ownership. D) filing an S-1 registration statement.

D) filing an S-1 registration statement.

A broker-dealer designated as a carrying firm would be expected to do all of the following except A) perform back-office functions, such as sending trade confirmations to customers. B) take custody of customer funds and securities. C) clear transactions for customer accounts. D) maintain a lower net capital than noncarrying broker-dealers.

D) maintain a lower net capital than noncarrying broker-dealers.

A broker-dealer designated as a clearing firm would be expected to do all of the following except A) take custody of customer funds and securities. B) clear transactions for customer accounts. C) perform back-office functions such as sending trade confirmations to customers. D) maintain a lower net capital than noncarrying broker-dealers.

D) maintain a lower net capital than noncarrying broker-dealers.