Unit 8

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 fully disclosed introducing firm B) A carrying firm C) A depository trust D) An investment company

B) A carrying firm

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

D) securities sold to the public by the issuer.

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

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

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

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

Anyone who, as part of their business, gives investment advice for compensation must register as A) an investment adviser under the Investment Advisers Act of 1940. B) a stock broker. C) an underwriter. D) an agent for the issuer.

A) an investment adviser under the Investment Advisers Act of 1940.

A fully disclosed broker-dealer A) is one that introduces its business to a carrying firm to clear transactions. B) is also known as a full-service clearing agent able to process and clear transactions. C) is like a clearing agent in that it can take custody of funds and securities. D) clears all of its retail customer transactions and those of other broker-dealers.

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

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

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

A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) registering the corporation's securities with the state. B) canceling old certificates and issuing new ones. C) maintaining records of shareholder ownership. D) replacing lost or destroyed stock certificates.

A) registering the corporation's securities with the state.

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

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

A market maker A) trades in a proprietary account to facilitate trading of a security and provide liquidity. B) acts as an agent to buy and sell for public customers who will hold their own securities. C) trades in a customer's account standing ready to buy or sell at their own discretion. D) can only be an institution doing proprietary trading.

A) trades in a proprietary account to facilitate trading of a security and provide liquidity.

When investors buy and sell securities to and from one another, these transactions occur A) on exchanges only. B) in the secondary market. C) in the over-the-counter (OTC) market only. D) in the primary market.

B) in the secondary market.

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

B) mix customer funds and securities with their own.

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

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

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) maintain a lower net capital than noncarrying broker-dealers. D) clear transactions for customer accounts.

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

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

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

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) Introducing firm B) Carrying firm C) Limited broker-dealer D) Fully disclosed firm

B) Carrying firm

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

B) Self-clearing

A broker-dealer that executes trades and settles transactions for another broker-dealer is called A) a fully disclosed firm. B) a carrying firm. C) an introducing firm. D) a limited broker-dealer.

B) a carrying firm.

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) a depository trust. B) a carrying firm. C) a receivership. D) a fully disclosed firm.

B) a carrying firm.

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) a clearing corporation. B) a market maker. C) a direct participation program. D) a holding company.

B) 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) a holding company. B) a market maker. C) a direct participation program. D) a clearing corporation.

B) a market maker.

An individual who purchases securities for a personal account is called A) an accredited investor. B) a retail investor. C) a market maker. D) an institutional investor.

B) a retail investor.

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

B) being a fully disclosed firm.

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

B) can be a commercial bank.

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

B) filing an S-1 registration statement.

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) the Depository Trust Company (DTC). C) credit unions. D) carrying firms.

C) credit unions.

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? A) Full service B) Market making C) Introducing/fully disclosed D) Clearing agent/carrying agent

C) Introducing/fully disclosed

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

C) Supply and demand

A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is A) a broker-dealer. B) a depository. C) a clearing agent. D) a transfer agent.

C) a clearing agent.

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) a fully disclosed firm. B) a unit investment trust. C) a custodian. D) an investment company.

C) a custodian.

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) a fully disclosed broker-dealer. B) a clearing agent. C) a market maker. D) an executing for commissions only.

C) a market maker.

When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) an underwriter. B) an agent. C) a market maker. D) an investment banker.

C) a market maker.

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) a managed account. B) an omnibus clearing arrangement. C) a prime brokerage account. D) an investment advisory account.

C) a prime brokerage account.

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. A) II and IV B) II and III C) I and IV D) I and III

D) I and III

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) Market making C) Prime/executing D) Introducing/fully disclosed

D) 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 are required to be full-service broker-dealers. C) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals. D) 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 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.

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) a prime broker. B) an investment advisor. C) a market maker. D) a trustee.

D) a trustee.

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

D) have transparent pricing for assets.

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) perform back-office functions such as sending trade confirmations to customers. 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.

In a prime brokerage account, the prime broker A) subcontracts out all services to other brokers. B) provides custody and clearing, but no margin financing. C) provides execution services only, while another broker clears transactions and provides any other account services required. D) provides custody and clearing services, as well as margin loans.

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

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

D) research.

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 Second Market. C) the First Market. D) the Third Market.

D) the Third Market.