Chapter 17 Custom Exam
Details regarding questions that appear on a FINRA or MSRB examination: A) Are viewed as confidential B) May be shared with other candidates C) May only be disclosed to a compliance officer of the candidate's firm D) May be described in general terms, provided no specific details are disclosed
A) Are viewed as confidential All details regarding questions that appear on regulatory examinations are confidential. Receiving or giving assistance during the examination, or disclosing of any information contained within the examination, is a violation of FINRA and MSRB rules.
Regarding continuing education for a registered person of a broker-dealer, which of the following statements is NOT TRUE? A) He is required to retake the applicable qualification examination to meet FINRA requirements regarding continuing education. B) He is required to complete the Regulatory Element. C) There is both a Regulatory and a Firm Element requirement. D) The person will have all of his registrations deemed inactive if he fails to complete the Regulatory Element of the Continuing Education program.
A) He is required to retake the applicable qualification examination to meet FINRA requirements regarding continuing education. All registered persons are subject to continuing education requirements, as adopted by the securities industry. The program consists of both Regulatory Element and Firm Element components. All registered persons are required to complete the Regulatory Element at their two-year registration anniversary and then every three years thereafter. However, all registered representatives who have contact with the public are also subject to the Firm Element. Persons subject to the Regulatory Element, who do not complete it within specified periods, are subject to having their registrations deemed inactive.
A previously registered person was convicted of a felony 14 years ago and has served out his sentence in federal prison. If he's now seeking employment as a registered representative, he should be informed that: A) He may be hired as a registered representative B) He may not be hired as a registered representative C) He may be hired to provide investment advice to customers, but will not be permitted to receive compensation based on these transactions D) He may be hired to provide financial advice, but will not be permitted to become registered
A) He may be hired as a registered representative A convicted felon is barred from the securities business for 10 years from the time of conviction. This type of ban is referred to as a statutory disqualification. Since the conviction was more than 10 years ago, the person may be hired as a registered representative. There are no special restrictions concerning registration and compensation of the person who was previously subject to statutory disqualification.
An unregistered person may: A) Invite a prospective customer to speak with a registered person about a specific investment B) Execute unsolicited transactions involving corporate bonds C) Provide investment advice which follows the firm's guidelines D) Offer private placement interests to institutional customers
A) Invite a prospective customer to speak with a registered person about a specific investment An unregistered person may neither make recommendations to clients or prospects nor execute client trades. However, an unregistered person may set up appointments for a registered person, offer brochures and literature, and invite customers or prospects to seminars.
A registered person who is employed by a broker-dealer has committed an offense that makes the person subject to statutory disqualification. The firm is MOST likely to take which of the following actions? A) No longer permit the person to be associated with the member firm B) Permit the person to be associated with the member firm, but require increased supervision C) Permit the person to be associated with the member firm, but only in a non-registered capacity D) Permit the person to be associated with the member firm provided FINRA is notified
A) No longer permit the person to be associated with the member firm As a general rule, any person who is subject to statutory disqualification may not be associated with a FINRA member firm in any capacity, even in a non-registered capacity. The firm is also required to report the event to FINRA. The member firm may request an eligibility proceeding to determine whether the person can remain in a registered capacity; however, there is no guarantee that the request will be granted. If the employee is terminated, the firm will file a Form U5.
If a registered representative does not meet the Regulatory Element requirements of continuing education: A) She cannot perform the duties of a registered person B) There is an automatic 30-day suspension C) She may continue to work as a registered person, but under heightened supervision D) She is not permitted to be employed by the member firm
A) She cannot perform the duties of a registered person Failure to complete the Regulatory Element within 120 days of the registered person's anniversary date has negative consequences. In this case, a registered person may not perform the duties of a registered person regarding executing securities transactions or performing investment banking activities. FINRA refers to this situation as CE Inactive. The individual is permitted to be employed by the member firm, but only in a non-registered capacity until the CE requirement is satisfied.
A registered representative purchased a vacation property, but it has since fallen in value. The RR decides to sell the property short and the bank agrees to accept the proceeds of the sale as payment in full for the mortgage. Is the registered representative required to take any action? A) Yes, the RR must notify FINRA. B) Yes, the RR must obtain her broker-dealer's preapproval of the short sale. C) Only if the property has gone into foreclosure. D) Only if the property was the RR's primary residence.
A) Yes, the RR must notify FINRA. When the proceeds of a short sale of property is used to settle the payment of a mortgage at less than its full amount, it's considered a "compromise with creditors" and FINRA must be notified by the filing of an updated Form U4. (17584)
Which of the following individuals is NOT an associated person under FINRA rules? A) A person who is employed in the investment banking department of a broker-dealer B) A person who is employed in the commercial banking department of a bank, which is the parent company of a broker-dealer C) A person who is employed in the compliance department of a broker-dealer D) A person who is employed in the operations department of a broker-dealer
B) A person who is employed in the commercial banking department of a bank, which is the parent company of a broker-dealer Most employees of a broker-dealer are considered associated persons under FINRA rules. However, employees of a bank only, even if the bank owns a broker-dealer, are not considered associated persons.
A registered representative becomes aware of a potential violation of an industry rule. The BEST course of actions is for the RR to: A) Contact the SEC B) Contact his designated supervisor C) Contact FINRA D) Contact the chief compliance officer of his firm
B) Contact his designated supervisor Each registered representative (RR) must be assigned to a specific supervisor or principal who has passed the appropriate regulatory examination. If a representative becomes aware of a potential violation, the best course of action is for him to contact his designated supervisor.
A person is subject to the Regulatory Element of Continuing Education: A) If she has failed any qualification exam B) On the second anniversary of her registration and every three years thereafter C) Annually D) Only if she has been subject to disciplinary action
B) On the second anniversary of her registration and every three years thereafter The Continuing Education Regulatory Element for registered personnel begins on the second anniversary of her initial registration, and then is triggered every three years thereafter. If representatives do not participate, their registration becomes inactive. There is no graduation from the Regulatory Element.
A person is NOT subject to a statutory disqualification if he: A) Has been suspended from membership in any SRO B) Stands accused of stock manipulation C) Is subject to an order of the SEC which precludes his industry activities D) Was expelled from a foreign securities exchange
B) Stands accused of stock manipulation A person is subject to statutory disqualification for all of the reasons given except for being accused of a criminal offense. Statutory disqualification is based on a person being convicted for any felony or securities-related misdemeanor, not based on being accused of an offense.
Which of the following statements is TRUE regarding a registered representative who has not completed the Continuing Education Regulatory Element training within 120 days of his registration anniversary? A) The broker-dealer must request an extension from an SRO B) The representative will be placed in inactive status C) The representative will be suspended D) The representative has 30 days to complete the requirement
B) The representative will be placed in inactive status FINRA will notify a representative within 30 days of the second anniversary date of initial registration, and every three years thereafter. If the representative then fails to complete the required training within 120 days of the anniversary date, that person's registration will become inactive and any activity that requires registration, including receipt of commissions, will be prohibited.
Which of the following employees of a broker-dealer is not required to be fingerprinted? A) A back office employee who handles customer funds. B) A clerk who has access to records of original entry. C) A senior officer of the firm who only provides capital to the firm. D) A registered representative who processes trades in the back office.
C) A senior officer of the firm who only provides capital to the firm. According to SEC Rule 17-2, all partners, directors, officers and employees of broker-dealers who are involved in the sale of securities, handling securities, monies, or records of original entry, or supervise any of the above must be fingerprinted. An officer of a firm who simply provides capital to the firm and is not involved in the handling of funds and/or securities, or dealing with the firm's books and records, is exempt from the fingerprinting requirement. (17583)
A registered representative who just passed the Series 7 Examination disclosed several of the test questions to a colleague who is about to take the same examination. The colleague uses this information, but still fails the test. Which of the following statements is TRUE? A) FINRA may discipline the person who disclosed the information, but the person who received the information isn't subject to disciplinary action because he didn't pass the examination. B) FINRA may discipline the person who received the information, but the person who disclosed the information isn't subject to disciplinary action. C) FINRA may discipline both individuals. D) Neither person is subject to disciplinary action since this activity is permitted as long as the test items are not written down.
C) FINRA may discipline both individuals. Both persons are subject to disciplinary action. FINRA considers the content of its qualification examinations confidential; therefore, it's a violation to give assistance to, or receive assistance from, any person taking an examination. Additionally, it's a violation to disclose parts of an examination to another person, to receive parts of an examination from another person, to compromise the contents of a past or present examination in any way, or to knowingly sign a false certification concerning an examination. Although the colleague failed the exam, he's still subject to disciplinary action.
A registered person who has been in the securities industry for nine years is subject to the Regulatory Element of continuing education: A) This year B) Every two years C) In two more years D) In one more year
C) In two more years The Regulatory Element of Continuing Education begins on the second anniversary after a registered person's initial registration and then every three years thereafter. Therefore, the person in this question has had Regulatory Element training on her second, fifth, and eighth anniversaries. The next completion requirement is on her 11th anniversary, which is in two more years.
Which of the following descriptions BEST defines the Regulatory Element of Continuing Education (CE)? A) The requirement is triggered when a registered person violates industry rules. B) It can be accomplished by attending a seminar given by your firm. C) It ensures that registered persons are kept up-to-date on sales practices, compliance, and regulatory matters. D) It is a prerequisite for principal registration.
C) It ensures that registered persons are kept up-to-date on sales practices, compliance, and regulatory matters. The Regulatory Element of CE is a compulsory requirement that must be met on the second anniversary date of a registered representative's registration. It continues at a three-year interval thereafter.
A registered person has been indicted for investment fraud, which was unrelated to his employment at the member firm. Which of the following statements is TRUE? A) No action is required by the registered person until a verdict has been reached. B) No action is required since the fraud was unrelated to the registered person's employment. C) The registered person is permitted to remain employed at the member firm, but the event must be reported to FINRA. D) The registered person is not permitted to remain employed at the member and the event must be reported to FINRA.
C) The registered person is permitted to remain employed at the member firm, but the event must be reported to FINRA. If a person who is associated with a FINRA member firm has been indicted or pleads guilty to any felony or any misdemeanor that involves the purchase or sale of a security, fraud, extortion, forgery, or counterfeiting, the event must be reported to FINRA. Since the person has not been convicted, he is not subject to statutory disqualification and may remain employed at a member firm.
A registered representative has been indicted for theft, which was unrelated to his employment at the member firm. Which of the following statements is TRUE? A) No action is required by the registered person until a verdict has been reached. B) No action is required since the theft was unrelated to the registered person's employment. C) The registered person is permitted to remain employed by the member firm, but the event must be reported to FINRA. D) The registered person is not permitted to remain employed by the member and the event must be reported to FINRA.
C) The registered person is permitted to remain employed by the member firm, but the event must be reported to FINRA. If a person who is associated with a FINRA member firm has been indicted or pleads guilty to any felony or any misdemeanor that involves the purchase or sale of a security, theft, robbery, burglary, extortion, forgery, or counterfeiting, the event must be reported to FINRA. This includes shoplifting and, in some states, driving under the influence (DUI). Since the person has not been convicted, he is not subject to statutory disqualification and may remain employed by the member firm.
A registered representative has just been called up for active military duty. What is his Continuing Education (CE) status? A) The RR must participate before he leaves for active duty. B) The RR is required to requalify by examination when active duty ends. C) The RR must participate in CE, unless his active duty is overseas. D) CE requirements are deferred until his active duty ends.
D) CE requirements are deferred until his active duty ends. Both the Regulatory and Firm Elements of Continuing Education are deferred during active duty. The time element that typically applies to registered persons for CE is tolled (taken away) during the period of active military service. Therefore, the requirement to sit for the Regulatory Element of CE, based on the second anniversary of initial registration and each three years thereafter, is halted while the person is in active military service and won't resumes until the individual's special inactive status ends.
State or Blue-Sky Laws may require a registered person to take which of the following actions? A) Have a minimum net worth or annual income B) Have a physical office in each state in which she conducts business C) File an application, pass an exam, but not pay any fees D) File an application, pass an exam, and pay a fee
D) File an application, pass an exam, and pay a fee In addition to ensuring that RRs are properly registered under FINRA rules, RRs will need to be properly registered as agents in each state in which they conduct business. Most states require representatives to pass either the Series 63, Series 65, or Series 66 Examination. Each of these exams cover the state securities regulations that are contained in the Uniform Securities Act (USA). Firms must also submit an application and pay fees to the appropriate state Administrator(s).
An unregistered person may: A) Execute mutual fund redemption requests only B) Execute unsolicited mutual fund transactions only C) Perform periodic portfolio rebalancing D) Offer information on the firm's products and services to clients
D) Offer information on the firm's products and services to clients An unregistered person may neither make recommendations to clients or prospects nor execute client trades. However, an unregistered person may set up appointments for registered persons, offer brochures and literature, and invite customers or prospects to seminars.
If a newly hired person is employed by a broker-dealer and will be offering corporate securities, she can become FINRA registered by: A) Passing the SIE Exam only B) Passing the SIE Exam the Series 6 Exam C) Passing the Series 6 Exam only D) Passing the SIE Exam and the Series 7 Exam
D) Passing the SIE Exam and the Series 7 Exam In order to become properly registered or qualified, a newly hired person must pass the SIE Exam and the appropriate FINRA licensing exam. To offer corporate securities, a person must pass the Series 7 Exam plus the SIE Exam.
A registered representative has recently passed the Series 7 Examination. If the RR conducts business in five states, she is required to: A) Register in three of the five states B) Notify FINRA, but not required to register in any of the states C) Register in the states in which she has an office D) Register in all five states
D) Register in all five states In addition to ensuring that RRs are properly registered under FINRA rules, RRs also need to be properly registered as agents in each state in which they conduct business. State registration rules are contained within the Uniform Securities Act.
