Quiz 4
A registered representative who sold mutual funds with a back-end load leave the employ of his broker-dealer. Which statement is FALSE regarding the receipt of continuing commissions on these sales? A If the registered representative leaves his or her firm and does not reassociate with another member, continuing commissions may still be paid B Continuing commissions cannot be paid if the cause of the person's leaving was suspension or expulsion by FINRA C If a written agreement is entered into prior to retirement between the registered individual and the employing broker-dealer, then trail commissions can be paid after the individual leaves the firm D If a written agreement is entered into prior to retirement between the registered individual and the employing broker-dealer, then trail commissions can be paid after the individual leaves the firm to that individual's spouse upon death
The best answer is A. FINRA does not permit commission payments to be made to unregistered persons. If a registered representative sold mutual funds with trail commissions at Firm A and then leaves the business, the trail commissions (which are paid by the fund to Firm A for continued servicing of those customers) will stop being paid to the ex-representative unless he or she associates with another firm. Furthermore, if the representative moves to another firm, for the trail commissions to move with the representative, the firm must have a selling group agreement in place with the fund and those customers would have to move their mutual fund assets to the new firm. FINRA gives an exception to the rule that commissions can only be paid to registered individuals if a representative is retiring or is disabled. This is a "FINRA being nice" rule to give these individuals income in retirement or their period of disability. As long as there is a written agreement between the employing BD and the representative prior to leaving the firm to retirement (or due to disability), continuing trail fees can be paid on existing assets as of the leave date, but not on new assets collected after that date. And these payment can continue upon the retiring representative's death to his or her spouse or estate. Finally, continuing commissions cannot be paid during a period of suspension, or if the individual is expelled.
Under Regulation M's Rule 104, once an issue starts trading, stabilizing bids: A are only permitted if an independent market exists B may be placed by the manager and co-manager with each bid identified as such C if commenced, must be discontinued within 30 days D may only be placed for an ATM offering during normal trading hours
The best answer is A. There is no specific time limit on stabilization - the manager can start stabilizing and can stop stabilizing at any time - though stabilization must stop when the manager disbands the syndicate. If the manager is placing the stabilizing bid prior to the start of trading (the usual practice), then the stabilizing bid can only be placed at or below the POP, never above. Once the issue begins trading, stabilization can only occur if there is another independent market maker maintaining quotes in the issue. In this case, the stabilizing bid must placed at or below the public offering price (POP), but never higher than the highest current independent bid. Stabilizing quotes must have an identifier on the screen ("Synd") - so everyone knows that it is a stabilizing bid placed by the manager on behalf of the syndicate. "At The Market" (ATM) offerings cannot be stabilized. Typically, they are continuous shelf distributions sold at the price the market will bear at that moment.
A customer calls and leaves a voicemail to sell 10 ABC Jan 60 Calls if the price of ABC stock drops from its current level of $70 to $60. Which statement is TRUE about the acceptance of this order under FINRA rules? A This order cannot be accepted as given B This order can only be accepted if the customer's instructions are documented in writing and a sell stop order is placed. C This order can only be accepted if the customer's phone conversation has been tape recorded by the member firm D This order can only be accepted if the customer specifies an order expiration date when giving the instructions
The best answer is A. When a customer places an order, the firm must be able to verify that it really is the customer placing the order. Because of this, firms will not accept orders that are left on voicemail, or that are sent by email, IM or text.
Under the provisions of Regulation M, during the period when a syndicate manager is stabilizing the price of a new issue in the trading market, the firm can execute all of the following customer orders for that security in the secondary market EXCEPT a(n): A solicited order to buy B unsolicited order to buy C solicited order to sell D unsolicited order to sell
The best answer is A. The key point is that during the period of stabilization, the syndicate manager who maintains the stabilizing bid cannot attempt to push the price of the stock up in the market. Thus, the solicitation of orders to buy the issue is prohibited. The manager could accept unsolicited orders to buy the issue. Regarding sell orders, those can be accepted, whether solicited or not, because they would push the price of the issue down, not up. Finally, once stabilization ceases and the syndicate is disbanded, solicitation of orders to buy would be permitted.
As a BOM, you hire a representative currently holding a Series 6 license from another brokerage firm. Which statement is TRUE about the sales activities of this person in your branch office? A The representative is prohibited from selling any type of security until the Series 7 examination is passed B The representative can sell mutual funds and 529 plans immediately C The representative can sell exchange listed stocks and exchange traded funds immediately D The representative can sell any security currently offered through your firm
The best answer is B. A Series 6 licensed individual is qualified to sell prospectus offerings of mutual funds, variable annuities, 529 plans and the IPOs of closed-end funds (but he or she cannot trade closed-end funds). However, this individual cannot recommend or take orders for stocks or bonds that trade in the secondary market unless the Series 7 examination is passed.
Which securities are DTCC-eligible? A Registered issues and Rule 144 issues B Registered issues and Rule 144A issues C Regulation D issues and Rule 144 issues D Regulation D issues Rule 144A issues
The best answer is B. DTCC (Depository Trust and Clearing Corporation) holds securities positions for its member firms and, as the clearing agent, transfers ownership as trades occur between these firms. "Eligible" securities deposited to DTCC are "eligible" for automated clearance and settlement. This means that they must be held at DTCC in street name and can either be physical certificates in street name or can be book-entry shares held in DRS (the Direct Registration System). Because registered shares and Rule 144A issues can be readily transferred, they are "eligible" securities. DTCC will also accept, for safekeeping only, specified "ineligible" securities that cannot be readily transferred. These are securities with resale restrictions and include private placement securities issued under Regulation D, limited partnerships, promissory notes and Rule 144 issues (since they can only be transferred by meeting the Rule 144 requirements, such as the minimum 6-month holding period and sales only permitted every 3 months in limited amounts).
A person who is a full time Series 7 registered representative decides to resign to take a full-time position as an Uber driver. Which statement is TRUE? A The employing broker-dealer may cancel that person's registration at its discretion B The employing broker-dealer is obligated to cancel that person's registration within 30 days C The employee's registration may be put on "hold" for an indefinite period, and if he or she returns to the industry, no new exams need be taken D If the employee returns to the industry within 3 years, no new exams need be taken
The best answer is B. If an employee is terminated by a broker-dealer, FINRA must be notified of the termination within 30 days by filing Form U5. If that person remains unassociated with a firm for over 2 years, he or she must take the qualification exams again (e.g., Series 7) upon reassociation with a broker-dealer.
Under FINRA rules, a transaction is considered to be "complete" when: A a customer pays in part, or in full, prior to settlement date for securities purchased through a member B the appropriate debit and credit entries are made by the broker-dealer on settlement date for securities purchased or sold through a member C a customer delivers a security to a member prior to settlement date for securities sold through the member D the counterparty "locks in" the trade via the NASDAQ System
The best answer is B. The FINRA rule on "completion of a transaction" basically states that transactions are considered to be complete on settlement, not before. This is the date that the transaction must be recorded to the customer account under SEC rules, with no extensions permitted. If a customer pays for a purchase prior to settlement, this is not recorded in the customer account until settlement; and if a customer delivers securities on a sale prior to settlement, again, this is not recorded in the customer account until settlement. This also dovetails with the fact that broker-dealers use settlement date accounting. Under FINRA rules, a transaction is considered to be complete if: a security is purchased, the customer pays in part (e.g., on margin) or in full on settlement date, or the broker-dealer makes the appropriate accounting entries to the customer's account on settlement (e.g., using a customer free credit balance to "pay" for a purchase). Note that if payment or the entries are made before settlement, this does not complete the transaction. a security is sold, the customer delivers the security on settlement date, or the broker-dealer makes the appropriate accounting entries to the customer's account on settlement (e.g., giving the customer a free credit balance from the sale). Note that if the securities are delivered or the entries are made before settlement, this does not complete the transaction. Choice D refers to the NASDAQ "locked in" trade function. Once a NASDAQ trade is executed and reported, it is matched in batches during ACT operating hours (8 AM - 8 PM) to the CAT file. If there is a mismatch (a very rare occurrence), a DK ("Don't Know") is generated and sent to both sides of the trade. Each side then has 20 minutes to affirm the transaction or file a report with NASDAQ MarketWatch that a "Clearly Erroneous Trade" occurred. NASDAQ MarketWatch then investigates and comes up with a determination as to the validity of the trade within 30 minutes. The decision of NASDAQ MarketWatch can be appealed to "MORC" - the Market Operations Review Committee. MORC's decision is binding and cannot be appealed.
Which of the following are defined as "customers" under MSRB rules? I A municipal dealer that buys securities as agent for a customer II A municipal dealer that buys securities for its own account III A municipal issuer that buys securities in the secondary market IV A portfolio manager that buys securities for an institutional account A I and II B III and IV C I, III, and IV D I, II, III, IV
The best answer is B. The MSRB defines a "customer" as any person other than a municipal securities broker-dealer acting in its capacity as such; or an issuer in transactions involving the sale of a new issue of its securities. In essence, a customer is someone who is not a professional investor - someone who needs protection. Excluded from the definition of a "customer" under MSRB interpretations are: Accounts of officers and partners of municipal securities brokers and dealers Any transaction (a trade) given to your firm by another dealer, whether acting for itself, or as agent for another customer Any account with securities positions (as opposed to a trade) maintained by your firm, and those of other securities dealers' maintained at your firm Thus, the municipal dealer buying securities as agent for a customer (Choice I) is excluded from the definition; the dealer buying securities for its own account (Choice II) is also excluded from the definition; the municipal issuer buying securities in the secondary market (Choice III) and the portfolio manager buying for an institutional account (Choice IV) are defined as customers.
A registered representative entered the securities industry 9 years ago as a new hire at XYZ broker-dealer. How long will it be before this individual's next Regulatory Element Continuing Education session will be scheduled for completion? A 1 year B 2 years C 3 years D 4 years
The best answer is B. This is a little tricky. We know that Regulatory Element CE must be completed on an individual's 2nd anniversary of registration and every 3 years thereafter. So this individual had to complete CE after year 2, year 5 and year 8 in the business. The next session is due in year 11. Since this individual is in year 9 in the business, he or she has 2 more years to go! Note: Effective January 2023, Regulatory Element CE must be completed annually. Do not expect this to be tested until the effective date.
An adverse ruling in a complaint regarding NASDAQ System practices being handled under the Code of Procedure may be initially appealed to the: A Hearing Panel B National Adjudicatory Council C Securities and Exchange Commission D Federal Court System
The best answer is B. Under the Code of Procedure, complaints from the FINRA Department of Enforcement are first heard by the Hearing Panel. This decision may first be appealed to the FINRA National Adjudicatory Council (NAC). NAC's decision can be appealed to the SEC. Finally, the SEC's decision can be appealed to Federal Appeals Court.
A statement of free credit balances in customer accounts must be sent to each customer at least: A monthly B quarterly C semi-annually D annually
The best answer is B. Brokers must send statements of any free credit balance held in customer accounts at least quarterly. This rule is met by the SRO's own requirements for customer statements to be sent at least quarterly if there is no trading activity in the account; and monthly is there is trading activity in the account for that month.
Reasonable basis suitability under MSRB Rule G-19 requires that a recommendation relating to a municipal security be suitable for: A that particular customer B at least some customers of the municipal broker-dealer C all customers of the municipal broker-dealer D all non-fiduciary customers of the municipal broker-dealer
The best answer is B. Reasonable basis suitability is the first level that must be completed of the 3-level suitability determination. The broker-dealer has the obligation to perform reasonable due diligence on the features and risks of any recommended security or strategy and can only recommend the security or strategy that has the best risk/return characteristics when compared to other similar investments. Furthermore, the broker-dealer must believe that the recommendation is suitable for at least some customers.
A customer places an order to buy 200 shares of PDQ stock at $30 in his Type 1 account (Cash account). Prior to settlement, the customer asks the broker to transfer the purchase to a Type 2 account (Margin account) and forwards a check for $3,000 to the broker. Which statement is TRUE? A The $3,000 check cannot be deposited and must be returned to the customer B The trade can be transferred to a margin account and the $3,000 check can be deposited C The trade can be transferred to a margin account and the $3,000 check can be deposited, however the account must be frozen D The $3,000 check can only be deposited with the approval of FINRA
The best answer is B. There is no prohibition on transferring a trade from a cash account to a margin account. The only requirement is that the customer sign a margin agreement by settlement of the transaction.
Under Rule 17a-3, all of the following are records required to be kept by broker-dealers EXCEPT: A records of all activity in customer accounts B records of all dealer quotations made in the course of trading C records of original entry for cash receipts and disbursements D record of original entry for all purchases and sales, whether for a customer or the dealer's account
The best answer is B. There is no requirement to keep a record of all quotes given in the course of trading. Required records include all activity in customer accounts; cash receipts and disbursements blotter; and a purchases and sales blotter, among others.
A broker-dealer will typically sell out customer securities whenever the: A customer does not pay for a purchase by settlement B account becomes restricted as defined under Regulation T C account equity falls below minimum maintenance margin or the house requirement, whichever is greater D account equity falls below the initial Regulation T margin requirement
The best answer is C. Customers are typically not immediately sold out for non-payment on settlement. If a customer does not pay for a purchase by "Settlement + 2" business days allowed under Reg. T, ignoring an extension, the position must be sold out and the account frozen for 90 days. If an account falls below the initial Reg. T margin, the account is restricted. Nothing happens in the account. The only effect of restriction is that if a customer wishes to sell securities, he or she must retain 50% of the proceeds to reduce the debit. If an account falls below minimum maintenance margin, a maintenance call is generated which must be met promptly. Otherwise, the firm will liquidate positions in the account until the account is brought above maintenance.
The CEO of a broker dealer wants to contribute to the gubernatorial campaign of a business associate in his home state. The CEO does not want to run afoul of anti-bribery rules since a related investment adviser is currently bidding on the state's 529 plan. What is the maximum amount the CEO may contribute? A $100 B $150 C $350 D Unlimited
The best answer is C. FINRA Rule 2030 is an anti-bribery rule designed to discourage broker-dealers (covered members) and certain associated employees (covered associates) from participating in pay-to-play practices by acting as intermediaries between state and local governments and investment advisers. These associated employees include any general partner, managing member or executive officer of the broker dealer. The rule does not ban political contributions outright but does impose a two-year time out with a given issuer if contributions exceed $350 per candidate, per election. This de minimis exemption applies to contributions made to candidates for whom the covered associate is entitled to vote. If the covered associate is not entitled to vote for the official at the time of the contribution, the contribution must not exceed $150 per candidate, per election. For purposes of this rule, primary and general elections are considered separate elections. Contributions made by a covered member or any of its covered associates could include any gift, subscription, loan, advance, or deposit of money or anything of value for the purpose of influencing any election for federal, state or local office. This would include payment of election debts or the inaugural expenses of the successful candidate for state or local office. Do not confuse this FINRA rule with MSRB Rule G-37. Under Rule G-37 broker dealers and associated municipal finance professionals (MFPs) are limited to contributions of $250 per candidate, per election for candidates for whom the MFP is entitled to vote.
Under MSRB Rule G-30, when there is no well-defined active market for a municipal security, the dealer: A has no obligation to determine fair market value B must use its cost of the security as the basis for determining fair market value C must determine fair market value based on the prices of comparable securities that have recently traded D must determine fair market value by using a BW - Bid Wanted - procedure
The best answer is C. MSRB Rule G-30 requires that prices to customers be "fair and reasonable" - with current market value being the basis from which a fair and reasonable mark-up or commission is determined. If there is no well-defined active market for an issue, this does not negate the requirement to determine market value. To find the market value for such a security, the dealer may need to review transaction prices for similar issues. This requires professional judgment and expertise to identify comparable securities that have recently traded and the relationship between these and the security in question.
Under MSRB rules, an agency order memorandum for a corporate customer must show all of the following information EXCEPT: A name and address of person entering the order B execution price C settlement date D date and time of receipt
The best answer is C. Order tickets do not show the settlement date; this is disclosed on the trade confirmation. Corporate order tickets must show the name of the person placing the order, the execution price, and date and time of receipt, among other things.
A floor broker on the NYSE receives an order to buy 100,000 shares of XYZ stock at $10.50. The floor broker contacts the DMM in the stock, who tells him that: "You are stopped at $10.25." This means that the DMM: A will fill part of the order at $10.25 B will fill all of the order at $10.25 C will fill all of the order at $10.25 or better if possible D has stopped the floor broker from executing the trade with anyone else
The best answer is C. Stopping stock is a DMM courtesy function where the DMM will guarantee a price to a floor broker for a short time period, allowing the floor broker to "work" the order to attempt a better fill. If the floor broker cannot get a better fill, he or she can go back to the DMM and get the stock at the guaranteed price (or better, if the market has moved favorably in that time period). Also note that stopping stock is, in reality, no longer done, but it still must be known for the exam.
Under MSRB rules, which of the following orders submitted to a syndicate manager must disclose the identity of the person for whom the order is entered? I $1,000,000 Group Net order for EFFE Insurance Co. II $1,000,000 Designated order for EFFE Trust Co. III $1,000,000 takedown order for a syndicate member's related portfolio IV $1,000,000 designated order for an accumulation account established by a syndicate member A I and II B III and IV C I, III, IV D I, II, III, IV
The best answer is C. The identity of the person for whom an order is placed is required for Group Net orders and for orders placed for related portfolios, accumulation accounts, and municipal unit trusts sponsored by the dealer placing the order. Designated orders do not disclose customer name.
A registered representative has worked at 8 different member firms over the last 15 years. She had many customer complaints in her records that led to her being "permitted" to resign from some of these firms rather than being fired. She was hired at your firm under the condition that she be placed under heightened supervision. As the principal reviewing her activities, you find a number of complaints in her file that you view as "red flags." What should you do? A Require appropriate additional training for the associated person to address the nature of incidents detailed in the complaints that are causing the "red flags" B Put in procedures to expedite the handling of customer complaints that have been filed against this associated person C Investigate the complaints and if you determine that the individual is not complying with the firm's policies and procedures, terminate her D Refer the matter to the FINRA Department of Enforcement to initiate a disciplinary hearing under the Code of Procedure
The best answer is C. This is subjective, but this individual appears to be a "bad actor" who has not changed her problematic behavior after associating with this firm, so we say fire her! FINRA does not prohibit member firms from hiring individuals with problematic backgrounds (hey, they could have reformed!), but it does require that the member firm put them under heightened supervision. If a firm determines that heightened supervision of an associated person is necessary, FINRA states that the firm should develop written, tailored, and heightened supervisory procedures to address the nature of the particular concerns the associated person's incident history raises, and the nature of such person's ongoing activities. If the incident history involved a particular product, customer type, or activity, the firm should identify the level and type of risk it presents to determine what type of supervision is required. FINRA states that effective heightened supervision plans should include, at a minimum: designating a principal with the appropriate training and experience to implement and enforce the plan; requiring appropriate additional training for the associated person to address the nature of incidents that caused the development of the plan; requiring the written acknowledgment of the heightened supervisory plan by the associated person subject to the plan and the designated supervisory principal; and periodically reviewing the heightened supervision plan to assess its effectiveness. FINRA then goes on with other relevant considerations, but you get the idea - the firm must take responsibility for making sure that this individual does not pose a danger to customers. In this case, the best way to do this, since she has not changed her ways, is to terminate her.
A client calls her registered representative, telling her that she was reviewing her account statements, and she noticed that the statement from 3 months ago credited an incorrect dividend amount - it showed $200 of dividends credited when the amount should have been $2,000. The customer should be told by you, the BOM, that: A it is too late to correct any error because the customer did not notify the member firm promptly B she must make a request in writing to the firm's compliance department before the matter can be addressed C you will investigate the matter and if an error was made, the proper amount will be credited to her account D you will credit the account for $1,800 unconditionally
The best answer is C. This one is more common sense than anything else. If there is an error on the account statement, there is no stated time length for the customer to complain about it. When the customer complains, the BOM should research the situation and make sure that the customer account is credited properly if an error was made.
A registered representative is a founding member of the River Rocks Country Club, which has over 200 active members, each of whom paid a $200,000 initiation fee to join the club. The representative recognizes that these members make excellent prospects and receives permission from the club to set up a display booth on weekends when most of the members are present, handing out informational material about his investment firm and the products offered by the firm. Which statement is TRUE? A Because all of the members of the country club are accredited investors, this activity is permitted without restriction B Because the representative is a founding member of the club and received the club's permission, this activity is permitted C Engaging in this activity will cause the display booth to be defined as a branch office by FINRA D Engaging in this activity will cause the display booth to be defined as an office of convenience by FINRA
The best answer is C. A branch is a location where the member firm holds itself out to sell securities to the public on a regular basis. Because the display booth is being set up each weekend, this is a regular activity, making this a branch. Note that if it was only set up once or twice, it would not be a branch. An office of convenience is where customers are met by appointment (like at the local diner), so the display booth does not fit this definition.
Unexpended funds may be transferred to another beneficiary from a: I Custodial account II Coverdell ESA III Section 529 Plan A I only B I and II C II and III D I, II, III
The best answer is C. Coverdell ESAs and 529 plans allow unexpended funds to be transferred to another relative that is, or will be, attending school. There is no transfer of funds permitted out of a custodial account - the gifts are irrevocable.
A newly-hired representative in your firm has just completed the firm's training program and is looking to build his book of business. He tells you, the BOM, that his father told him to make cold calls to his family members to get things going. When he tries to call his aunt, she comes up as blocked because she is on the Firm's Do Not Call list. The representative wants the block lifted so he can call her. This action: A can be taken because she is a family member of the representative B can be taken because she was not on the National Do Not Call List C cannot be taken unless the aunt asks to be removed from the Firm's Do Not Call list D cannot be taken under any circumstances
The best answer is C. If someone is on a Firm Do Not Call list, he or she cannot be solicited - period. On the other hand, if a person is on the National Do Not Call List, he or she can be solicited if that person is a "friend or family member." So the aunt is on the Firm Do Not Call List - she cannot be solicited unless she has her name removed from the Firm's list.
Under MSRB rules, which of the following are defined as "advertising"? I Market letters II Form letters III Letters of an individual nature to a customer IV Internal memos made available to the public A I and II B III and IV C I, II, and IV D I, II, III, IV
The best answer is C. Included in the MSRB's definition of advertising are market letters, research reports, seminar texts, and speeches relating to investing. Internal memos made available to the public would also fall into the definition. If these memos were only distributed within the firm, they would be excluded. Also excluded are letters of an individual nature to customers.
To be a good delivery, municipal securities must conform to all of the following requirements EXCEPT: A a legal opinion must accompany the delivery B bearer bonds must be delivered in either $1,000 or $5,000 denominations C registered bonds must be delivered in $1,000 or $5,000 denominations D a delivery ticket must accompany the securities
The best answer is C. Registered bonds are issued in $1,000 denominations or multiples of $1,000, up to $100,000 per bond. Thus, Choice C is incorrect. To be a good delivery, a legal opinion must accompany the bonds; bearer bonds are only deliverable in $1,000 or $5,000 denominations; and a delivery ticket must always accompany the securities.
Which of the following statements is (are) TRUE regarding the opening of new accounts? I The dealer must inquire if the person is employed by another municipal securities firm II The dealer must inquire if that person's spouse is employed by another municipal securities firm III The dealer must comply with MSRB notification rules if the dealer is aware that the person's spouse is employed by another municipal firm A I only B I and II C I and III D I, II, III
The best answer is C. Rule G-28 states that if an employee of another municipal securities firm wishes to open an account, prior notice must be given to the employer; and duplicate confirmations must be sent to the employer. The rule also extends to accounts opened by the spouses of these employees. Regarding the account for the spouse of a municipal employee, the MSRB has interpreted that there is no requirement to ask the person opening the account if their spouse is an employee of an MSRB firm. Only if it is known to the firm that the spouse is an employee must this rule be followed. (We call this the MSRB's "Don't Ask - Don't Tell" rule).
Which statement is TRUE about inspection of customer account records by the Office of Supervisory Jurisdiction? A Customer account records must be inspected at least annually by the Office of Supervisory Jurisdiction B Customer account records must be inspected at least quarterly by the Office of Supervisory Jurisdiction C Customer account records must be inspected periodically by the Office of Supervisory Jurisdiction D No inspection of customer account records is required by the Office of Supervisory Jurisdiction
The best answer is C. The Office of Supervisory Jurisdiction must inspect customer account records periodically to detect and prevent irregularities or abuses. In addition, the member firm must inspect each OSJ at least annually, to ascertain that these procedures are, in fact, being carried out.
Which of the following coupons would be considered to be mutilated and is NOT a good delivery? I Name of issuer is not discernible II Certificate number is not discernible III Coupon number is not discernible IV Payment date is not discernible A I only B I and II C III and IV D I, II, III, IV
The best answer is D. A security is considered to be mutilated if the following cannot be ascertained: Name of issuer Par value Signature Coupon rate Maturity date Payment Date for a coupon Certificate number or coupon number Seal of issuer
A Branch Manager has clients and wants to send out correspondence to a few of these individuals. Who is responsible for reviewing the correspondence sent by this BOM? A General Principal (Series 24) in the same office B General Sales Supervisor (Series 9/10) in the same office C General Sales Supervisor (Series 9/10) in another branch office in the same region D General Principal (Series 24) in the regional OSJ
The best answer is D. All persons selling or soliciting must be supervised - and this includes producing BOMs. Correspondence is subject to post use review and approval by either a Series 9/10 BOM or a Series 24 principal under the Supervision Rule. In a larger firm, this would typically be performed in a regional sales supervisory office designated as an OSJ. The review and approval could not occur in the same office (unless the firm only had 1 office).
All of the following statements about a registered representative of an FINRA member firm who wishes to work from a residence office are true EXCEPT: A the representative may do so if the office is registered with FINRA as a branch B the representative may advertise the location and phone number on social media and on business cards C the location must be under the supervision of a FINRA registered branch manager D a FINRA registered branch manager must be resident at the location
The best answer is D. Every office location from which associated persons conduct business must be registered as a branch with FINRA and may be advertised as such. Home residence offices fall under this category if they are advertised as branches, if customers are met at the location or if cash or securities are received at the location. Such offices must be under the supervision of a branch manager. However, there is no formal requirement that the branch manager be resident in that location.
As branch manager, you receive a letter from a customer that explains that the registered representative handling the account was short of money this month and asked the customer for a loan. The customer liked the representative and loaned him $5,000. The firm's compliance manual does not cover this situation. Which statement is TRUE? A This action is permitted under FINRA rules B This action violates the FINRA gift limit C This action violates the FINRA prohibition on sharing in customer accounts D This action violates the FINRA prohibition on borrowing from customers
The best answer is D. FINRA prohibits associated persons from borrowing from customers.
The ex date for a stock split is the: A business day prior to record date B record date C payable date D business day following the payable date
The best answer is D. The ex-date for a stock dividend or stock split is different than that for a cash dividend. The ex-date for a stock split or stock dividend is set at the business day after the Payable Date. This creates a problem. Assume that the company sets the Record Date at March 1st; and the Payable Date at March 31st. Anyone who buys the stock and settles on the Record Date of March 1st or before will be on the shareholder list to receive the additional shares on the Payable Date. There is no impact on these people. But anyone who buys the stock, settling anywhere from March 2nd (day after Record Date) through March 31st (Payable Date) will pay the full unadjusted price for the stock, but will not be on the record books to receive the additional shares when the stock split or stock dividend is paid (on March 31st). This isn't fair, and these customers can claim the additional shares with a due bill. Anyone who buys, settling on the ex date of April 1st or later, will pay the reduced price, for the proper number of shares and a due bill is no longer required. The additional length of time between Record Date and Payable Date gives the transfer agent and paying agent plenty of time to handle the complex and tedious process of issuing new shares and distributing them to the existing shareholders.
A member firm has just placed ZZZ stock on its restricted list. Which of the following will be permitted? A Proprietary trading in ZZZ stock by the firm B The recommendation of ZZZ stock to the firm's customers C Transactions in ZZZ for the employees of the firm D Acceptance of unsolicited orders from customers for ZZZ stock
The best answer is D. A member firm will most often place a stock on its "restricted list" when it has inside information about the issuer. As an example, the issuer may have retained the firm as an adviser because it has just received a merger solicitation, and once the news is announced, the stock's price is likely to rise. To avoid insider trading liability, the firm will restrict its employees from buying the stock, stop proprietary trading in the stock, and will no longer recommend the stock to its customers, since the firm could be viewed as a "tipper" in these trades. However, acceptance of an unsolicited order from a customer is permitted - there is no conflict there.
Under which of the following circumstances does a control relationship exist according to MSRB rules? I A dealer is controlled by a party responsible for debt service on an issue II A dealer controls the party responsible for the debt service on an issue III An officer of an issuer sits on the dealer's Board of Directors IV A bank dealer executes a letter of credit with an issuer which is conditioned upon receipt of deposit balances from the issuer A III only B I and II C I, II, III D I, II, III, IV
The best answer is D. A member firm will most often place a stock on its "restricted list" when it has inside information about the issuer. As an example, the issuer may have retained the firm as an adviser because it has just received a merger solicitation, and once the news is announced, the stock's price is likely to rise. To avoid insider trading liability, the firm will restrict its employees from buying the stock, stop proprietary trading in the stock, and will no longer recommend the stock to its customers, since the firm could be viewed as a "tipper" in these trades. However, acceptance of an unsolicited order from a customer is permitted - there is no conflict there.
A customer with a margin account at your firm has been sent a maintenance call because the account has fallen below the house minimum margin percentage of 35%. The customer does not respond to the call by the due date. Which statement is TRUE? A The firm cannot sell customer positions to meet the call unless margin in the account falls below the 25% FINRA minimum B The firm can start selling customer positions to meet the call, but must use FIFO for its selection of positions to be sold C The firm can start selling customer positions to meet the call, but must use LIFO for its selection of positions to be sold D The firm can start selling customer positions to meet the call, and can choose the positions to be sold as it sees fit
The best answer is D. Customer margin agreements allow the firm to sell customer positions at any time to meet a maintenance call. The firm has complete discretion as to what margin level will trigger the call (as long as it is no lower than the FINRA minimum) and which positions it liquidates to obtain the proceeds to pay down the debit balance.
A registered representative in your office recommends to a customer that he switches his Class B shares ABC Growth Fund holding for Class B shares of DEF Income Fund. The customer bought the Class B shares of ABC Growth Fund 2 years ago. As the BOM, your primary concern is that the customer has been made aware of which of the following facts? I The sale of the ABC shares can trigger a taxable gain II The sale of the ABC shares may trigger a CDSC III The customer will be saddled with a new CDSC holding period on the DEF shares IV The representative can earn a commission on the new purchase A I and II only B III and IV only C I, II, III D I, II, III, IV
The best answer is D. FINRA is concerned about unsuitable recommendations of mutual fund switches to customers. While this may be appropriate if the customer has changed his or her investment objective(s) or there is a change in the customer's financial situation or needs, FINRA is concerned that the registered representative may be recommending the switch just to earn commissions. FINRA requires that the customer understand that the representative will be earning commissions from the switch; that switching can trigger a taxable event; that switching from Class B shares prior to completing the required holding period can trigger a Contingent Deferred Sales Charge (CDSC); and the purchase of Class B shares of another mutual fund starts a new CDSC holding period.
If a customer cancels an agency order, which of the following information should be noted on the order memorandum? I Terms of cancellation II Cancellation date III To the extent feasible, cancellation time A I only B I and II C II and III D I, II, III
The best answer is D. If an order is canceled, the order ticket should reflect the cancellation date; cancellation terms; and to the extent feasible, cancellation time.
