Regulations Other
All of the following communications fall under the Federal Telephone Consumer Protection Act of 1991 EXCEPT: A U.S. Mail B Facsimile transmission C Telephonic via pre-recorded message D Telephonic via live human voice
The best answer is A. The Federal Telephone Consumer Protection Act of 1991 does not apply to offers made through the U.S. mail. It does apply to any unsolicited offers made through the phone - whether these are made by fax, pre-recorded messages, or personal contact.
An individual has requested to be placed on your firm's "Do Not Call" list 3 years ago. Under industry rules, for how much longer must the name remain on the list? A 2 years B 5 years C 8 years D 10 years
The best answer is A. Under "former" FINRA and FTC rules, any individual who asked to be placed on either a Firm Do Not Call list or the National Do Not Call registry remained there for 5 years. The initial request was made 3 years ago so the prospect's name would remain on the list for 2 more years. Subsequent rule changes now place an individual on the list "indefinitely," but this is not reflected in the question. This is the way it should be known for the exam, unless "indefinitely" is presented as a choice.
A client of a sales representative who is based in New York moves to the State of Florida. The sales representative and his broker-dealer are registered in the State of New York, but not in the State of Florida. To solicit the customer's business in the State of Florida, the: I sales representative must be registered in Florida II sales representative does not have to be registered in Florida, since he is registered in New York and this is an existing customer III broker-dealer that employs the sales representative must be registered in Florida IV broker-dealer that employs the sales representative does not have to be registered in Florida, since it is registered in New York and this is an existing customer A I and III B I and IV C II and III D II and IV
The best answer is A. In order for the registered representative to solicit orders in the State of Florida, both the registered representative and his firm must be registered in the State of Florida under Uniform State Law. It makes no difference that this was an existing customer of the broker-dealer that had moved to the State of Florida.
Which statements are TRUE about banks that have customer accounts holding both exempt and non-exempt securities? I The bank must be registered as a broker-dealer under the Securities Exchange Act of 1934 II The bank does not need to be registered as a broker-dealer under the Securities Exchange Act of 1934 III The bank must be member of the Securities Investor Protection Corporation IV The bank does not need to be a member of the Securities Investor Protection Corporation A I and III B I and IV C II and III D II and IV
The best answer is A. Insurance coverage for customer accounts at any broker-dealer that must be registered under the Securities Exchange Act of 1934 is provided by SIPC - Securities Investor Protection Corporation. The broker-dealers that must be registered are those that handle non-exempt securities. Thus, if a bank has customer accounts that hold both exempt and non-exempt securities, it would be obligated to register as a broker-dealer under the Securities Exchange Act of 1934; and would be obligated to join SIPC as well.
The primary purpose of the Trust Indenture Act of 1939 is to: A protect the interests of holders of "non-exempt" bonds by appointment of a trustee B protect the interests of unit investment trust holders by appointment of a trustee C protect the interests of charitable trust beneficiaries by appointment of a trustee D regulate the securities activities of banks and trust companies
The best answer is A. The primary purpose of the Trust Indenture Act of 1939 is to protect corporate bondholders from being taken advantage of by the issuing corporation. It provides for the appointment of a substantial independent trustee to protect the interests of the bondholders. Since we tend to trust our government (plus, the legislators write the laws!), issues of governments and municipalities are exempt from this Act.
Which of the following are permitted to be trustees under the Trust Indenture Act of 1939? I Bank II Trust Attorney III Trust Company IV Broker-Dealer A I and III only B I and IV only C II and III only D II and IV only
The best answer is A. The trustee for bondholders is a fiduciary who is appointed and paid for by the issuer. The trustee ensures that all of the terms of the agreement are adhered to by the issuing corporation, thus it is protecting the bondholders from issuer misconduct. The trustee must not have any conflicting interests that would prejudice it towards either the bondholders or the issuer in its oversight role and it must be financially big enough to ensure that the issuer cannot exert influence over it. Thus, the appropriate choices are a Bank or a Trust Company.
A registered representative conducts a seminar about investing in the meeting room of a local apartment complex. At the end of the talk, he hands out his business card and tells the attendees that if they want additional information, please write their contact information on the reverse side of the business card and return it to him. When he gets back to the office and starts to re-contact some of the attendees who returned the business card, he finds that one of them is blocked because the client name is on the National Do Not Call Registry. Which statement is TRUE? A This prospect can be called by the registered representative B This prospect cannot be called by the registered representative C This prospect can only be called by the registered representative between the hours of 8:00 AM and 9:00 PM D This prospect can only be called by the registered representative with written approval of the Branch Office Manager
The best answer is A. There are 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list. These are the: Established Business Relationship ("EBR") Exception; Prior Express Written Consent Exception; and Personal Relationship With The Associated Person Exception. Because this prospect gave written permission by returning the business card with his contact information, this qualifies for the "Prior Written Consent" exception. Furthermore, if the prospect has given such consent, the prohibition on making solicitations before 8:00 AM and after 9:00 PM does not apply.
A customer in New Jersey calls a registered representative (agent) in New York and inquires about buying common stock. The customer wishes to place the order. Which statements are TRUE? I The agent must be registered in the State of New York to accept the order II The agent must be registered in the State of New Jersey to accept the order III The agent is not required to be registered in the State of New York to accept the order IV The agent is not required to be registered in the State of New Jersey to accept the order A I and II B III and IV C I and IV D II and III
The best answer is A. This question gets at a fine point of State law. Under State law, there is an "unsolicited transaction exemption" that gives an exemption from State registration to any security involved in an unsolicited transaction. However, it does NOT give an exemption from registration to the agent involved in the transaction! Because the agent is resident in New York, he or she must register there. Because the agent is dealing with a customer in New Jersey, the agent must be registered in New Jersey as well!
When a sales representative wishes to sell an exempt security to an out of state customer, which of the following statements are TRUE? I The broker-dealer must be registered in the state where the sale of the exempt security is going to be made II The broker-dealer does not have to be registered in the state where the sale is going to be made because the security is exempt III The sales representative must be registered in the state where the sale of the exempt security is going to be made IV The sales representative does not have to be registered in the state where the sale is going to be made because the security is exempt A I and III B I and IV C II and III D II and IV
The best answer is A. While exempt securities are not registered under both Federal and State law, broker-dealers and their sales employees that sell these bonds must still be registered under state law in any state in which the securities are offered. It makes no difference that the security being offered is exempt; the agent and broker-dealer offering them in the state must still be registered in the state (since they can offer these securities fraudulently, and the state wants to know where to find these persons if they do so!).
State registration (Blue Sky) requirements apply to: I registration of government and municipal securities II registration of corporate securities III registration of state chartered bank issues A I only B II only C III only D I, II, III
The best answer is B. Generally speaking, if a security is exempt from Federal law, it will be exempt under Blue Sky laws (though there are some exceptions). Governments, municipals, and state chartered bank issues are exempt under both Federal and State law; corporate issues are non-exempt.
A registered representative who has passed the Series 63 examination wishes to sell managed accounts to customers in differing states. Which statement is TRUE? A The registered representative needs no further licenses to sell managed accounts B The registered representative must pass either the Series 65 or Series 66 examination to sell managed accounts C The registered representative must post a surety bond prior to selling managed accounts D The registered representative is prohibited from selling managed accounts
The best answer is B. Managed or wrap accounts are defined as "investment advisers" in most states. As such, the firm selling managed accounts must register as an investment adviser; and the individuals selling managed accounts for these firms must register as "investment adviser representatives" and pass either the Series 65 or Series 66 examination.
Which of the following MUST be registered under state blue sky laws? I Sales Representatives II Broker-Dealers III U.S. Government Issues IV Real Estate Investment Trust Issues A I and II only B III and IV only C I, II, IV D I, II, III, IV
The best answer is C. Issues that are exempt from registration under Federal laws are also exempt under state laws, so U.S. Governments do not have to be registered with the state. However, sales representatives, broker-dealers, and non-exempt issues (such as REITs) must be registered.
A primary offering of $200,000,000 of ACME Corporation 10% debentures with a 20 year maturity would be regulated under the: I Securities Act of 1933 II Securities Exchange Act of 1934 III Trust Indenture Act of 1939 IV Investment Company Act of 1940 A I only B I and III C II and IV D I, II, III, IV
The best answer is B. New corporate bond issues are non-exempt securities under the Securities Act of 1933 and thus must be registered and sold under a prospectus. In addition, corporate bond offerings in excess of $50,000,000 fall under the Trust Indenture Act of 1939, requiring that the bonds be sold under a Trust Indenture. The Securities Exchange Act of 1934 regulates the trading markets (secondary market) - not the primary market. Investment companies fall under the Investment Company Act of 1940; regular corporate securities are not subject to this Act.
A customer has an account with a brokerage firm that is in receivership. The account holds $350,000 of securities and has a $150,000 debit. Which statement is TRUE regarding SIPC coverage? A The customer must deposit $150,000 to receive the $350,000 of securities B The account is covered for $200,000 C The account is covered for $350,000 D The account is covered for $500,000
The best answer is B. SIPC covers the equity in a customer's account, with coverage not to exceed $500,000 equity per account in securities. However, cash coverage is limited to $250,000. This account has $350,000 of securities and a $150,000 debit, so the equity is $200,000. The customer will receive $200,000 worth of securities in the liquidation.
All of the following statements about Securities Investor Protection Corporation (SIPC) are true EXCEPT: A SIPC is a non-profit corporation B SIPC is a U.S. Government agency C SIPC is an insurance fund protecting customer accounts against broker-dealer insolvency D every broker-dealer registered under the Securities Exchange Act of 1934 must be a member of SIPC
The best answer is B. Securities Investor Protection Corporation is a non-profit membership corporation, composed of all broker-dealers registered under the Securities Exchange Act of 1934. SIPC is government sponsored, but is not an agency of the U.S. Government. SIPC insures customer accounts at broker-dealers for up to $500,000, inclusive of maximum cash coverage of $250,000.
General creditor status in the liquidation is given to any customer claims that are: A below Securities Investor Protection Corporation coverage limits B above Securities Investor Protection Corporation coverage limits C for securities held in margins accounts that had a debit balance D for cash balances below $250,000
The best answer is B. Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit. For any uncovered claim amounts above these limits, the customer becomes a general creditor of the failed broker-dealer. Coverage limits apply to both cash and margin accounts.
Which of the following statements are TRUE regarding the Federal Telephone Consumer Protection Act of 1991? I The Act applies to for-profit organizations II The Act does not apply to for-profit organizations III The Act applies to not-for-profit organizations IV The Act does not apply to not-for-profit organizations A I and III B I and IV C II and III D II and IV
The best answer is B. The Federal Telephone Consumer Protection Act of 1991 applies to any unsolicited "commercial" phone calls. Charitable (not-for-profit) institutions are exempt from the Act's provisions.
A customer has a margin account at a broker-dealer who goes bankrupt. The account holds $900,000 of securities and has a $400,000 debit balance. The customer will receive: A $400,000 in cash B $500,000 in securities C $500,000 in cash D $900,000 in securities
The best answer is B. The SIPC coverage limit of $500,000 in securities is based on the equity in a customer's account. An account with $900,000 in securities and a $400,000 debit has $500,000 of equity. The customer will receive $500,000 of securities in the liquidation.
The Trust Indenture Act of 1939 applies to which of the following offerings? I $100,000,000 of Sewer Revenue Bonds sold interstate II $100,000,000 of Corporate Debentures sold interstate III $10,000,000 of Corporate Debentures sold interstate IV $100,000,000 of 30 day commercial paper sold interstate A I and IV B II only C II and III D II, III, IV
The best answer is B. The Trust Indenture Act of 1939 applies solely to non-exempt interstate securities offerings over $50,000,000. Sewer revenue bonds are exempt, as is commercial paper. Corporate debentures are non-exempt, but only the $100,000,000 offering is subject to the Act. The $10,000,000 corporate debt offering is under the $50,000,000 limit. All non-exempt debt issues over $50,000,000 are subject to the Trust Indenture Act of 1939. Exempt debt issues such as U.S. Governments, Agencies and Municipals are not subject to the requirements of the Act. Also remember that corporate commercial paper with a maximum maturity of 270 days is exempt, so it does not come under the Act.
A registered representative based in Los Angeles is working at the office late making cold calls to potential customers. At 6:45 PM in Los Angeles, the registered representative is making cold calls to individuals in Miami and individuals in Sacramento. Which statements are TRUE? I Cold calls to potential customers in Miami are prohibited II Cold calls to potential customers in Miami are permitted III Cold calls to potential customers in Sacramento are prohibited IV Cold calls to potential customers in Sacramento are permitted A I and III B I and IV C II and III D II and IV
The best answer is B. Unsolicited cold calls cannot be made after 9:00 PM in the time zone where they are received. Since this representative is in California, he or she can make cold calls to California at 6:45 PM Pacific time. However, since it is 9:45 PM (3 hours later) in Miami, cold calls to that city are not permitted.
A customer wishes to place a buy order for a security that has not been registered in the state. The security may be purchased in all of the following instances EXCEPT where the security: A is exempt from state registration B falls under a "Blue Chip" exemption by being listed on a recognized national stock exchange C is traded by at least 2 market makers D falls under a "Manual Exemption" by being included in Standard & Poor's Manual
The best answer is C. Generally, securities that are exempt from Federal registration are also exempt from state registration. States also allow for "Blue Chip" exemptions for non-exempt securities. Under this exemption, stocks listed on national stock exchanges are exempt from state registration. The logic for this exemption is that the issuer must meet stringent exchange listing and reporting requirements, as well as Federal registration requirements. The same logic applies to those issues listed in Moody's or Standard & Poor's Manual. There is no exemption offered from state registration for securities traded by at least 2 market makers.
Securities Investor Protection Corporation protects brokerage: A firm employees from employer mismanagement B accounts against investment mismanagement C accounts against broker-dealer failure D firms from employee theft and embezzlement
The best answer is C. SIPC insures customer accounts holding cash and/or securities against loss if a broker-dealer fails.
A customer has opened the following accounts: Individual cash account Individual margin account Joint cash account with husband Custodial account for minor child This is treated as how many "covered accounts" in an SIPC liquidation? A 1 B 2 C 3 D 4
The best answer is C. Securities Investor Protection Corporation coverage is applied "per customer name." If a customer has both an individual cash and margin account, they are treated as one account. The joint account with someone else is treated as a separate account. Finally, the custodial account for a minor child is treated as a separate account.
The maximum coverage provided by Securities Investor Protection Corporation for securities held in a customer's account is: A $250,000 B $400,000 C $500,000 D $600,000
The best answer is C. Securities Investor Protection Corporation provides protection on customer securities up to $500,000 in total cash and securities, but only covers cash balances for $250,000 included within the $500,000 limit.
Which of the following statements are TRUE about State "Blue Sky" laws? I Broker-dealers and their sales representatives who are resident must register in the state under these laws II Broker-dealers and their sales representatives who are non-resident that direct offers into the state must register in the state under these laws III States may suspend or expel broker-dealers and sales representatives for violations of the law IV If firms comply with the provisions of the Securities Exchange Act of 1934, then they are in compliance with state laws A I and III only B II and IV only C I, II, III D I, II, III, IV
The best answer is C. State blue sky laws are independent of the Federal Securities Acts. Blue sky laws require registration of broker-dealers, sales representatives, and non-exempt issues in that state. Regarding the registration of agents and broker-dealers, if they are resident in the state, then they must be registered in that state; if they are non-resident, they must be registered if they direct offers into that state. Under these laws, states have the power to suspend or expel individuals, member firms or issues from registration.
Which of the following actions taken by a fiduciary would be consistent with the obligations imposed by the "Prudent Man Rule"? I Purchasing new issues of low price speculative stocks II Writing naked calls to profit from an anticipated downward market move III Selling covered calls to generate extra income during a period of expected market stability IV Diversifying a debt portfolio with securities of varying maturities A I and II only B II and III only C III and IV only D I and IV only
The best answer is C. The "prudent man rule" is part of Uniform State Law, and it requires fiduciaries to make investments for accounts under their control as would a "prudent man." This makes sense, since fiduciaries are investing for the benefit of others, and the investments are supposed to provide a long term future benefit to these persons. Investing in unproven, speculative new issues would not be consistent with the "prudent man rule," nor would selling naked call options that expose the writer to unlimited loss potential. Diversifying a portfolio, and writing covered calls against stock positions for extra income are both proven, prudent investment strategies.
Which of the following actions taken by a fiduciary would be consistent with the obligations imposed by the "Prudent Man Rule"? I Diversifying a fixed income portfolio with securities of varying maturities II Selecting AA rated corporate convertible bond investments to meet an investment objective of both income and capital gains III Investing in small capitalization unlisted new issue investments for long term growth IV Writing covered calls against securities positions held in the account to increase income A I and II only B III and IV only C I, II, IV D I, II, III, IV
The best answer is C. The "prudent man rule" is part of Uniform State Law, and it requires fiduciaries to make investments for accounts under their control as would a "prudent man." This makes sense, since fiduciaries are investing for the benefit of others, and the investments are supposed to provide a long term future benefit to these persons. Investing in unproven, speculative new issues would not be consistent with the "prudent man rule." Diversifying a portfolio, investing in AA rated convertible bonds to meet an objective of both income and growth, and writing covered calls against stock positions are all proven, prudent investment strategies.
A customer has a brokerage account at a failed broker-dealer. For SIPC coverage purposes, the securities in the account are valued on the date: A of purchase of each position B SIPC returns securities to the customer C SIPC petitions a court to appoint a trustee in bankruptcy D SIPC sends the customer a claim form by certified mail
The best answer is C. The "valuation date" for coverage purposes in an SIPC liquidation is the date that SIPC files in court to be the trustee in the bankruptcy of the failed broker-dealer.
If an unsolicited facsimile is sent to a potential client, all of the following information must be included EXCEPT the: A identity of sender B time, place and address from which sent C date and number of sheets D phone number from which sent
The best answer is C. Unsolicited phone calls, even by fax, come under the Federal Telephone Consumer Protection Act of 1991. This Act requires that the caller identify his name, the firm name, and phone number or address from which the communication is being sent. There is no legal requirement to give the date and number of sheets on a fax transmission (though this is commonly done).
What is a "legal person" under securities law? A An individual human being B A group of individual human beings opening a joint account C A corporation D Any of the above
The best answer is C. When it comes to legal terms, you have to know the details! A "natural person" is a human being. A "legal person" is a legally-created entity, such as a corporation, limited partnership or trust, that has the same legal abilities as a human being (a natural person), such as the ability to sue, own property, and enter into contracts.
Which of the following must be registered with the SEC as an investment adviser under the Investment Advisers Act of 1940? A Broker-dealer B Bank C Senior Editor of an investment magazine D Accountant who gives investment advice to clients for a fee
The best answer is D. Any person who gives investment advice for a fee can be considered to be an Investment Adviser who must be registered with the SEC under the Investment Advisers Act of 1940. Excluded from the definition of investment advisers are broker-dealers, banks, lawyers and accountants who give advice that is solely incidental to their practice and who do not charge separately for such advice; and periodicals that give general advice and that are not "tailored" to specific customer situations. (Also note that the accountant giving investment advice will only be required to register with the SEC as a federal covered adviser if the adviser has $100 million or more of assets under management. If the adviser does not meet the threshold, then it must register in the State and not with the SEC.) Investment Advisers Act of 1940 The Investment Advisers Act of 1940 requires that anyone who gives advice about securities for a fee register with the SEC as an Investment Adviser. Excluded from the registration requirement are: Banks, savings and loans, and trusts; Broker-dealers; Professionals who do not charge separately for advice such as accountants and lawyers. Also note that only the larger advisers (those with $100,000,000 or more of assets under management) must register with the SEC; smaller advisers are only required to register at the State level.
A registered representative calls a potential customer about investing in mutual funds. The customer states "Don't call me. Good-bye" and hangs up the phone. The registered representative should: A use the redial function on his phone B wait for the 20 day cooling off period to expire and then call the customer again C fax the customer about the mutual fund being offered D place the customer on a "Do Not Call" list
The best answer is D. If a potential customer who is being solicited says "Do not call me," then the Federal Telephone Consumer Protection Act requires that the customer be placed on a "Do Not Call" list at that firm; and that the customer not be recontacted by that firm.
A customer has a cash account holding $200,000 of securities and $340,000 of cash. If the broker-dealer were to fail, which statement is TRUE regarding the status of the account in an SIPC liquidation? A SIPC will provide coverage for the $200,000 of securities only B SIPC will provide coverage for the total of $540,000 of securities and cash C SIPC will provide coverage for only $340,000 of cash D The customer will become a general creditor in the amount of $90,000
The best answer is D. SIPC covers customer claims against a failed broker-dealer for a total of $500,000, inclusive of maximum cash coverage of $250,000. For any claims above these limits, the customer becomes a general creditor of the failed broker-dealer. This customer has $200,000 of securities (covered in full) and $340,000 of cash (covered only for $250,000), for total coverage of $450,000. For the remaining $90,000 of cash not covered, the customer becomes a general creditor.
Which of the following statements about the Securities Investor Protection Corporation (SIPC) are TRUE? I SIPC is a non-profit government sponsored corporation II Every broker-dealer registered under the Securities Exchange Act of 1934 must be a member of SIPC III SIPC is an insurance fund protecting against broker-dealer insolvency IV SIPC is funded through annual assessments paid by broker-dealer members A I and II only B III and IV only C I, III, IV D I, II, III, IV
The best answer is D. Securities Investor Protection Corporation is a non-profit membership corporation, composed of all broker-dealers registered under the Securities Exchange Act of 1934. SIPC is government sponsored, but is not an agency of the U.S. Government. SIPC is funded by annual assessments paid in by its broker-dealer members. SIPC insures customer accounts at broker-dealers for up to $500,000, inclusive of maximum cash coverage of $250,000.
The legislation that requires the CEO (Chief Executive Officer) of a publicly traded company to make an annual certification of the information presented in the company's financial statements is the: A Securities Act of 1933 B Securities Exchange Act of 1934 C Trust Indenture Act of 1939 D Sarbanes-Oxley Act of 2002
The best answer is D. The Sarbanes-Oxley Act of 2002, in an attempt to prevent fraudulent actions by corporate officers, requires both the CEO and CFO of publicly traded companies to make an annual certification as to the appropriateness of the financial statements and disclosures made in that issuer's 10K and 10Q reports.
