SIE
An MFP works in Chicago, IL, but lives in Oak Park, IL. How much may she contribute to the Chicago mayoral election?
$0, otherwise an underwriting ban applies. A $250 contribution may only be made to officials for whom the MFP may vote.
What is the maximum annual IRA contribution for a 58-year-old who only has investment income?
$0, since he has no earned income
How much may a married couple earning $325,000 contribute to a Roth IRA?
$0, since the couple's income exceeds the income threshold
What is the maximum annual IRA contribution for a 58-year-old whose only income is investment income?
$0, since the individual has no earned income.
What is the typical cost basis for a participant in a qualified retirement plan?
$0, since these plans are typically funded pre-tax.
A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?
$0. There is no death benefit post-annuitization, since the contract is based on her life only.
For good delivery, what unit value (or multiple) is required for bonds?
$1,000
$______ is the par value for bonds.
$1,000 is the par value for bonds.
Jim owns a 5% bond maturing on 6/1/2022. What would Jim receive at maturity if the bond pays interest semi-annually?
$1,025, which represents the $1,000 principal value plus the final coupon payment of $25
Consider the following: ABC Sep 45 Put at 5 If ABC is trading at 41, how much time value does the option have?
$1.00 or 1 point
Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much intrinsic value does the option have?
$1.00 or 1 point
$______ is normally the par value for preferred stock.
$100 is normally the par value for preferred stock.
$_____ is the MSRB gift rule limitation.
$100 is the MSRB gift rule limitation (same as FINRA).
What is the current yield for a 10% coupon bond that's selling at 100?
$100 ÷ $1,000 = 10%
What is the current yield for a 10% coupon bond that's selling at 110?
$100 ÷ $1,100 = 9.09%
What is the current yield on a 10% coupon bond selling at 90?
$100 ÷ $900 = 11.11%
For a mutual fund to issue shares publicly, what is the minimum net worth requirement?
$100,000
An annuity client contributed $100,000 that is now worth $50,000. If the client dies, what is her death benefit?
$100,000. The death benefit on an annuity is the greater of the contribution or the account value.
What is the maximum annual contribution to a 401(k)?
$19,000
Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much time value does the option have?
$2.00 or 2 points
Consider the following: STC May 60 Call at 3 If STC is trading at 61, how much time value does the option have?
$2.00 or 2 points
An annuity client contributed $100,000 which has grown to $200,000. If the client dies, what is her death benefit?
$200,000. The death benefit on an annuity is the greater of the contribution or the account value.
A client invested $21,000 which has grown to $25,000. On what amount is his breakpoint based?
$21,000. Breakpoints are based on the amount contributed.
What is the criminal penalty for insider trading by corporations?
$25 million per violation
What amount of coverage is provided by FDIC?
$250,000 per depositor, per bank
ABC hasn't paid dividends in four years. If declared in year 5, what will a 3% non-cumulative preferred owner receive?
$3. Since the shares are non-cumulative, ABC is only required to pay the full amount for year 5.
Consider the following: TNT Jun 80 Call at 3 If TNT is trading at 78, how much time value does the option have?
$3.00 or 3 points
Consider the following: ABC Sep 45 Put at 6 If ABC is trading at 41, how much intrinsic value does the option have?
$4.00 or 4 points
What is the current yield on a 4% coupon bond selling at 50?
$40 ÷ $500 = 8%
Order is entered to sell 100 ABC at 50 stop. Trades occur at 50.10...50.03...50...49.98...49.90. The execution price is:
$49.98 (the next trade after the trigger is touched)
Order is entered to sell 1,000 ABC at 50 stop. Trades occur at 50.10...50.03...50...49.98...49.90. The trigger price is:
$50 (at the stop price)
What can be determined if given the following bond information? 7% bond, due 6/1/20XX, yielding 8.7%.
$70 interest ($35 each 6/1 and 12/1), matures on June 1, 20XX, is a discount since YTM (8.7%) is above the nominal (7%)
Order is entered to buy 2,000 XYZ at $73 stop. Trades occur at 72.95...72.99...73.02...73.08... 73.12. Trigger price is:
$73.02 (through the stop price)
Order is entered to buy 800 XYZ at $73 stop. Trades occur at 72.95...72.99...73.02...73.08... 73.12. Execution price is:
$73.08 (the next trade after the trigger is touched)
A bond with an 8% coupon would pay how much interest per year?
$80.00. Par x Rate ($1,000 x 8%)
Order is entered to buy 500 RST at 97 stop-limit. Trades occur at 96.97...96.99... 97...97.02...97.05. Trigger price is:
$97 (at the stop price)
What is required for an account being opened for a client who wishes to engage in short selling stock?
(1) Principal's signature and (2) client's signature (since the activity requires a margin account)
An investor buys 100 shares at $25 and receives an $0.80 dividend. If the shares are sold at $23, what is the total return?
- 4.8% = [($23 - $25) + $.80] ÷ $25
Consider the following: BNB Jan 30 Put at 2 If BNB is trading at 30, how much intrinsic value does the option have?
0, it is at-the-money
Consider the following: TNT Jun 80 call at 3 If TNT is trading at 78, how much intrinsic value does the option have?
0, it is out-of-the-money
What does one basis point represent as a percentage?
0.01%
What is the beta of the market (S&P 500)?
1
_______________ following the trade date is settlement for trades of U.S. Government securities or option contracts.
1 business day (T+1) following the trade date is settlement for trades of U.S. Government securities or option contracts
What is the maximum sale allowed under Rule 144?
1% of the outstanding shares or average trading volume over the last 4 weeks - whichever is greater
What is the maximum permissible 12b-1 fee?
1%. However, for no-load funds, the maximum 12b-1 fee is capped at .25%.
If an investor is short a call, how could that option be covered?
1) Be long 2) Own convertibles 3) Present escrow receipt 4) Own a call (lower strike, same or later expiration)
Under what circumstances can a RR borrow or lend money to a customer with approval?
1) Both people are registered at the same firm, 2) a personal relationship exists, or 3) a business relationship exists
What are three distinct advantages to investing in an open-end investment company?
1) Diversification 2) Professional Management 3) Liquidity
In proper order, list the four phases of the business cycle.
1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough
What are the three different types of investment companies?
1) Face Amount Certificate Companies 2) Unit Investment Trusts (UITs) 3) Management Companies
Under what two circumstances can an RR borrow or lend money to a customer without approval?
1) Family relationships, or 2) the customer is a financial institution
If a red flag even occurs, what steps must a principal take?
1) Investigate the situation, 2) document the investigation, and 3) pursue the investigation to a conclusion.
What are the two general types of Treasuries?
1) Marketable (negotiable) and 2) Non-marketable (non-negotiable)
What are the two methods by which municipal bonds are sold in the primary market (as new issues)?
1) Negotiated sale and 2) Competitive sale
What three suitability obligations does FINRA impose on broker-dealers?
1) Reasonable basis 2) Customer specific 3) Quantitative
List the two types of shares that may be sold under Rule 144.
1) Restricted (unregistered) stock 2) Control stock
What is the order of liquidation for a limited partnership?
1) Secured Creditor 2) General Creditor 3) Limited Partner 4) General Partner
Name 3 factors that may be used when determining the markup of a security under the 5% Policy.
1) Type of security, 2) Price of security, 3) Availability of the security in the market
What is required for an agent to receive compensation for effecting transactions outside his BD?
1) Written notice and response from, his employer, 2) Employer approval and 3) Transactions recorded on the BD's books
What is needed for an RR to receive compensation for selling limited partnership interests outside the scope of his BD?
1) Written notice to his employer, 2) Employer approval, and 3) Transaction recorded on the BD's books
ABC Inc. has 10,000,000 shares outstanding and effects a 1:10 reverse split. How many shares would now be outstanding?
1,000,000 since the outstanding shares would be reduced by a factor of 10 (10,000,000 ÷ 10 = 1,000,000)
35 of 87List the four categories of FINRA rules.
1. Conduct Rules 2. Uniform Practice Code 3. Code of Procedure 4. Code of Arbitration
Name the three components of the spread for a bond offering.
1. Manager's fee 2. Additional takedown 3. Sales concession
____% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.
10% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.
For good delivery, what multiple of shares must be delivered?
100 shares (round lots)
____% of earned income up to $_______ is the maximum contribution to an IRA.
100% of earned income up to $6,000 is the maximum contribution to an IRA.
What percentage of income from a qualified plan is typically taxable?
100%, since qualified plans are normally funded with pre-tax funds and have a zero cost basis
What percentage of the benefit received from a qualified annuity is subject to taxation?
100%, since the annuity is funded with pre-tax dollars.
How many days are representatives given to complete the Regulatory Element of Continuing Education?
120 days from the anniversary date of their initial securities registration
What is the annual fee levied against a fund's assets and used to pay expenses of commissions and retail communications?
12b-1 fee
What is the maturity range of a T-Note?
2 to 10 years
When registering securities, what is the minimum time for the cooling-off period?
20 days
If a registered representative is found guilty of facilitating money laundering, what is the maximum penalty?
20 years in prison and a fine of up to $500,000 or twice the amount of the funds involved—whichever is greater.
What is the maximum tax rate for long-term capital gains tax?
20%
For how long must a prospectus be made available in the secondary market for an exchange-listed IPO?
25 days
For how long must a prospectus be provided in the after-market for the IPO of a stock to be listed on an exchange?
25 days
In the after-market, for how long must a prospectus be provided following an IPO of a stock to be listed on an exchange?
25 days
An investor buys 100 shares at $10 and gets a $0.50 dividend. If the shares are sold at $12, what is the total return?
25% = [($12 - $10) + $.50] ÷ $10
An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What is the investor's breakeven point?
30 - 2 = 28 (cost of the stock - the premium received)
An investor sells short 100 shares of MNO at 35 and sells 1 MNO Jan 30 put at 3. What's the investor's breakeven point?
35 + 3 = 38 (short sale proceeds + premium received)
What are some examples of odd splits?
3:2, 5:4, 12:5
Jim is short 1 MNO August 40 Put at 4.50. What is Jim's breakeven point?
40 - 4.50 = 35.50 (strike price minus the premium or PUT DOWN)
For an unlisted follow-on offering, how long must a prospectus be made available in the secondary market?
40 days
For how long must a prospectus be provided in the after-market for a non-exchange follow-on offering?
40 days
401(k) plans are used by _____-profit employers.
401(k) plans are used by for-profit employers. (Think traditional corporations.)
An investor buys an OEX May 475 call at 10. What is his breakeven point?
475 + 10 = 485 (strike price plus the premium or CALL UP)
At what time do equity options stop trading?
4:00 p.m. ET on the third Friday of the expiration month
t what time do equity options stop trading?
4:00 p.m. ET on the third Friday of the expiration month
When do most mutual funds calculate their net asset value (NAV)?
4:00 p.m. ET, which is when the stock markets close.
Based on its Beta, a stock is expected to return 3%. If it actually earned 5%, what is the stock's Alpha?
5% - 3% = +2%
What is the Reg T margin requirement for short sales?
50%
What is the late withdrawal penalty?
50% of the amount that should have been taken (an actuarial amount).
If a customer purchases exchange-traded stock, what is the margin requirement?
50% of the purchase price
_____ Plans are college savings plans with high contribution limits set by the state sponsor.
529 Plans are college savings plans with high contribution limits set by the state sponsor.
An investor writes 1 DEF May 55 Call at 6. What is the breakeven point?
55 + 6 = 61 (strike price + premium or CALL UP)
By what time must equity options be exercised?
5:30 p.m. ET on the third Friday of the expiration month
What is the statute of limitations for arbitration?
6 years
Sandra buys 1 ABC December 70 Call at 4. What is Sandra's breakeven point?
70 + 4 = 74 (strike price + premium or CALL UP)
What are the three requirements for a mutual fund to qualify as diversified?
75% of assets must be invested; maximum of 5% can be in one stock; maximum of 10% of a firm's voting stock may be owned
An investor holds 1 XYZ January 80 Put at 5. What is her breakeven point?
80 - 5 = 75 (strike price minus premium or PUT DOWN)
A yield has gone from 3.44% to 3.53%. What is the amount of the increase?
9 basis points (BPs). Each full percentage point is equal to 100 BPs.
For an unlisted IPO, how long must a prospectus be made available in the secondary market?
90 days
For how long must a prospectus be provided in the after-market for a non-exchange IPO?
90 days
What amount of net income must a REIT distribute?
90%
What are the important numbers associated with REITs?
90% income distributed, 5 or less may not own more than 50%, 100+ shareholders, 75% of assets invested in real estate
What is the dollar price of a T-bond with a bid of 98-24 and a par value of $100?
98 and 24/32. Convert fraction into a decimal 24 ÷ 32 = .75. Now multiply $100 by 98.75% = $98.75.
Write 1 DEF May 55 Call at 6. DEF rises to 63 and the investor closes the position at a premium of 9. What's the result?
A $300 loss since the investor received $600, but paid $900. Closing out means to execute the opposite transaction.
Buy 1 ABC Dec 70 Call at 4. When ABC rises to 80, the call is exercised and the stock is immediately sold. Result?
A $600 profit since the investor is bullish and the stock rose 6 points above the breakeven point of 74.
To be considered an investment adviser, what are the three parts of the ABC test?
A - Advice, B - Business, C - Compensation
What technique can be used to roll assets from one annuity into another without taxation?
A 1035 Exchange
A 401(k) plan uses _________ contributions and the growth of the account is _______________.
A 401(k) plan uses pre-tax contributions and the growth of the account is tax-deferred.
Explain the issuer-directed sale exemption under the Equity IPO Rule.
A BD employee may buy an equity IPO if an immediate family member is employed by the issuer who authorizes the sale.
A BD must file Form U5 with FINRA when a person's association with that firm ______________.
A BD must file Form U5 with FINRA when a person's association with that firm ends/ceases.
Define a prime broker.
A BD that clears and settles trades effected by one or more executing brokers at the direction of the customer
A BD that does not hold a customer's cash or securities is known as a _____________.
A BD that does not hold a customer's cash or securities is known as a non-carrying firm.
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the ____________________.
A BD that is a part of the selling group (not a syndicate member) would only be entitled to the sales concession.
Define an introducing BD.
A BD using another BD to handle cash and securities, trade execution, reporting, clearing, and confirmation
What is a suitable investment for a conservative client seeking monthly income?
A GNMA Fund, since income is typically paid monthly
A Nasdaq-listed stock trades in the __________ market.
A Nasdaq-listed stock trades in the secondary market.
A ___________________ is required to open an account for a partnership.
A Partnership Agreement is required to open an account for a partnership.
A RR who leaves a member firm has ___ years to become employed by another FINRA firm before he must requalify by exam.
A RR who leaves a member firm has two years to become employed by another FINRA firm before he must requalify by exam.
A _______________________ fund is one that invests in a specific industry or geographic region.
A Sector or Specialized fund is one that invests in a specific industry or geographic region.
A ___________ underwriting is used for shares not purchased through a rights offering.
A Stand-by underwriting is used for shares not purchased through a rights offering.
What form must be filed by BD employees who believe that a check has been tampered with or forged?
A Suspicious Activity Report (SAR) is filed when a firm believes that a check has been forged or altered.
A ______ is a type of investment company which has a fixed portfolio of securities and is supervised, not managed.
A UIT is a type of investment company which has a fixed portfolio of securities and is supervised, not managed.
A Sector or Specialized fund is one that invests in a specific industry or geographic region.
A _______________________ fund is one that invests in a specific industry or geographic region.
What security helps to finance foreign trade?
A banker's acceptance (BA)
A bond backed by a charge to benefiting property owners is called a __________________________.
A bond backed by a charge to benefiting property owners is called a special assessment bond (e.g., water/sewer system).
A bond backed by machinery or rolling stock is called a(n) ______________________.
A bond backed by machinery or rolling stock is called a(n) Equipment Trust Bond.
What is a guaranteed bond?
A bond that's secured by another corporation's guarantee that it will pay interest and principal (if necessary).
A bond trading at a price above par is a ____________ bond.
A bond trading at a price above par is a premium bond.
A bond trading at a price below par is a __________ bond.
A bond trading at a price below par is a discount bond.
A bond trading at a price of $1,000 is a ______ bond.
A bond trading at a price of $1,000 is a par bond.
A ______ is any person that executes ______ transactions in securities for the account of others.
A broker is any person that executes agency transactions in securities for the account of others.
What is a member firm?
A broker-dealer that is a member of FINRA
A call option gives the owner the right to _____.
A call option gives the owner the right to buy.
A call option is in-the-money when the market price is ____________ the strike price.
A call option is in-the-money when the market price is UP above the strike price.
Define initial public offering (IPO).
A company's first public offering of securities
A contribution of $_______ can be made to a Spousal IRA for a non-working spouse.
A contribution of $6,000 can be made to a Spousal IRA for a non-working spouse.
A contribution of $_______ may be made to a Spousal IRA for a non-working spouse.
A contribution of $6,000 may be made to a Spousal IRA for a non-working spouse.
Define the term merger.
A corporate action in which two or more separate legal entities combine to form one new legal entity
A corporation that issues convertible bonds is borrowing money at a _______ rate.
A corporation that issues convertible bonds is borrowing money at a lower rate (convertibles pay lower interest rates).
What is a dark pool?
A dark pool is a place for large institutional investors and high-frequency traders to trade directly with one another.
A _______ is any person that executes ________ transactions in securities for its own account.
A dealer is any person that executes principal transactions in securities for its own account.
A decline in GDP for two successive quarters is defined as a ____________.
A decline in GDP for two successive quarters is defined as a recession.
What are the different methods a firm may use to provide disclosure regarding its business continuity plan?
A disclosure statement is provided at account opening, posted on its Website, or mailed to clients upon request.
If a stock is sold before the ex-dividend date, but not delivered by the record date, what must be attached?
A due bill
When is a due bill required?
A due bill is required if a trade occurs before the ex-dividend date, but the seller delivers after the record date.
What is a derivative?
A financial product that derives its value from the value of underlying assets such as stocks, bonds, or mortgages
What is a clearing firm?
A firm that is responsible for the efficient confirmation, settlement, and delivery of securities transactions
A financial commitment is made in which type of underwriting?
A firm-commitment offering. In a firm-commitment, the BD is acting as a principal.
Define front running.
A firm/individual executing trades for its own account with knowledge of an impending large block customer order.
Which annuity provides a fixed, guaranteed minimum rate of return?
A fixed annuity
At annuitization (payout), what will determine the annuitant's payment?
A fixed number of annuity units with a fluctuating value per unit
What is the name of the offering of additional shares after a company has conducted its initial public offering (IPO)?
A follow-on offering or additional issuance
Describe callable preferred stock.
A form of preferred stock that the issuer can repurchase at a fixed price; it typically offers a higher dividend.
A _____ call is a situation where an issuer redeems an entire bond issue before maturity.
A full call is a situation where an issuer redeems an entire bond issue before maturity.
A fund whose portfolio is created to mirror the composition of a particular index is referred to as an ________ fund.
A fund whose portfolio is created to mirror the composition of a particular index is referred to as an Index fund.
A ________________________ order remains in effect until it's either executed or cancelled.
A good-'til-canceled (GTC) order remains in effect until it's either executed or cancelled.
A _______ order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.
A limit order indicates quantity, security, and whether to buy or sell, but only at a particular price or better.
A _______ period is a length of time during which shareholders and insiders are prohibited from selling their shares.
A lock-up period is a length of time during which shareholders and insiders are prohibited from selling their shares.
Describe a T-STRIP.
A long-term (greater than one year) zero-coupon bond that's backed by the full faith and credit of the U.S. Treasury.
A major advantage to investing in Government Assisted Housing Programs is the availability of _____________.
A major advantage to investing in Government Assisted Housing Programs is the availability of tax credits.
What amount of an investment company's Board of Directors must be independent/unaffiliated?
A majority
Define wrap account.
A managed account that charges clients an annual fee to cover trading, research, and advisory services
A _______ account allows clients to take advantage of leverage through borrowing either cash or securities.
A margin account allows clients to take advantage of leverage through borrowing either cash or securities.
A ________ order indicates quantity, security, and whether to buy or sell and is executed at the best price available.
A market order indicates quantity, security, and whether to buy or sell and is executed at the best price available.
A markup is generally based on the _______ market, but not the _____________.
A markup is generally based on the inside market, but not the dealer's cost.
A _________ _______ is a type of advisor that provides advice either to a state, county, or city.
A municipal advisor is a type of advisor that provides advice either to a state, county, or city.
A mutual fund family is also referred to as a mutual fund __________.
A mutual fund family is also referred to as a mutual fund complex.
A mutual fund must have a minimum net worth of $_______ in order to offer its shares to the public.
A mutual fund must have a minimum net worth of $100,000 in order to offer its shares to the public.
A mutual fund shareholder's tax liability is reported on Form _______.
A mutual fund shareholder's tax liability is reported on Form 1099.
A mutual fund's POP = ___ + ____________.
A mutual fund's POP = NAV + Sales Charge.
A mutual fund's sales charge is also referred to as the __________.
A mutual fund's sales charge is also referred to as the sales load.
What is the significance of a narrow spread in a stock quote?
A narrow spread (small difference between bid and ask price) is often indicative of active trading.
A non-qualified annuity contract is typically funded with ______-tax funds.
A non-qualified annuity contract is typically funded with after-tax funds.
For how long may a not held order be maintained?
A not held order is considered a day order.
What is a stock legend?
A notice on stock certificates stating that selling is restricted unless the shares are SEC-registered or exempt
Define the term dealer.
A person engaged in the business of buying securities for, and selling securities from, his own account
Who is eligible to make tax-deductible contributions to an IRA?
A person not covered by an employer plan, or, if covered, a person who meets the income restriction
What is a market maker?
A person who enters quotes and stands ready to buy and sell securities for his own account on a regular basis
A political contribution made from a joint checking account may exceed $250 if signed by ___________.
A political contribution made from a joint checking account may exceed $250 if signed by both owners.
What is a private equity fund?
A private partnership or company that buys businesses with the intent to later sell them at a profit
Describe a Private Investment in Public Equity (PIPE) offering.
A private sale (i.e., exempt) by an issuer that has previously sold registered (i.e., publicly traded) securities.
Describe a proceeds transaction.
A proceeds transaction is when a customer sells a security and uses the proceeds (cash) to buy another security.
What is a tender offer?
A public offer to buy stock at a fixed price (usually a premium to the current market value)
A put option gives the owner the right to ______.
A put option gives the owner the right to sell.
A put option is in-the-money when the market price is ____________ the strike price.
A put option is in-the-money when the market price is DOWN below the strike price.
A qualified annuity allows for ________ contributions and the annuity value grows on a _____________ basis.
A qualified annuity allows for pre-tax contributions and the annuity value grows on a tax-deferred basis
A qualified annuity contract or retirement plan is typically funded with _____- tax funds.
A qualified annuity contract or retirement plan is typically funded with pre-tax funds.
What are the Pink Sheets?
A real-time electronic quotation system for OTC equities
A registered employee of a BD is required to be ______________.
A registered employee of a BD is required to be fingerprinted.
What is a secondary offering?
A registered offering of a large block of stock that has been previously issued to the public
A reverse stock split is a corporate action through which a corporation __________ its number of outstanding shares.
A reverse stock split is a corporate action through which a corporation decreases its number of outstanding shares.
A rollover of qualified plan money from one account to another must be completed within ____ days of withdrawal.
A rollover of qualified plan money from one account to another must be completed within 60 days of withdrawal.
A company went public five years ago. Today, it wishes to raise additional capital publicly. What offering may be used?
A secondary (subsequent or follow-on) offering
A securities firm that executes trades for its own account or the accounts of others is deemed a _______________.
A securities firm that executes trades for its own account or the accounts of others is deemed a broker-dealer (BD).
Define public securities offering.
A securities issue placed with the public by an investment bank (underwriter)
Define restricted security.
A security acquired directly, or indirectly, from the issuer or an affiliate, and not from a public offering
Define control security.
A security received or purchased by an affiliate of the issuer, such as a director, officer, or major shareholder
What is an exempt security?
A security that is not subject to the registration provisions of the Securities Act of 1933
What is a nonexempt security?
A security that is subject to the registration provisions of federal law
Describe an asset backed security.
A security whose value and income are collateralized by group of assets, usually bank receivables (e.g. mortgages).
What account is used for the placement of an insurance company's variable contract assets?
A separate account
Explain a prime-brokerage arrangement.
A situation in which multiple BDs execute a client's trades and report them to one independent BD for settlement
Describe the term layering as it relates to money laundering.
A situation where a customer deposits money in various accounts with different owners in an attempt to evade detection
A __________________ is a revenue bond backed by one specific tax.
A special tax bond is a revenue bond backed by a specific tax (e.g., bonds issued for highway repair backed by gas tax)
A statutory preliminary prospectus is also referred to as a _____________.
A statutory preliminary prospectus is also referred to as a red herring.
A stockholder who allows a BD to disclose his name as the owner of record is a ________________________________.
A stockholder who allows a BD to disclose his name as the owner of record is a nonobjecting beneficial owner
A stockholder who does not want a BD to disclose her name as the owner of record is an ____________________________.
A stockholder who does not want a BD to disclose her name as the owner of record is an objecting beneficial owner.
Upon receipt, to whom are written complaints forwarded?
A supervising principal
Who supervises a registered representative (RR)?
A supervising principal
What is the CRD system?
A system that pools information concerning the employment and disciplinary histories of registered persons
What is an IRA rollover?
A tax-free distribution to an IRA owner that is then contributed to a different IRA or retirement plan
What is a 1035 Exchange?
A tax-free exchange of one annuity for another. These exchanges are allowed under Section 1035 of the Tax Code.
A temporary hold will expire by no later than __ business days after the date that it was first placed on the account.
A temporary hold will expire by no later than 15 business days after the date that it was first placed on the account.
What is a principal trade?
A trade involving a firm (BD or IA) buying or selling securities for its own account at its own risk.
Who should a FINRA member firm contact if it believes that a client is being exploited financially?
A trusted contact person whose contact information is documented when an account is opened.
What is the penalty for political contributions that violate the rule?
A two-year ban on obtaining negotiated underwriting business from the issuer
A type of maturity where all bonds mature on one specific date is called a _______ bond.
A type of maturity where all bonds mature on one specific date is called a term bond.
A _____ stock tends to trade at a lower price relative to the issuing company's fundamentals.
A value stock tends to trade at a lower price relative to the issuing company's fundamentals.
A variable annuity is most suitable for a client who is seeking ________ ____________ over a long period.
A variable annuity would be most suitable for a client who is seeking capital appreciation over a long period.
Which is more expensive to own, a variable annuity or a mutual fund?
A variable annuity, since it typically has greater expenses due to the death benefit and mortality expenses
A withdrawal of up to $______ may be taken without penalty from an IRA for a first-time purchase of a home.
A withdrawal of up to $10,000 may be taken without penalty from an IRA for a first-time purchase of a home.
If a AA rated bond is downgraded by two notches, what is its new rating?
A+
What is the highest credit rating?
AAA for S&P and Fitch, and Aaa for Moody's
According to FINRA, the guideline for determining commission or markup on transactions is ___%.
According to FINRA, the guideline for determining commission or markup on transactions is 5%.
According to industry rules, _____% is the maximum sales charge on mutual funds.
According to industry rules, 8.5% is the maximum sales charge on mutual funds.
According to the Equity IPO Rule, firms must update the eligibility of purchasers ___________ .
According to the Equity IPO Rule, firms must update the eligibility of purchasers annually.
According to the Equity IPO Rule, member firms and their associated persons are considered ___________ persons.
According to the Equity IPO Rule, member firms and their associated persons are considered restricted persons.
Account statements must be sent to customers at least ____________.
Account statements must be sent to customers at least quarterly.
Who typically buys hedge funds?
Accredited (sophisticated) investors through Reg. D offerings
Accredited investors have net worth of at least $_________ or pre-tax income in each of the last two years of $________.
Accredited investors have net worth of at least $1,000,000 or pre-tax income in each of the last two years of $200,000.
What three items must be specified on a not held order?
Action (buy/sell), Amount (quantity), and Asset (security)
Is sector rotation a passive or active asset allocation strategy?
Active
What is the formula for calculating inflation-adjusted return?
Actual Rate of Return - Inflation Rate
What is the proper registration for a custodial account?
Adult X, C/F (custodian for) Child X, under the UGMA of the State of XX
When may an individual withdraw money from an IRA without penalty?
After he turns 59 1/2
A BD receives a large buy order from a client. When may the BD execute a trade for the same stock in its own account?
After the client's trade is reported on the Tape
If a qualification exam has been failed for the third time, what waiting period applies?
After the third unsuccessful attempt, the waiting period is 180 days after each additional attempt.
What factors are used to determine annuity payouts during the annuitization phase?
Age and gender of the annuitant, payout option selected, and the assumed interest rate (AIR)
What age must be attained for the minor to gain control over his account?
Age of majority
To determine suitability, what information must be obtained to complete an investor's profile?
Age, current investments, tax rate, objectives, investment experience, time horizon, liquidity, needs, risk tolerance
How is a firm acting if it effects trades on behalf of its customers, without taking the other side of the trade?
Agent or broker
What are some examples of rolling stock used to back a bond offering?
Airplanes, trucks, railroad cars
To which clients is an RR required to disclose breakpoints?
All clients, regardless of the size of the proposed investment
What type of insurance and annuity contracts require the delivery of a prospectus?
All contracts containing the word "variable" in their title
All documents are to be maintained readily accessible for the first ___ years.
All documents are to be maintained readily accessible for the first 2 years.
The New Issue Rule covers what new issues?
All equity IPOs
All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.
All forms of communication with the public must be kept for three years, but easily accessible for the first two years.
Where can investors find information regarding how to buy, redeem, or exchange their mutual fund shares?
All of this information can be found in the prospectus.
All securities sold in the primary market must be sold with a _______________.
All securities sold in the primary market must be sold with a final prospectus.
All variable contract assets are placed in the insurance company's __________ account.
All variable contract assets are placed in the insurance company's separate account.
All variable contract premiums are placed in the insurance company's ________account.
All variable contract premiums are placed in the insurance company's separate account.
All winners of a Treasury auction will ultimately pay the ______ price of the ________ competitive tenders.
All winners of a Treasury auction will ultimately pay the lowest price of the accepted competitive tenders.
What type of underwriting is cancelled if the entire issue is not sold?
All-or-None
_____ can be calculated by taking what the stock actually earned and subtracting its expected return.
Alpha can be calculated by taking what the stock actually earned and subtracting its expected return.
What instruments are used to facilitate trading of foreign securities in the U.S.?
American Depositary Receipts (ADRs)
What security helps clients to indirectly buy foreign shares?
An American depository receipt (ADR)
An RR's employer is referred to as a ________________.
An RR's employer is referred to as a Broker-Dealer (BD).
Other than in a BD's vault, what else is considered a good control location?
An SEC-approved depository (domestic/foreign), at a bank (free of encumbrance), or in transit between BD offices
What are the general characteristics of a corporate account?
An account opened and owned by a business entity that has a valid corporate resolution
Describe a wrap account.
An account that charges the client a single fee that covers transactions and management
Under the Equity IPO Rule, how does the de minimis exemption apply?
An account that includes restricted persons may purchase the shares, provided their combined ownership is 10% or less.
What fee does a variable annuity company charge to cover its cost of operations?
An administrative fee
What is investment discretion?
An agreement where someone other than the owner is authorized to determine the securities to be purchased or sold
What system is used for the issuance of Treasury securities?
An auction
Define municipal finance professional (MFP).
An employee of a BD who is engaged in municipal business, solicits municipal business, or supervises other MFPs
Besides BDs and their employees, who else is restricted from purchasing equity IPOs?
An employee's immediate family if materially supported by, or sharing household with, the employee
What is the general definition of a QIB?
An entity that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers
What type of annuity has a minimum rate of return and tracks an index?
An equity indexed annuity (EIA)
To whom are written or electronically-sent grievances (complaints) forwarded?
An immediate supervisor
List some of the investors eligible for sales charge reduction in a mutual fund.
An individual and the members of her immediate family (spouses/dependent children), trustees, and pension plans
An individual may be out of the securities industry for up to _____ years before having to requalify.
An individual may be out of the securities industry for up to two years before having to requalify.
If a company has never issued securities before, what offering would it conduct to raise capital publicly?
An initial public offering (IPO)
What is a hedge fund?
An investment pool that typically has a complex investment strategy, is leveraged, and employs long and short strategies
Define alternative investment.
An investment that does not fit into one of the three traditional asset types (i.e. stocks, bonds, and cash)
An investor exchanging mutual fund shares will pay the _____________________.
An investor exchanging mutual fund shares will pay the net asset value (NAV).
An investor who sells a bond between its coupon payments is entitled to _______ interest for the time he owned the bond.
An investor who sells a bond between its coupon payments is entitled to accrued interest for the time he owned the bond.
An investor's eligibility to purchase an equity new issue must be confirmed _______________.
An investor's eligibility to purchase an equity new issue must be confirmed annually (called the pre-condition of sale).
An investor's strategy is __________ when effecting a short sale.
An investor's strategy is bearish when effecting a short sale (If stock falls, investors may buy back at a lower price).
An investor's strategy is _______ when going long.
An investor's strategy is bullish when going long.
What is forced conversion?
An issuer calls bonds at a point where the stock is worth more than the bond's call price.
What is unique about the new Rule 147A Exemption?
An issuer organized in State A, but with its principal office in State B, may offer securities to residents of State B.
What is a private offering?
An offering by a company to individuals or a small group of investors that is usually exempt from registration
What is the name of the disclosure document used for a private placement?
An offering memorandum, also called a private placement memorandum (PPM)
An offering of shares of the issuer and selling shareholders (e.g., officers) is a _____________________ offering.
An offering of shares of the issuer and selling shareholders (e.g., officers) is a combined primary/secondary offering.
An offering of shares with the proceeds being directed to the issuing corporation is called a ________ offering.
An offering of shares with the proceeds being directed to the issuing corporation is called a primary offering.
What do privacy notices include for clients not wanting firms to share personal information with nonaffiliated firms?
An opt-out provision
An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in ______________.
An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in interest rates.
What does ownership of a GNMA pass-through certificate represent?
An undivided interest in a pool of residential mortgages
What is the formula for calculating a stock's current yield?
Annual Dividend ÷ Current Market Price
What is the formula for calculating a bond's current yield?
Annual Interest ÷ Current Market Price
What is the formula for calculating current yield?
Annual Interest ÷ Current Market Price
How often are firms required to evaluate their training needs?
Annually
How often must a BD's Firm Element Continuing Education program be reevaluated?
Annually
How often must clients be notified of the availability of the BrokerCheck system?
Annually
How often must anti-money laundering (AML) programs be tested?
Annually, by an independent source
Annuity withdrawals prior to age 59 1/2 will be subject to a ___% IRS penalty plus __________________ of earnings.
Annuity withdrawals prior to age 59 1/2 will be subject to a 10% IRS penalty plus federal taxation of earnings.
Identify the acronym: AML
Anti-Money Laundering
What are T-STRIPS?
Any T-Note/T-Bond where a BD has stripped the interest and principal payments to sell separately as zero-coupons
What is the tax implication of the death benefit on a variable annuity?
Any amount above the contract's basis is taxable to the beneficiary.
What triggers a BD's filing of a Currency Transaction Report (CTR)?
Any cash transaction executed by a customer during one day that exceeds $10,000
Who may enter orders in a joint account?
Any owner named on the account
Define the term broker.
Any person engaged in the business of effecting transactions in securities for the account of others
According to FINRA's rules on the exploitation of specified adults, what is the definition of specified adult?
Any person who is age 65 or older, as well as a person who is 18 or older and has a mental or physical impairment.
How can an even split be identified?
Any split to 1 (e.g., 2:1, 3:1, 4:1, 5:1)
What triggers a BD's filing of a Suspicious Activity Report (SAR)?
Any suspicious transactions of $5,000 or more
Who is subject to The Insider Trading Act?
Anyone who misuses material non-public information
Anyone with ________ income may contribute to an IRA.
Anyone with earned income may contribute to an IRA.
Anyone with __________ income may contribute to an IRA.
Anyone with earned income may contribute to an IRA.
As a bond's price falls, its current yield will ____.
As a bond's price falls, its current yield will rise.
As a bond's price rises, its current yield will ____.
As a bond's price rises, its current yield will fall.
How is a firm acting if it is trading for, or from, its own inventory?
As a principal / dealer
How is a firm acting if it is trading on behalf of its client?
As an agent or broker
When may a person begin taking penalty-free withdrawals from her 401(k)?
As early as age 59 1/2
Describe the inverse relationship between market interest rates and the prices of existing bonds.
As interest rates rise, existing bond prices fall, and as interest rates fall, existing bond prices rise.
After what age may traditional IRA plan contributions no longer be made?
As long as an individual has earned income, she's able to contribute to a Traditional IRA regardless of her age.
Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the _______ receives the dividend.
Assuming regular-way settlement, if a trade occurs before the ex-dividend date, the buyer receives the dividend.
Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the _______ receives the dividend.
Assuming regular-way settlement, if a trade occurs on or after the ex-dividend date, the seller receives the dividend.
At a Treasury auction, __________________ bids are awarded first.
At a Treasury auction, non-competitive bids are awarded first.
At annuitization (payout), accumulation units are exchanged for __________ units.
At annuitization (payout), accumulation units are exchanged for annuity units.
At death, assets held in a minor's account become a part of her _______.
At death, assets held in a minor's account become a part of her estate.
What portion of a fund's assets must be invested in a prescribed manner for the fund to be diversified?
At least 75%
How often must an updated copy of the privacy notice be provided to customers?
At least once during each 12-month cycle
How often must member firms send clients an account statement?
At least quarterly
At what price can underwriters stabilize a new offering?
At or below the public offering price
When must a firm provide a copy of the Option Disclosure Document (ODD) to a client?
At or prior to account approval
When must clients be given an Option Disclosure Document?
At or prior to account approval
When must a mutual fund prospectus be delivered?
At or prior to the time of solicitation or when marketing materials are sent.
When must an Options Disclosure Document (ODD) be delivered to a client?
At or prior to the time the account is approved for options trading
How often will VRDOs adjust their interest rate?
At specified intervals such as daily, weekly, or monthly. VRDOs may allow owners to put (sell) back to the issuer.
How often must a firm provide customers with a privacy statement?
At the time of account opening and annually thereafter
When must the Reg S-P privacy notice be provided to a customer?
At the time of the account opening and annually thereafter
When must a margin disclosure document be provided to a client?
At the time the account is opened
__________ stock is the amount of stock a corporation is legally permitted to issue.
Authorized stock is the amount of stock a corporation is legally permitted to issue.
Who enforces MSRB rules?
BD Enforcement: SEC or FINRA and Bank Dealer Enforcement: FRB, FDIC, or the Comptroller of the Currency
BD employees who are involved in the investment banking and securities business are called ____________________________.
BD employees who are involved in the investment banking and securities business are called registered representatives.
BDs are required to maintain certain records for either ______ years, ____ years, or the _________ of the firm.
BDs are required to maintain certain records for either three years, six years, or the lifetime of the firm.
BDs are required to monitor the status of all fully paid and excess margin securities on a _______ basis.
BDs are required to monitor the status of all fully paid and excess margin securities on a daily basis.
What is the violation for a market maker failing to honor its firm quote?
Backing away
Identify the following formula: Total Assets = Total Liabilities + Shareholder's Equity
Balance Sheet Equation
___________ Drilling Programs drill in proven areas and also look for new oil.
Balanced Drilling Programs drill in proven areas and also look for new oil.
Identify the acronym: BA
Banker's Acceptance
According to FINRA rules, list some of the persons that are considered institutional investors.
Banks, insurance companies, investment companies, investment advisers, FINRA members and their RRs
Based on written instructions, a B/D may hold customer correspondence for _____ months.
Based on written instructions, a B/D may hold customer correspondence for three months.
If a bond has a basis of 5.68%, what is its yield-to-maturity (YTM)?
Basis and yield-to-maturity are synonymous; therefore, the bond's YTM is also 5.68%.
An investor writes 1 DEF May 55 Call at 6. What is the investor's strategy?
Bearish
An investor holds 1 XYZ January 80 Put at 5. What is her strategy?
Bearish (to find strategy for put buyers, use the phrase PUT DOWN)
An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. Is the investor bullish or bearish on XYZ?
Bearish since the investor is short the stock. The call is purchased to protect upside risk.
Why is an IRA trustee-to-trustee transfer not considered a rollover?
Because the proceeds are not directed to the owner
______ is the measure of an asset's volatility compared to the market as a whole.
Beta is the measure of an asset's volatility compared to the market as a whole.
Beta measures an investment's __________ risk and alpha measures an investment's ______________ risk.
Beta measures an investment's systematic risk and alpha measures an investment's non-systematic risk.
What rules govern the registration of an issue in any state in which it will be offered?
Blue-Sky Laws
_________ stocks are associated with major companies that have records of high earnings and dividend payments.
Blue-chip stocks are associated with major companies that have records of high earnings and dividend payments.
Bond interest is stated ___________ and paid ________________.
Bond interest is stated annually and paid semi-annually.
For a bond, how is the real interest rate calculated?
Bond's interest rate - Rate of inflation = Real Interest Rate
Bondholders are also referred to as ____________.
Bondholders are also referred to as creditors.
______________ are considered creditors of a company.
Bondholders are considered creditors of a company.
What does a put feature on a bond allow?
Bondholders may put (redeem) the bond back to the issuer prior to maturity.
For what types of securities is a trustee required?
Bonds
Bonds rated BB (Ba) or lower are considered _______________________ bonds.
Bonds rated BB (Ba) or lower are considered speculative or junk bonds.
Bonds rated ___________ and higher are considered investment grade.
Bonds rated BBB (for S&P and Fitch) or Baa (for Moody's) and higher are considered investment grade.
What does a normal, positive, ascending, or upward sloping yield curve indicate?
Bonds with longer maturities have higher yields than bonds with shorter maturities.
Does the 5% policy apply when a BD is acting in an agency capacity, a principal capacity, or both?
Both
What licenses are required for an agent to sell variable annuities or variable life?
Both a life insurance license and FINRA Series 6 or 7 license is required
Both the ____________ and the ____________ are required for a corporation to open an options or margin account.
Both the Corporate Resolution and Corporate Charter are required for a corporation to open an options or margin account.
In what different forms may retail communications be delivered?
Both written or electronic
Define the term structuring as it relates to money laundering.
Breaking up large transactions into smaller amounts in an attempt to evade AML reporting requirements
Breakpoints are calculated based on all purchases made within a single ______________.
Breakpoints are calculated based on all purchases made within a single fund family.
___________ is FINRA's tool for allowing public access to certain information found in the CRD.
BrokerCheckis FINRA's tool for allowing public access to certain information found in the CRD.
Jim is short 1 MNO Aug 40 Put at 4.50. What is Jim's strategy?
Bullish
Sandra buys 1 ABC December 70 Call at 4. What is Sandra's strategy?
Bullish (to find the strategy for call buyers, use the phrase CALL UP)
An investor buys an OEX May 475 call at 10. What is his strategy?
Bullish on the S&P 100 Index
An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. Is the investor bullish or bearish on IBM?
Bullish since they are long the stock. The put is purchased to protect downside risk.
List some examples of non-systematic risk.
Business, regulatory, legislative, political, liquidity, opportunity, and reinvestment risk are non-systematic risks.
What positions would be appropriate for an investor who is bullish on the S&P 500 Index?
Buy SPX (S&P 500) Calls or Sell SPX (S&P 500) Puts
List some strategic asset allocation methods.
Buy and hold, indexing, and rebalancing
Buy limit orders are placed ________ the market.
Buy limit orders are placed below the market.
Define trading ahead.
Buying or selling securities just before the release of a research report by the firm's research department
Define free-riding.
Buying shares without a cash deposit, then selling the shares before the payment date (i.e., before T + 4).
An individual turns age 72 in December. When must she begin the RMDs from her IRA?
By April 1 of the following year
When must IRA withdrawals begin in order to avoid the late withdrawal penalty?
By April 1st of the year after an individual turns age 72
How do shareholder's typically inspect their company?
By reviewing the annual and quarterly reports that are distributed by the corporation
By selling a call and receiving the premium, covered call writers sacrifice the stock's future ________ potential.
By selling a call and receiving the premium, covered call writers sacrifice the stock's future upside potential.
By signing a _____, shareholders are giving another person the authority to vote on their behalf.
By signing a proxy, shareholders are giving another person the authority to vote on their behalf.
When must customer confirmations be sent?
By the completion of the transaction (usually the settlement date)
_____ numbers are serial numbers that identify securities (e.g., each maturity of a bond offering).
CUSIP numbers are serial numbers that identify securities (e.g., each maturity of a bond offering).
Call buyers and put writers are __________.
Call buyers and put writers are bullish.
Call buyers are __________.
Call buyers are bullish.
Call sellers are __________.
Call sellers are bearish.
If a client wishes to opt out and prevent a firm from sharing personal information, what opt-out methods are acceptable?
Calling a toll-free number and returning a postcard are reasonable methods.
Calls and puts are the two ________ of options.
Calls and puts are the two types of options.
Candidates who have failed a qualification exam once must wait ___ days before retaking the exam.
Candidates who have failed a qualification exam once must wait 30 days before retaking the exam.
IRA contributions must be made in what form?
Cash
What actions may the hearing panel take regarding rule violations?
Censure, fine, suspension, request to requalify, or expulsion of the respondent
Identify the acronym: CRD
Central Registration Depository
List three reasons that would warrant updating a customer account form.
Changes to the customer's name, address, or occupation
Churning is described as _____________________ designed to _____________________.
Churning is described as excessive trading designed to generate commissions.
What share class carries a front-end load?
Class A
Which share class typically has the lowest expense ratio?
Class A
What share class carries a back-end load?
Class B
What share class carries a level load?
Class C
Which share class is typically appropriate for an investor with an uncertain time horizon?
Class C
What services does the Depository Trust and Clearing Corporation (DTCC) provide to its members?
Clearing, settlement, and information services
If an employee is qualified with a Series 99, what can she do?
Client on-boarding, receive and deliver funds and/or securities, settling and filing financial regulatory reports
Clients redeeming mutual fund shares must be paid within ___ calendar days.
Clients redeeming mutual fund shares must be paid within 7 calendar days.
Clients with a _____ account are required to pay for each transaction in full (No extension of credit is permitted)
Clients with a cash account are required to pay for each transaction in full (No extension of credit is permitted)
How may a closed-end fund be capitalized?
Closed-end funds may issue bonds, common stock, or preferred stock to raise capital.
The trading of REITs is most similar to what type of investment company?
Closed-end management companies, since both trade in the secondary market (exchange or OTC)
Identify the acronym: COP
Code of Procedure
Non-farm payrolls is what type of economic indicator?
Coincident
________________ is short-term, unsecured corporate debt which typically matures in 270 days or less.
Commercial paper is short-term, unsecured corporate debt which typically matures in 270 days or less.
Who are considered the owners of a corporation?
Common and preferred stockholders
List the securities that are considered equities.
Common and preferred stocks
Into what does a growth fund invest?
Common stock
For a Treasury auction, what's the difference between a competitive bid and non-competitive bid?
Competitive bids indicate both a quantity and price, while non-competitive bids only indicate a quantity.
What should a firm do if a customer complains that she has received a forged account statement?
Complaints alleging theft or forgery require an investigation and must be reported to FINRA within 30 calendar days.
Complete the following statement: The SEC requires a securities offering to register unless it is _______.
Complete the following statement: The SEC requires a securities offering to register unless it is exempt.
What does it mean to settle a trade?
Completing the final step in trading the delivery of cash and securities between two parties
What is often required before a revenue bond can be issued?
Conducting a feasibility study
Name some of the advantages of buying convertible bonds.
Consistent interest payments, appreciation if stock rises, downside protection if stock falls (since it's still a bond).
Identify the acronym: CDSC
Contingent Deferred Sales Charge
Control and ___________ securities have legends placed on them to limit their transfer.
Control and restricted securities have legends placed on them to limit their transfer.
Calculate the price of a corporate bond quoted at 98 ¾.
Convert fraction into a decimal: 3 ÷ 4 = .75 and then multiply $1,000 by 98.75% = $987.50.
___________ preferred stock allows owners to exchange the preferred shares for common shares.
Convertible preferred stock allows owners to exchange the preferred shares for common shares.
What are the justifiable reasons for denying an individual's registration?
Conviction for any felony or securities-related misdemeanor within the last 10 years
RRs must examine what document to open any corporate account?
Corporate Resolution
Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in ______.
Corporate and municipal bonds are quoted in 8ths, while T-Notes and T-Bonds are quoted in 32nds.
grade are referred to as __________ or ____ bonds.
Corporate bonds that are rated below investment grade are referred to as high-yield or junk bonds.
If an employee is qualified with a Series 7, what can she sell?
Corporate stocks, bonds, and options, investment companies (mutual funds), variable annuities, DPPs, and 529 plans
Who issues debt?
Corporations, municipalities, the U.S. government and its agencies
List some examples of issuers.
Corporations, the U.S. Treasury, foreign governments, states and other municipalities
_______________ is any communication sent to 25 or fewer prospective retail customers within a 30-calendar-day period.
Correspondence is any communication sent to 25 or fewer prospective retail customers within a 30-calendar-day period.
According to FINRA, what are the three categories of communications with the public?
Correspondence, Institutional Communication, and Retail Communication
What are two synonymous terms for a bond's interest rate?
Coupon rate and nominal yield
A mutual fund portfolio manager wanting to generate income would engage in what option strategy?
Covered call writing
What is credit risk?
Credit (default) risk is the risk that a company will be unable to pay interest or principal on it's bonds.
Credit risk measures the issuer's risk of _________________________.
Credit risk measures the issuer's risk of default on debt service.
This voting method allows stockholders to multiply the number of shares owned by the number of directorships.
Cumulative voting
Identify the acronym: CTR
Currency Transaction Report
In a liquidation, place the following in priority: preferred shareholders, unsecured creditors, current wages
Current wages, unsecured creditors, then preferred shareholders
Custodians have a ____________ duty to do what is best for the minor.
Custodians have a fiduciary duty to do what is best for the minor.
Identify the acronym: CIP
Customer Identification Program
What program must be established by BDs to verify the identity of each customer opening an account?
Customer Identification Program (CIP)
Customer account information must be updated every ____ months.
Customer account information must be updated every 36 months.
Customers are given ____ business days after settlement date to pay for their portion of the trade.
Customers are given two business days after settlement date to pay for their portion of the trade. (S+2 or T+4)
Customers become ___________________ if their cash or securities positions exceed SIPC coverage.
Customers become general creditors if their cash or securities positions exceed SIPC coverage.
Customers must be provided with a statement of account not less than once every calendar ________.
Customers must be provided with a statement of account not less than once every calendar quarter.
___________ stock fluctuates with the business cycle.
Cyclical stock fluctuates with the business cycle (auto companies).
Describe dollar cost averaging (DCA).
DCA involves investing a fixed-dollar amount at regular intervals, regardless of the price of the asset.
Under the Customer Identification Program of the USA PATRIOT Act, what information MUST be obtained about a client?
Date of birth, name, address, and an ID number
What are some of the possibilities for avoiding premature distribution penalties in IRAs?
Death or disability of the owner, education expenses, first-time home buyer, or annuitization of distributions
For what reasons may an individual may take an early withdrawal from his IRA without penalty?
Death, disability, qualified higher education, home buyer ($10,000 limit), birth or adoption of a child ($5,000 limit)
List events that must be reported on an RR's Form U4.
Declaration of bankruptcy in the last 10 years, felony convictions, or making false statements to regulators
In chronological order, list the dates that are related to a cash dividend.
Declaration, ex-dividend, record, and payment
____________ stock is resistant to recession.
Defensive stock is resistant to recession (utility companies).
_________ stocks are associated with companies that are resistant to recession.
Defensive stocks are associated with companies that are resistant to recession.
Which type of retirement plan makes distributions based on a predetermined formula?
Defined benefit plans make distributions based on factors such as the retiree's tenure, age, and earnings.
____________ occurs when the supply of goods exceeds the demand for goods.
Deflation occurs when the supply of goods exceeds the demand for goods.
Name some of the different items found on a customer confirmation.
Description, amount, purchase/sale, execution price, trade/settlement date, BD capacity, commission (on agency)
________________ Drilling Programs drill in proven areas.
Developmental Drilling Programs drill in proven areas.
If an employee is qualified with a Series 22, what can he sell?
Direct participation programs (DPPs)
If a member bank needs to borrow funds from the FRB, what rate will it be charged?
Discount rate
List some short-term interest rates.
Discount rate, fed funds rate, prime rate, and the London Interbank Offered Rate (LIBOR)
What does yield-to-maturity (YTM) take into account that current yield does not?
Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money
How must a client's authorization be obtained to enter discretionary orders, orally or in writing?
Discretionary authorization must be in written form.
Distributions from a qualified plan are taxed at _________________ rates.
Distributions from a qualified plan are taxed at ordinary income rates.
Distributions from a qualified plan are taxed at __________________ rates.
Distributions from a qualified plan are taxed at ordinary income rates.
What are some of the advantages of investing in open-end investment companies (i.e., mutual funds)?
Diversification, professional management, liquidity, and ability to reduce sales charges
Define breakpoint.
Dollar levels of investment purchases that qualify for a reduced sales charge
What are Eurodollar bonds?
Dollar-denominated bonds issued outside the U.S.
What is the formula for determining the number of shares able to be purchased when reaching a breakpoint?
Dollars invested ÷ newly calculated offering price (based on the reduced sales charge)
What measures a bond's sensitivity to interest rate changes?
Duration
During the Regulation M Restricted Period, underwriters may not_______________________________________.
During the Regulation M Restricted Period, underwriters cannot purchase (bid) for the securities for their own account.
ERISA gave the U.S. Government jurisdiction over ___________________ plans.
ERISA gave the U.S. Government jurisdiction over private pension plans.
Each payment from FHLMC will represent both ____________ and ____________.
Each payment from FHLMC will represent both principal and interest.
Each payment from GNMA will represent both ____________ and ____________.
Each payment from GNMA will represent both principal and interest.
A BD is ready to issue a favorable research report. What must exist for the BD to continue regular trading operations?
Effective information barriers must be in place.
What theory states that all known relevant information is reflected in a security's price?
Efficient Market Theory (also called the Random Walk Theory)
What would cause a bond fund's assets to rise?
Either new purchasers bringing in funds or a decrease in rates causing an increase to the portfolio's value
What would cause a bond fund's assets to fall?
Either redemptions causing the loss of funds or an increase in rates causing a decrease to the portfolio's value
How can a client access information maintained on the Central Registration Depository (CRD)?
Either through a toll-free number or through FINRA's Web site.
What is an ECN?
Electronic Communication Network; any one of several systems which permit the entry and dissemination of quotes
Where can investors get access to official statements for new municipal bond issues?
Electronic Municipal Market Access (EMMA), a database that's run by the MSRB.
Identify the acronym: ERISA
Employee Retirement Security Act
Describe the employees who must be eligible to contribute to an ERISA qualified plan.
Employees who are 21 years or older with one year of full-time service
Employer contributions into an employee qualified plan are _______________ to the employer.
Employer contributions into an employee qualified plan are tax-deductible to the employer.
What is ERISA?
Employment Retirement Income Security Act
What is an RR's concern if her client moves to a new state?
Ensuring that the RR is properly registered in the new state (Uniform Securities Act)
__________________________ expenses are not subject to the Gift Rule.
Entertainment/business expenses are not subject to the Gift Rule.
Equity holders are owners and are entitled to receive __________, which are derived from corporate ________.
Equity holders are owners and are entitled to receive dividends, which are derived from corporate profits.
Equity options have a contract size of _____ shares.
Equity options have a contract size of 100 shares.
Identify the acronym: EIA
Equity-Indexed Annuity (also known as an Equity-Indexed Contract or EIC)
If a bond matures on June 1, on what two dates will the bond pay interest?
Every June 1 and December 1 (when given the maturity date, the next payment is six months later)
If a bond matures on November 15, on what two dates will the bond pay interest?
Every November 15 and May 15 (when given the maturity date, the next payment is six months later)Every November 15 and May 15 (when given the maturity date, the next payment is six months later)
Every investment company that has more than ___ shareholders must register with the SEC.
Every investment company that has more than 100 shareholders must register with the SEC.
Excess margin securities are those whose value exceeds _____% of the customer's debit balance.
Excess margin securities are those whose value exceeds 140% of the customer's debit balance.
Excessive trading in a client's discretionary account without regard to her objectives is known as __________.
Excessive trading in a client's discretionary account without regard to her objectives is known as churning.
Define churning.
Excessive trading in a customer's account for the primary purpose of generating commissions and other fees
Define churning
Excessive trading solely for the purpose of generating commissions or fees
List the two main types of secondary markets.
Exchange markets (e.g. the NYSE or Nasdaq) and electronic, nonexchange markets (e.g. the Pink Sheets or the OTCBB)
Identify the acronym: ETF
Exchange-Traded Fund
What funds are similar to an index fund, but trade in the secondary market like stock?
Exchange-Traded Funds (ETFs)
Executing a series of trades at the end of the day to manipulate the price of a security is called ________________.
Executing a series of trades at the end of the day to manipulate the price of a security is called marking-the-close.
While holding a large block order to buy from a client, what action would be prohibited for the market maker?
Executing an order for its own account in an option on the security (front-running violation)
How is interest on Treasuries treated for tax purposes?
Exempt at the state and local level, but subject to federal tax
Existing stockholders receive ______ right for every one share owned.
Existing stockholders receive one right for every one share owned.
What type of oil and gas program drills for new oil reserves in unproven areas?
Exploratory (wildcatting)
Exploratory drilling is also referred to as _______________.
Exploratory drilling is also referred to as Wildcatting.
FINRA maintains information regarding RRs on the _______ system.
FINRA maintains information regarding RRs on the CRD (Central Registration Depository) system.
FINRA members are required to file _________ statistical summaries regarding customer complaints.
FINRA members are required to file quarterly statistical summaries regarding customer complaints.
Name some Self-Regulatory Organizations (SROs).
FINRA, MSRB, CBOE, and other exchanges
Identify the acronym: FAC
Face-Amount Certificate
List the three types of investment companies.
Face-Amount Certificate, Unit Investment Trust (UIT), and Management Companies
True or False: A BD's business continuity plan includes the home addresses and names of key employees.
False
True or False: A broker-dealer may pay a commission to an unregistered individual.
False
True or False: A firm may act as both a broker and dealer on the same trade.
False
True or False: A strong U.S. dollar benefits U.S. manufacturers that export their goods.
False
True or False: An RR may delay sending an account statement if the customer is losing money.
False
True or False: Charging an unreasonably high commission is acceptable if disclosure is made to the client.
False
True or False: Discretionary orders must be confirmed with the client before being entered.
False
True or False: Failure to file a tax return would trigger an amendment to Form U4.
False
True or False: For an IPO, the uncle of an RR is considered a restricted person.
False
True or False: If a mutual fund investor chooses to reinvest dividends, taxes will be deferred.
False
True or False: If churning in a client's account generates large profits, it is not considered a violation.
False
True or False: Municipal dealers can satisfy disclosure requirements by directing customers to industry sources.
False
True or False: Rights of Accumulation benefits may be combined with Letter of Intent benefits.
False
True or False: SIPC is backed by the full faith and credit of the U.S. government.
False
True or False: SIPC provides coverage for both commodities and futures accounts.
False
True or False: The Efficient Market Theory indicates that, through analysis, undervalued situations can be discovered.
False
True or False: The SEC judges an offering's investment merit and provides approval.
False
True or False: Under Regulation SP, requiring a client to write a letter to opt-out of information sharing is allowed.
False
True or False: Variable products are mutual funds.
False
True or False: When a client grants third-party authorization to another person, the account becomes a joint account.
False
True or False: A general securities principal is responsible for financial reporting.
False, a Financial and Operations Principal performs that function.
True or False: A 95 call with the market at 95 is in-the-money.
False, it is at-the-money.
True or False: The 5% Policy is based on the dealer's inventory cost on a security.
False, it is generally based on the inside market price.
True or False: A 110 put with the market at 108 is out-of-the-money.
False, it is in-the-money.
True or False: The 5% Policy is a rule that may not be exceeded.
False, it's a guideline, not a rule.
True or False: All corporate officers may effect transactions for the corporation.
False, only those named in the Corporate Resolution
True or False: Customers selling stock are considered long if they own a preferred or bond convertible into the stock.
False, the convertibles must already have been TENDERED for conversion.
True or False: Market makers are permitted to pay other parties to influence a stock's price.
False, this is prohibited.
True or False: Complaints may be oral or written, including e-mail or text message.
False. A complaint is any written communication in which a customer complains about the activities of a member firm.
True or False: A new issue is required to be registered in all 50 U.S. states.
False. A new issue is only required to be registered in any state(s) in which it will be offered or sold.
True or False: A withdrawal of up to $10,000 may be taken from an IRA for the purchase of a vacation home.
False. A penalty free withdrawal from an IRA is only permitted for a first-time purchase of a home.
True or False: A penny stock has a bid price of less than $1.00 per share?
False. A penny stock is an unlisted security whose bid price is less than $5.00 per share.
True or False: ADRs must be issued with cooperation from the foreign issuer.
False. ADRs that are issued without assistance from the foreign company are considered unsponsored.
True or False: Broker-dealers can accept payment from an issuer for making a market in the issuer's shares.
False. Accepting payment for market making is prohibited.
True or False: Customers must pay for their trades on or before the settlement date.
False. According to Reg. T, customers must pay within two business days of settlement (i.e., S + 2 or T + 4).
True or False: Only physical account statements may be provided to clients.
False. Account statements may also be made available electronically.
True or False: Active investment strategies assume that markets are efficient.
False. Active strategies assume that markets are inefficient.
True or False: Sophisticated clients with extensive experience need not be provided with an Option Disclosure Document.
False. All clients receive the disclosure document.
True or False: A prospectus is not required to be delivered if a buyer received the red herring.
False. All purchasers of a new issue must receive a copy of the final prospectus.
True or False: The lock-up provision lasts for exactly six months.
False. Although most lock-ups last for six months, there is no regulation which sets a maximum or minimum period.
True or False: The placement agent for a private placement is not required to perform due diligence.
False. Although private placements are exempt, the placement agent is still required to perform due diligence.
True or False: There are no suitability requirements for institutional investors.
False. Although they differ from retail requirements, suitability requirements do apply to institutional investors.
True or False: An RR who is convicted for shoplifting is allowed to work for a member firm in an unregistered capacity.
False. An RR who is convicted for a statutory disqualification event is not allowed to work for a B/D in any capacity.
True or False: An RR who served in the military must retake the Series 7 when he rejoins his broker-dealer.
False. An RR who served in the military is put into special inactive status and is not require to retest.
True or False: Money may be withdrawn from a joint account in one owner's name.
False. Any checks should be in both parties' names.
True or False: Only registered personnel are required to be fingerprinted.
False. Any individuals handling funds or securities are required to be fingerprinted.
True or False: Variable annuities are not securities and are, therefore, not subject to registration.
False. Any variable products are considered securities. However, fixed insurance products are not securities.
True or False: The findings of an arbitration panel may be appealed.
False. Arbitration decisions are final and binding.
True or False: Both stocks and bonds represent ownership in a corporation.
False. Bonds are debt instruments, while stocks represent ownership interest in a corporation.
True or False: Exchanging mutual fund shares avoids taxes, while switching is taxable.
False. Both exchanging and switching mutual fund shares are taxable events.
True or False: By passing the SIE Exam, an individual is permitted to act as a registered representative.
False. Candidates also need to pass another exam (e.g., Series 7) based on their job responsibilities.
True or False: All municipal bonds are exempt from federal taxes.
False. Certain municipal bonds are not tax exempt.
True or False: For a 500-share trade, two stock certificates each for 250 shares is considered good delivery.
False. Certificates must be in in multiples of 100 shares.
True or False: All employees of a BD are required to be fingerprinted.
False. Clerical employees are not fingerprinted if they do not handle customer accounts, assets, or books and records.
True or False: Client signature is required when opening either a cash or margin account.
False. Client signature is required when opening a margin account, but not a cash account.
True or False: Commissions paid on transactions will be disclosed on a client's account statement.
False. Commission disclosure is made on the trade confirmation.
True or False: A customer confirmation is only required to disclose whether the firm was acting in an agency capacity.
False. Confirmations must disclose whether a firm acts in an agency or principal capacity.
True or False: All employees of a corporation are control persons.
False. Control people are officers, directors, and greater than 10% owners.
True or False: Convertible preferred stock may be converted into a bond.
False. Convertible securities are convertible into common stock.
True or False: Corporate and municipal bonds prices are quoted in 32nds.
False. Corporate and municipal bonds prices are quoted in 8ths, while Treasuries are quoted in 32nds.
True or False: Interest paid on corporate bonds is entirely tax-exempt.
False. Corporate bond interest is taxed at the federal, state, and local level.
True or False: Correspondence is any written or electronic message sent to more than 25 existing or potential clients.
False. Correspondence is communication sent to 25 or fewer retail investors over a 30-calendar-day period.
True or False: Custodian banks provide investment management service to a fund.
False. Custodian banks provide safekeeping for a fund's cash and securities.
True or False: Decisions arising from arbitration may be appealed to the federal court system.
False. Decisions are binding on both parties and may NOT be appealed.
True or False: Not held orders may only be executed in a discretionary account.
False. Discretionary power of attorney is not required.
True or False: Common stockholders have the right to vote for the payment of dividends.
False. Dividend payments are determined by the board of directors.
True or False: BD records may only be maintained in physical form.
False. Documents may be maintained in any format, but if an electronic media is used, the SRO must be notified.
True or False: Executing firms must send confirms to employing broker-dealers for every trade their employees execute.
False. Duplicate trade confirms are only required to be sent if requested.
True or False: Insurance companies guarantee a minimum cash value on variable annuities.
False. During the accumulation phase, variable contracts often have no guaranteed minimum.
True or False: Only one person must provide information to open a joint account.
False. Each owner must provide information to open a joint account.
True or False: In a 401(k) plan, employers must make matching contributions on behalf of employees.
False. Employers may, but are not required to, make matching contributions.
True or False: An individual with $100 million in assets is a QIB.
False. Even with $100 million in assets, individuals are not considered QIBs.
True or False: The issuing corporation determines the declaration, payment, record, and ex-dividend dates.
False. Exchange rules determine the ex-dividend date based on the corporation's determination of the record date.
True or False: Stocks listed on a national exchange are exempt from registration under the Securities Act of 1933.
False. Exchange-listed stocks are nonexempt securities and must be registered under the Act.
True or False: FINRA must approve all gifts in excess of $100.
False. FINRA approval is not required for gifts. Generally, gifts in excess of $100 are prohibited.
True or False: FINRA notification is NOT required if an associated person is disciplined by another SRO.
False. FINRA must be promptly notified of such disciplinary action.
True or False: If a BD receives a written complaint from a client, it may be ignored if the complaint seems baseless.
False. Failing to respond to a formal written complaint is prohibited.
True or False: The capacity in which a firm acts appears on both the confirmation and the order ticket.
False. Firm capacity is disclosed on the confirmation, not the order ticket.
True or False: Whether a BD acted as an agent or principal on a trade is shown on the account statement.
False. Firm capacity is identified on the trade confirmation.
True or False: When determining a person's eligibility to purchase an equity IPO, oral verification is acceptable.
False. Firms must obtain written or electronic verification of eligibility.
True or False: Form 144 must be filed within 90 days of selling restricted or control stock.
False. Form 144 must be filed concurrent with the placement of a sell order.
True or False: GNP measures the output of goods and services within the U.S. disregarding the origin of the producer.
False. GDP (not GNP) measures the output of goods and services within the U.S. disregarding the origin of the producer.
True or False: FNMA and FHLMC securities are backed by the full faith and credit of the U.S. Treasury.
False. GNMA securities are government guaranteed, but FNMA and FHLMC securities are not.
True or False: Hedge funds are typically registered with the SEC.
False. Hedge funds are typically exempt under both the Securities Act of 1933 and Investment Company Act of 1940.
True or False: Regardless of income level, a contribution is always permitted in any type of IRA.
False. High income individuals may lose the ability to contribute to Roth IRAs, but may contribute to Traditional IRAs.
True or False: Every account owner needs to designated a trusted contact person.
False. However, FINRA member firms are required to make a reasonable effort to obtain it.
True or False: When opening a customer account, a P.O. Box may be used.
False. However, if the client is in the military, he may use an APO (Army) or FPO (Fleet) as an address.
True or False: In bankruptcy, common shares are senior to preferred shares.
False. If a company declares bankruptcy, preferred shares are paid before common shares.
True or False: Form 144 must be filed for any sale of restricted or control stock, regardless of the size
False. If a sale is for 5,000 shares or fewer, and has a market value of $50,000 or less, no notification is required.
True or False: Form 144 must be filed for any sale of restricted or control stock, regardless of the size.
False. If a sale is for 5,000 shares or fewer, and has a market value of $50,000 or less, no notification is required.
True or False: Employees of FINRA member firms must obtain employer permission to open accounts for buying mutual funds.
False. If an account is limited to mutual funds, 529 plans, or variable annuities, permission is not required.
True or False: Market changes can affect whether a fund can continue to be considered diversified.
False. If market changes impact a diversified funds allocation, it will not nullify its diversified status.
True or False: Callable preferred shares allow an investor to buy shares of common stock at a fixed price.
False. If preferred shares are callable, the issuer is allowed to buy back the shares at a fixed price.
True or False: Immediate family members of employees of the issuer are restricted from buying the IPO.
False. Immediate family members of employees of BDs (not the issuer) may be restricted.
True or False: On request, institutional communication may be provided to a retail client.
False. Institutional communication may never be provided to a retail investor.
True or False: Investors can exchange mutual fund shares for shares of any other funds for no sales charge.
False. Investors can only exchange fund shares from within the same family of funds.
True or False: In a private placement, investors are not required to be provided with information disclosure.
False. Investors must receive a disclosure that is similar to what is received for a registered offering.
True or False: An issuer must call all of its bonds at the same time.
False. Issuers may call only part of a bond issue back. This is called a partial call.
True or False: Issuers of unsponsored ADRs are subject to SEC reporting requirements.
False. Issuers of ADRs, foreign governments, and foreign private issuers are exempt from the reporting requirements.
True or False: The legal opinion addresses the creditworthiness of an issue.
False. Legal opinions address the legality (authority/validity) of the issue and the tax exemption of the interest.
True or False: Short-term bonds typically have higher coupon (interest) payments.
False. Long-term bonds typically pay more interest since investors assume greater default risk.
True or False: An issuer will perform a lottery for a full call.
False. Lotteries are only necessary for partial calls.
True or False: Companies with lower market caps tend to be safer.
False. Lower market cap companies tend to be more risky.
True or False: Purchasers of new municipal bonds must receive a prospectus.
False. Municipal bond investors receive an Official Statement (OS), not a prospectus.
True or False: Municipal securities representatives may sell municipal bond funds.
False. Municipal representatives may only sell individual municipal bonds.
True or False: Mutual fund shares may be purchased and sold in the secondary market.
False. Mutual funds are always considered new issues and are bought and sold through the fund.
True or False: All customer account-related information must be delivered physically.
False. On request, BDs are permitted to deliver both confirmations and statements electronically.
True or False: Class B shares are eligible for breakpoints.
False. Only Class A shares are eligible for breakpoints.
True or False: Both the buyer and seller of an option have the right to exercise.
False. Only buyers can exercise the contract.
True or False: All owners have the right to vote.
False. Only common stockholders have the right to vote.
True or False: All contributions made to IRAs are tax-deductible.
False. Only contributions to Traditional IRAs are tax-deductible; Roth IRA contributions are NEVER deductible.
True or False: A gambling-related misdemeanor must be reported on Form U4.
False. Only gambling-related felonies must be reported.
True or False: Investors may exercise a bond's call privilege any time after issuance.
False. Only issuers may exercise the call privilege after the call protection period has passed.
True or False: Firm Element CE must be completed every three years after initial qualification.
False. Participation in firm element CE is an annual requirement.
True or False: Passive income is income derived from dividends and interest generated by securities in a portfolio.
False. Passive income is derived from an investment in a direct participation program (e.g., limited partnership).
True or False: Portfolio managers may purchase equity IPOs for their own accounts if not excessive.
False. Portfolio managers may purchase for the fund they represent, but not for their own accounts.
True or False: A power of attorney given to an agent (RR) must be renewed.
False. Powers of attorney do not have to be renewed.
True or False: Both common and preferred stockholders are offered preemptive rights.
False. Preemptive rights are only offered to common stockholders.
True or False: For discretionary trades, principal approval is required prior to entry.
False. Principal approval is typically provided by the end of the day, but not in advance.
True or False: Registration provisions apply when securities are offered through a private placement.
False. Private placements are exempt from registration.
True or False: When determining if churning has occurred in an account, profit or loss is a key consideration.
False. Profit or loss is never a consideration when examining the excessiveness of trading.
True or False: Public securities offerings are exempt from registration requirements.
False. Public securities offerings are generally subject to registration.
True or False: Public securities offerings may be sold only to a select type of sophisticated investor.
False. Public securities offerings may be sold to all types of investors.
True or False: RRs are always prohibited from sharing in a customer's account.
False. RRs may share in a customer's account if they have permission and sharing is proportionate to their investment.
True or False: REITs are exempt from the registration requirements of the Securities Act of 1933.
False. Registration is required for REITs.
True or False: Required minimum distributions apply to Roth IRA accounts.
False. Required minimum distributions apply to traditional IRA accounts, not Roth IRAs.
True or False: Rule violations are handled by the Code of Arbitration.
False. Rule violations are covered by the Code of Procedure.
True or False: SIPC provides coverage for market losses.
False. SIPC protects against BD bankruptcy.
True or False: There are no restrictions regarding the purchasers of securities that are issued privately.
False. Securities issued privately may be purchased only by select investors.
True or False: Promoting the purchase of certain fund shares due to an impending dividend payment is acceptable.
False. Selling dividends is prohibited. Since the dividend is imbedded in the share price, there is no monetary benefit.
True or False: Engaging in breakpoint sales is allowed when dealing with larger investors.
False. Selling shares at amounts just below where a breakpoint is available is prohibited with all types of clients.
True or False: The settlement date for T-Bills purchased at the auction is the next business day.
False. Settlement at auction is the Thursday following the auction. Next business day is for secondary market trading.
True or False: Short sales must be executed in a cash account.
False. Short sales can only be executed in a margin account.
True or False: Customers are required to sign the Loan Consent Agreement.
False. Signing the agreement is optional.
True or False: Investors who purchase ETF shares must pay a sales charge.
False. Since ETF shares are exchange traded, investors pay commissions.
True or False: U.S. Treasury bonds are often used to represent the risk-free rate.
False. Since T-bills have less interest-rate risk than T-bonds, they are more often used as the risk-free rate.
True or False: Long-term CDs are considered money-market instruments.
False. Since long-term CDs mature in over one year, they are not money-market instruments.
True or False: A broker-dealer that buys stock at $40 has traded ahead of a client who placed a buy limit order at $35.
False. Since the broker-dealer is buying at a higher (worse) price, no violation has occurred.
True or False: Junk bonds typically offer lower yields.
False. Since the issuer is more likely to default, junk bonds offer a higher rate of return.
True or False: Market cap includes the treasury shares of the corporation.
False. Since treasury shares were repurchased, they are no longer outstanding.
True or False: Investors buy zero-coupon bonds for income.
False. Since zero-coupon bonds don't have semi-annual payments, they aren't suitable for income investors.
True or False: Individual investors typically place competitive bids at a Treasury auction.
False. Small investors typically place non-competitive bids, which do not indicate a price.
True or False: All mutual funds must meet the SEC's definition of diversified.
False. Some funds are classified as non-diversified and can invest in any manner.
True or False: A BD may create account statements on trades it believes will occur.
False. Statements may only reflect actual transactions.
True or False: Stop-limit orders are guaranteed execution if the trigger is touched.
False. Stop-limit orders may not be executed if the limit price cannot be met.
True or False: T-Bills are quoted on a dollar basis.
False. T-Bills are quoted on a discount yield basis.
True or False: An IRA trustee-to-trustee transfer must be completed within 60 days.
False. The 60-day rule applies to IRA rollovers.
True or False: The Investment Company Act of 1940 requires mutual fund managers to register.
False. The Investment Advisers Act of 1940 is the Act that requires money managers to register.
True or False: A registered person with no disciplinary actions for 15 years is excused from the Regulatory Element.
False. The Regulatory Element of Continuing Education is an ongoing process with no graduation from the plan.
True or False: The offer (ask) is the price at which a broker-dealer is willing to buy shares from a customer.
False. The bid price is the price at which a firm will buy, while the offer (ask) is the price at which it will sell.
True or False: It is acceptable to disclose the content of a qualifying exam to a co-worker.
False. The content of the exam is confidential.
True or False: Earnings generated in a qualified retirement plan are tax-free.
False. The earnings are tax-deferred.
True or False: An associated person whose registration is terminated must sign Form U5.
False. The former employer will provide a copy to the individual, but a signature is not required.
True or False: Names appearing on the OFAC List are customers who had a previous business relationship with the firm.
False. The list shows the names of suspected terrorists and criminals.
True or False: The nominal yield includes the premium or discount on a bond purchase.
False. The nominal yield only includes the annual interest payment.
True or False: Principals must approve discretionary orders prior to entry.
False. The orders must be approved promptly afterward.
True or False: A registered person must be terminated if he is indicted for a statutory disqualification event.
False. The person must notify his firm. Termination is required if convicted.
True or False: An investor who is long 100 shares of ABC stock and long an ABC put is bearish on the stock.
False. The purchase of the put is designed to protect against downward price movement.
True or False: The credit rating of an IDR is based on the credit of the municipality.
False. The rating is based on the corporation making the lease payments.
True or False: Securities exempt from registration are also exempt from the antifraud provisions of the Act of 1933.
False. The securities are only exempt from the registration provisions.
True or False: Collateral Trust Bonds are backed by the stock of the issuing corporation.
False. The stock pledged must be that of a separate company.
True or False: If an investor expects the U.S. dollar to strengthen, she could profit by buying U.S. dollar calls.
False. There are no U.S. dollar calls or puts issued; therefore, all answers must be based on a world currency.
True or False: When interest rates go up, bonds prices go up, and when interest rates go down, bond prices go down.
False. There is an inverse relationship between interest rates and prices.
True or False: Any response provided to clients regarding a complaint must be in written form.
False. There is no requirement indicating that responses must be written.
True or False: Industrial production and manufacturing sales are lagging economic indicators.
False. They are coincident economic indicators.
True or False: BDs and their employees may buy shares of equity IPOs from the syndicate.
False. They are considered restricted.
True or False: The Code of Procedure can be used by a customer against a member firm to resolve a monetary dispute.
False. This situation would be handled under the Code of Arbitration.
True or False: An RR may send a confirmation for a trade he believes will occur soon.
False. Trade confirmations may only reflect actual transactions.
True or False: Both U.S. government and municipal securities are subject to registration provisions.
False. U.S. government and municipal securities are exempt from registration.
True or False: A $75,000 gift can be made to a 529A plan and be treated as if it's being made over a five-year period.
False. Unlike a 529 plan, there is no five-year front loading of contributions in 529A account.
True or False: Mutual fund share purchases and redemptions settle in two business days.
False. Unlike stocks and bonds, mutual funds don't have a fixed settlement date. Most funds settle on the same day.
True or False: Using nonpublic information to avoid a loss would NOT be a violation of the Insider Trading Act.
False. Using inside information to make a profit or avoid a loss is prohibited.
True or False: A value investor buys stocks with high P/E ratios.
False. Value investors buy stocks with low P/E ratios, low price-to-book ratios, and high dividend yields.
True or False: An investor may roll a non-qualified annuity into an IRA without being taxed.
False. Withdrawing from a non-qualified annuity is taxable. A 1035 exchange does not apply to non-qualified plans.
True or False: If a BD holds a customer's stock in street name, the BD may vote on behalf of the customer.
False. Without permission, BDs holding a customer's stock in street name may not vote on behalf of the customer.
True or False: An RR may sell stock from a client's non-discretionary account if a negative report is released.
False. Without written authorization, an RR may not choose the security to buy for or sell from a client's account.
List the Government Sponsored Entities (GSEs) that issue securities which are not based exclusively on mortgages.
Federal Farm Credit Banks (FFCBs), Federal Home Loan Banks (FHLB) and Student Loan Marketing Association (SLMA)
How is interest on municipal bonds treated for tax purposes?
Federally tax-exempt, but may be subject to state and local tax
Firm Element continuing education is subject to ______________ to show completion, but not ________ with FINRA.
Firm Element continuing education is subject to recordkeeping to show completion, but not filing with FINRA.
What is required of an employee seeking part-time employment outside of her brokerage firm?
Firm notification before the activity starts
Firms acting in the capacity of a broker will collect a ____________.
Firms acting in the capacity of a broker will collect a commission.
What annuity does not protect an investor against inflation?
Fixed (guaranteed) contracts are not a good hedge against inflation.
Which annuity provides a guaranteed return--fixed or variable?
Fixed annuities
Fixed-income investors receive _________, while stockholders receive __________.
Fixed-income investors receive interest, while stockholders receive dividends.
What are not considered equity securities?
Fixed-income products, such as bonds and notes
For a buyer to be eligible for a stock's cash dividend, the purchase must be made prior to the ______________ date.
For a buyer to be eligible for a stock's cash dividend, the purchase must be made prior to the ex-dividend date.
For a gain to be considered long-term, the asset must be held for ______________________.
For a gain to be considered long-term, the asset must be held for more than one year.
For active accounts, account statements must be sent ____________.
For active accounts, account statements must be sent monthly.
What is the one requirement that is common to any issuer that is relying on a Rule 147 Exemption?
For an issuer to offer securities under the Rule 147 Exemption, it must maintain its principal place of business in-state.
If Joe is 55 years old, how much could he contribute to his IRA?
For anyone 50 or older, an additional $1,000 is allowed, making the maximum contribution $7,000.
For collateralized loans they make to broker-dealers (for margin purposes), commercial banks charge the ____ rate.
For collateralized loans they make to broker-dealers (for margin purposes), commercial banks charge the call rate.
For what offerings is there no after-market prospectus requirement?
For follow-on offerings of exchange-listed stocks
For income that's passed through a partnership, __% of it is deductible (excluded from tax).
For income that's passed through a partnership, 20% of it is deductible (excluded from tax).
For their customers with free credit balances, BDs must provide notification at least ___________.
For their customers with free credit balances, BDs must provide notification at least quarterly.
What form is used to file year-end audited financial statements with the SEC?
Form 10-K
What form is used to file quarterly financial statements with the SEC?
Form 10-Q
Form U4 requires an applicant to disclose her employment history and convictions covering the last ____ years.
Form U4 requires an applicant to disclose her employment history and convictions covering the last 10 years.
What form must be filed with FINRA at the time an associated person's registration is terminated?
Form U5
Form U5 is filed with FINRA within ____ days of resignation or termination of association with a member firm.
Form U5 is filed with FINRA within 30 days of resignation or termination of association with a member firm.
On what form does an employing BD report disciplinary actions?
Form U6
What is the use of Form U6?
Form U6 reports disciplinary actions against registered representatives and firms, as well as final arbitration awards.
Give some examples of what SIPC does NOT cover.
Fraud, futures contracts, and commodities
If a customer buys a corporate bond on Wednesday, October 10, when will the trade settle?
Friday, October 12 (T + 2)
Of what violation is an RR guilty when buying stock based on knowledge of a pending large client order?
Front running
_____________ is the prohibited practice of a BD trading for its own account ahead of a customer's block order.
Front-running is the prohibited practice of a BD trading for its own account ahead of a customer's block order.
Frontrunning occurs when ______ are purchased ahead of a block trade that could raise the share price.
Frontrunning occurs when calls are purchased ahead of a block trade that could raise the share price.
What are the two types of arrangements that an introducing firm can have with a carrying firm?
Fully Disclosed and Omnibus
How is interest on corporate bonds treated for tax purposes?
Fully taxable (taxed at the federal, state, and local level)
Funds offer ______________________ to allow buyers to add all purchases made from a fund family to reduce sales charge.
Funds offer Rights of Accumulation to allow buyers to add all purchases made from a fund family to reduce sales charge.
______ is the mortgage-backed agency that is fully backed by the U.S. Government.
GNMA is the mortgage-backed agency that is fully backed by the U.S. Government.
How often do GNMA pass-throughs make payments?
GNMA pass-throughs make payments monthly.
General Obligation (GO) bonds are backed by the issuer's ________________________ and their ability to levy _______.
General Obligation (GO) bonds are backed by the issuer's full faith and credit and their ability to levy taxes.
______________________ bonds would most likely require voter approval.
General Obligation (GO) bonds would most likely require voter approval.
Identify the acronym: GO
General Obligation (bond)
General Partners must contribute at least ____% of the capital.
General Partners must contribute at least 1% of the capital.
What are the two main types of municipal bonds?
General obligation (GO) and revenue bonds
What type of municipal bond is subject to a debt ceiling (limit)?
General obligation (GO) bonds are subject to debt limits since they're paid using tax revenue.
What type of municipal bond requires voter approval?
General obligation (GO) bonds are subject to voter approval since they use tax dollars to pay debt service.
What are the two types of partners in a limited partnership?
General partner and limited partner
In a limited partnership, which partner has unlimited personal liability and which has limited liability?
General partners (GPs) have unlimited liability, while the limited partners (LPs) have limited liability.
Describe the liability of the two partners in a limited partnership.
General partners have unlimited liability, while limited partners have limited liability.
Name some of the different types of Direct Participation Programs (DPPs).
General partnerships, limited partnerships, joint ventures, Subchapter S corporations
Is the 5% policy based upon the current market value of the security or the dealer's cost?
Generally, the current market value
Gifts exceeding $_____ are considered excessive.
Gifts exceeding $100 are considered excessive.
Given a yield change, ____________ bonds move more in price.
Given a yield change, long-term bonds move more in price (lower coupon or longer duration are also correct.)
List the government agencies that issue securities that are based on mortgages.
Government Nat. Mortgage Assoc. (GNMA), Federal Nat. Mortgage Assoc. (FNMA) and Federal Home Loan Mortgage Corp. (FHLMC)
List the securities that are exempt from registration.
Government/municipal bonds, commercial paper, bankers' acceptances, bank issues, non-profit and small business issues
Under the Equity IPO Rule, who is NOT considered to be part of an associated person's immediate family?
Grandparents, aunts, uncles, or cousins
______ stocks are issues of a companies with sales, earnings, and market shares that are expanding.
Growth stocks are issues of a companies with sales, earnings, and market shares that are expanding.
______ stocks are related to companies whose sales and earnings are growing at a faster rate than the overall economy.
Growth stocks are related to companies whose sales and earnings are growing at a faster rate than the overall economy.
If an employee is qualified with a Series 57, what can he do?
He can run a broker-dealer's proprietary trading (e.g., a broker-dealer making a market on Nasdaq or the OTC markets).
What may a client review to identify any discrepancies in securities positions or cash balances in her account?
Her account statement
Joan invests $15,000 in a qualified annuity. At age 64, she withdraws all $22,000. What's Joan's basis and what's taxed?
Her basis is zero, since the annuity is qualified (funded pretax) and the entire $22,000 is taxed as ordinary income.
If a customer is an objecting beneficial owner, who is responsible for forwarding proxy materials to her attention?
Her broker-dealer
What is the tax consequence for an investor who receives a stock dividend?
Her cost basis must be adjusted.
An investor buys 100 shares at $10. If the company declares a 10% stock dividend, what is her new basis per share?
Her new basis is $9.09. $1,000 total original basis ($10 x 100 shares) ÷ 110 shares (100 shares x 10% dividend).
What happens to the deceased's portion in a joint account with right of survivorship?
Her portion passes to the survivor.
Higher inflation leads to ______ interest rates, which causes bond prices to ____.
Higher inflation leads to higher interest rates, which causes bond prices to fall.
What information does the CRD system provide about a registered person?
His employment and disciplinary history
What is the continuing education (CE) requirement of an RR who is currently serving in the military?
His registration is in Special Inactive Status and the CE requirement is halted.
By signing Form U4, to what is a person agreeing in the event of an industry dispute?
His willingness to accept arbitration, rather than litigation, to settle a dispute
IRA rollovers must be completed within ____ days.
IRA rollovers must be completed within 60 days.
If a bond is referred to as trading flat, this means it trades ___________________________.
If a bond is referred to as trading flat, this means it trades without accrued interest.
If a bond's first coupon payment is less than six months after its issuance, it's referred to as a _____ coupon.
If a bond's first coupon payment is less than six months after its issuance, it's referred to as a short coupon.
If a bond's first coupon payment is more than six months after its issuance, it's referred to as a ____ coupon.
If a bond's first coupon payment is more than six months after its issuance, it's referred to as a long coupon.
If a client consents to a trade before execution, the order ticket is marked ________________________.
If a client consents to a trade before execution, the order ticket is marked discretion not exercised.
If a client fails to pay for a security, his account may be frozen for ____ days.
If a client fails to pay for a security, his account may be frozen for 90 days.
If a client wants to know the current market value of his investments, he would look at his __________________.
If a client wants to know the current market value of his investments, he would look at his account statement.
If a firm acts in an agency capacity, the ___________ must be disclosed on a confirmation.
If a firm acts in an agency capacity, the commission must be disclosed on a confirmation.
If a trainee fails a FINRA exam on the first attempt, he must wait __ days to re-test.
If a trainee fails a FINRA exam on the first attempt, he must wait 30 days to re-test.
If a trainee fails a FINRA exam on the third attempt, he must wait ___ days to re-test.
If a trainee fails a FINRA exam on the third attempt, he must wait 180 days to re-test.
How are withdrawals from a Traditional IRA treated for tax purposes?
If all contributions were deductible, then the entire withdrawal is taxed as ordinary income.
If an IRA owner takes receipt of the assets for up to 60 days before reinvesting in a new plan, this is a _________.
If an IRA owner takes receipt of the assets for up to 60 days before reinvesting in a new plan, this is a rollover.
If an RR is selling viatical policies on the side without his employer's knowledge, he is guilty of _______________.
If an RR is selling viatical policies on the side without his employer's knowledge, he is guilty of selling away.
If an RR leaves a BD and later wants to return without being required to requalify, she must do so within ____ years.
If an RR leaves a BD and later wants to return without being required to requalify, she must do so within two years.
If an asset was held for one year or less prior to its sale, any gain or loss would be ____________.
If an asset was held for one year or less prior to its sale, any gain or loss would be short-term.
If an individual's registration is inactive for ____ years, he must requalify by examination.
If an individual's registration is inactive for two years, he must requalify by examination.
If an investor is long stock, a sell stop order can be used to limit ___________ risk.
If an investor is long stock, a sell stop order can be used to limit downside risk.
If an investor is short stock, a buy stop order can be used to limit _________ risk.
If an investor is short stock, a buy stop order can be used to limit upside risk.
If an investor wants exposure to a particular industry, a _________ fund is the best type of investment.
If an investor wants exposure to a particular industry, a sector fund is the best type of investment.
If an RR is involved with a charity, does she need to provide written notification to her employer?
If compensation is not received, notification will NOT be required.
If exercised against, the writer of an equity call option is obligated to _____ the underlying stock.
If exercised against, the writer of an equity call option is obligated to sell the underlying stock.
If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.
If exercised against, the writer of an equity put option is obligated to buy the underlying stock.
If interest rates are falling, bond prices are ______.
If interest rates are falling, bond prices are rising.
If interest rates are rising, bond prices are _______.
If interest rates are rising, bond prices are falling.
If long stock, a put option can be used to limit ___________ risk.
If long stock, a put option can be used to limit downside risk.
Dan, an RR of a BD, is the coach of his son's Little League team. Must Dan notify his BD of his coaching position?
If no compensation is received (for hobbies or charitable service), written notification is NOT required.
When can an investor participate in a tender offer (i.e., what can be tendered)?
If she is long stock, a convertible bond, warrant, or right. If long a call option on the stock, she must exercise it.
If short stock, a call option can be used to limit _________ risk.
If short stock, a call option can be used to limit upside risk.
Define breakpoint sales.
Illegally inducing the purchase of mutual fund shares at dollar levels below where a breakpoint is available
What is a broker-dealer required to do if it trades ahead of a retail customer's limit order?
Immediately (within 60 seconds) fill the customer's buy order at the limit price or better
What should an RR do if she receives a written complaint?
Immediately forward it to her manager
In a 401(k) plan, there is immediate vesting of _________ contributions.
In a 401(k) plan, there is immediate vesting of employee contributions.
In a best-efforts underwriting, unsold securities are retained by ______________.
In a best-efforts underwriting, unsold securities are retained by the issuer.
In a cash account, the payment date for all securities purchases is ____ business days after the ___________ date.
In a cash account, the payment date for all securities purchases is two business days after the settlement date.
In a ___________ sale, an issuer invites underwriters to compete against one another by submitting bids for the issue.
In a competitive sale, an issuer invites underwriters to compete against one another by submitting bids for the issue.
In a corporation, _________ stockholders have the most junior claim to assets.
In a corporation, common stockholders have the most junior claim to assets.
In a firm commitment underwriting, unsold securities are retained by ________________.
In a firm commitment underwriting, unsold securities are retained by the syndicate.
In a _____ _________ account, information about each customer of the introducing firm is sent to the clearing firm.
In a fully disclosed account, information about each customer of the introducing firm is sent to the clearing firm.
Ben's margin account has a market value of $800,000 and a debit balance of $350,000. How much SIPC coverage is provided?
In a margin account, SIPC covers the net equity (market value minus debit). In this example, $450,000.
In a _____________ annuity, the owner invests on an after-tax basis with earnings accumulating on a tax-deferred basis.
In a non-qualified annuity, the owner invests on an after-tax basis with earnings accumulating on a tax-deferred basis.
In a ____, a dealer sells bonds to another dealer and agrees to repurchase them at a specific time and price.
In a repo, a dealer sells bonds to another dealer and agrees to repurchase them at a specific time and price.
As it relates to IRAs, what is the difference between a rollover and a trustee-to-trustee transfer?
In a rollover, the proceeds are directed to the owner, but in a transfer, the proceeds are directed to another institution.
What's the advantage to reinvesting dividends back into a mutual fund?
In addition to compounding, most mutual funds will allow investors to reinvest at the NAV (i.e., with no sales charge).
In addition to providing a prospectus, a _________ advertisement may be published to announce an offering.
In addition to providing a prospectus, a tombstone advertisement may be published to announce an offering.
What is the benefit of buying convertible preferred stock?
In addition to receiving dividends, investors have the ability convert the shares into common stock of the company.
In an _______ arrangement, a clearing firm doesn't have information on each individual customer of an introducing firm.
In an omnibus arrangement, a clearing firm doesn't have information on each individual customer of an introducing firm.
In which state(s) is a new issue required to be registered?
In any state(s) in which it will be offered or sold
In what form must IRA contributions be made?
In cash
In general, a 401(k) plan is available to individuals who work for a ____________ corporation.
In general, a 401(k) plan is available to individuals who work for a for-profit corporation.
What type of stock may be entitled to extra dividends?
In profitable years, participating preferred stockholders may be paid both prior to, and after, common stockholders.
In the after-market, a prospectus must be provided for ____ days following a non-exchange follow-on offering.
In the after-market, a prospectus must be provided for 40 days following a non-exchange follow-on offering.
In the after-market, a prospectus must be provided for ____ days following a non-exchange IPO.
In the after-market, a prospectus must be provided for 90 days following a non-exchange IPO.
After the initial offering, where are shares of a closed-end management company purchased?
In the secondary market (like shares of stock)
If an equity option is exercised, when does the transaction in the underlying security settle?
In two business days (T + 2)
Mary has been an RR for nine years. When is she next subject to the Regulatory Element of Continuing Education?
In two years, on the 11-year anniversary of her initial registration
_________ stock pays higher than average dividends.
Income stock pays higher than average dividends (utility companies).
By what types of taxes are state general obligation bonds backed?
Income, sales, or gasoline tax, but also licensing fees and fines.
Indications of interest are _______________ on both the customer and BD.
Indications of interest are non-binding on both the customer and BD.
Identify the acronym: IRA
Individual Retirement Account
Who sets the prime rate?
Individual banks, not the Federal Reserve Board
Who can contribute to a qualified annuity?
Individuals who work for non-profit organizations and public schools
What bond would be issued to build a facility for a private company?
Industrial Development Revenue (IDR) bond
Industry disputes are handled through ______________.
Industry disputes are handled through Arbitration.
Define material, nonpublic information.
Information that has not been publicly disseminated and may affect the price of a security
Identify the acronym: IPO
Initial Public Offering
What two types of offerings are issued in the primary market?
Initial public offerings (IPOs) and subsequent public offerings
What are some of the acceptable actions for the limited partner?
Inspecting partnership books, suing the general partner, voting on major issues affecting the partnership, competing
___________________________ is material distributed or made available only to institutional investors.
Institutional communication is material distributed or made available only to institutional investors.
A REIT could derive income from what different sources?
Interest (mortgage REIT), rent from both residential and commercial property, and capital gains (equity REIT)
Define real interest rate (real rate of return).
Interest rate minus the inflation rate (e.g., Bond yielding 8% when inflation is 3% has a real interest rate of 5%).
To what risks would Treasury bond funds be subject?
Interest rate, purchasing power, and market risk
What is excluded from FINRA's definition of institutional communication?
Internal communications of a broker-dealer
____________________ is the insertion of a third party between a customer and the best market price.
Interpositioning is the insertion of a third party between a customer and the best market price.
Identify the acronym: IC Act of '40
Investment Company Act of 1940
Which department of a broker-dealer handles the underwriting and issuance of securities for clients?
Investment banking
If an employee is qualified with a Series 79, what can she do?
Investment banking functions
If an employee is qualified with a Series 6, what can he sell?
Investment companies (mutual funds), variable annuities, and 529 plans
List some of the disclosures that are made in a mutual fund's prospectus.
Investment objectives, risks, investment adviser, sales charges, operating expenses, and how the NAV is calculated
Is a person who invests in a variable annuity more susceptible to legislative risk or investment risk?
Investment risk, since the separate account of a variable annuity fluctuates with the overall performance of the market
Investors who want to generate income on a stock position should ______ an option.
Investors who want to generate income on a stock position should sell an option.
What activities can a non-registered employee of a FINRA member firm perform?
Invite prospects to events, forward prospects to registered representatives, send investment literature to clients
List some responsibilities of a transfer agent.
Issue and cancel securities, pay dividends and interest, mail shareholder reports, handle lost or stolen certificates
ssued stock - Treasury stock = ____________________
Issued stock - Treasury stock = Outstanding stock
______ stock is the amount of stock a corporation has already sold to investors.
Issued stock is the amount of stock a corporation has already sold to investors.
Issuers of bonds may be referred to as __________.
Issuers of bonds may be referred to as debtors.
When an issuer or an affiliate is repurchasing its own shares, how many BDs may it use in one day?
Issuers or affiliates may use only one BD a day when repurchasing its own stock.
Issuers/affiliates repurchasing their own shares may not buy the shares in the last ____ minutes of the trading day.
Issuers/affiliates repurchasing their own shares may not buy the shares in the last 30 minutes of the trading day.
For a bond, what does a call feature allow?
It allows the issuer to buy (call) the bond back from the bondholders prior to maturity.
What is the purpose of a Tombstone Ad?
It calls attention to the new issuance of securities and members of the syndicate.
What is the effect of raising the minimum reserve requirement?
It decreases the money supply and tightens credit.
What are the general characteristics of a Joint Tenants With Right of Survivorship (JTWROS) account?
It has multiple owners and each has trading rights. If one owner dies, her account value passes to the other owner(s).
What are the general characteristics of a Joint Tenants in Common (JTIC) account?
It has multiple owners and each has trading rights. If one owner dies, his account value passes to his estate.
What are the general characteristics of an individual account?
It has only one owner of record and that one owner has sole trading rights
What is the effect of lowering the minimum reserve requirement?
It increases the money supply and eases credit.
What are the general characteristics of a 529 account?
It is a tax-advantaged college savings plan sponsored by a state or educational institution.
What is the advantage for a corporation that issues convertible bonds?
It is able to pay a lower rate of interest (i.e., lower coupon).
What are the general characteristics of a traditional IRA account?
It is an individual retirement account in which the money grows tax-deferred.
What are the general characteristics of a Roth IRA account?
It is an individual retirement account in which the money grows tax-free if certain conditions are met.
What does it mean to clear a trade?
It is the end-of-day process of matching trades executed by a BD to determine what is owed.
What restrictions exist in describing a fund as no load?
It may have no front-end or deferred sales charge, and a 12b-1 fee cannot exceed .25%.
If an issuer is buying its own securities on an exchange, how many broker-dealers is it allowed to use?
It may only use one broker-dealer per trading session
To issue securities under Rule 147, an issuer must satisfy how many of the four "doing business" requirement?
It must satisfy only one of the four "doing business" requirements.
How does the Dutch Auction set the interest rate on Auction Rate Securities?
It sets the lowest interest rate at which all the securities being offered will clear the market (net clearing rate).
If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?
It should strengthen as more foreign money is being invested in the U.S.
What does the following quote indicate about the fund? NAV: $9.20 POP: $9.20
It's a no-load fund.
If an asset outperforms the market when prices are up, but underperforms when prices are down, what is its beta?
Its beta must be greater than 1.00.
What are joint accounts considered by SIPC?
Joint accounts are considered separate from individual accounts.
What payout option requires the insurance company to provide payments for as long as one of two people remain alive?
Joint and Last Survivor
_________ economic theory states that government intervention in the economy is necessary for sustained economic growth.
Keynesian economic theory states that government intervention in the economy is necessary for sustained economic growth.
What is the purpose for creating LGIPs?
LGIPs are created by state and local governments for municipal entities to invest their excess cash.
The average duration of unemployment is what type of economic indicator?
Lagging
What are lagging economic indicators able to confirm?
Lagging economic indicators confirm the business cycle.
The money supply is what type of economic indicator?
Leading
Which economic indicators are used to predict the business cycle?
Leading economic indicators
Identify the acronym: LOI
Letter of Intent
Letters of Intent are valid for ____ months.
Letters of Intent are valid for 13 months.
Letters of Intent may be back-dated for _____ days.
Letters of Intent may be back-dated for 90 days.
Which orders may be entered as either good 'til cancel (GTC) or as day orders?
Limit and stop orders
____________ Partners are the primary contributors of capital to a limited partnership.
Limited Partners are the primary contributors of capital to a limited partnership.
What are restricted (watch) lists?
Listings of securities that employees of investment banks are restricted from trading
What document allows a BD to lend customer securities to someone wishing to sell them short?
Loan Consent Agreement
Identify the acronym: LGIP
Local Government Investment Pool
If a BD expects a seller to deliver the securities by the settlement date, how may the order ticket be marked?
Long
What are the two ways order tickets can be marked when selling securities?
Long (selling shares that are owned) or short (selling stock that is being borrowed)
What are Auction Rate Securities (ARS)?
Long-term bonds (municipal or corporate) with a variable interest rate set periodically through a Dutch Auction
Lower inflation leads to _____ interest rates, which causes bond prices to ____.
Lower inflation leads to lower interest rates, which causes bond prices to rise.
When warrants are attached to bonds, will the issuers pay a higher or lower rate of interest?
Lower, due to the added opportunity
MIG stands for ___________________________.
MIG stands for Moody's Investment Grade.
What is the role of an SRO?
Maintain fair and orderly securities markets and establish rules and regulations for protecting investors
What is the name of the fee paid to the fund's investment adviser?
Management fee
The total spread consists of what three parts?
Manager's fee, underwriter's fee, and selling concession
In what type of account are uncovered option positions created?
Margin account
What is the least effective tool available to the FRB?
Margin requirements (Reg T)
What stipulation in the registration statement relieves underwriters of their contractual obligations?
Market out clause
What price is paid for closed-end management company shares?
Market price plus a commission
How is a company's market capitalization calculated?
Market price x shares outstanding (including restricted shares and those held by retail investors or institutions)
List some examples of systematic risk.
Market, interest rate, inflation and event risk are all systematic risks.
To what is a firm entitled when acting in the capacity of a principal or dealer?
Markup when selling to a customer and markdown when buying from a customer
Jim is an associated person. When is someone in his immediate family prohibited from buying an equity IPO?
Material support/household sharing exists, or purchase is made through his firm, or he controls IPO share allocation
Define correspondence.
Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.
_________ and ______ are the two types of bond redemptions.
Maturity and calls are the two types of bond redemptions.
Define the term restricted person as set by FINRA Rule 5130.
Member firms and their associated persons (including their immediate family members) and any other industry insiders
If a client serves in the military and does not have a residential or business street address, what may be used instead?
Military personnel may use an Army Post Office Box (APO) or Fleet Post Office Box (FPO)
What type of underwriting is cancelled if a specified portion is not sold?
Mini-max
On Monday at 11:00 a.m., a customer places a call to sell (redeem) her mutual fund shares. What price will she receive?
Monday's NAV since she placed the order before 4:00 p.m.
A customer buys a T-bill on Friday, January 4th. When will the trade settle?
Monday, January 7
If a customer buys a municipal bond on Thursday, May 5, when will the trade settle?
Monday, May 9 (T + 2)
________ policy attempts to control the supply of money and credit in the economy.
Monetary policy attempts to control the supply of money and credit in the economy.
If a client's goal is preservation of principal, what fund would be most appropriate?
Money-market fund
What type of mutual fund is often used as a safe harbor?
Money-market funds
Money-market securities have a maturity of __________________.
Money-market securities have a maturity of one year or less.
How often do pass-through certificates make payments?
Monthly
Moody's rates municipal notes using ______, ______, ______, ______.
Moody's rates municipal notes using MIG1, MIG2, MIG3, SG.
What is the maturity range of a T-Bond?
More than 10 years
Which fee helps an insurance company continue to pay annuities when annuitants live longer than expected?
Mortality risk charges
List the types of secured corporate bonds.
Mortgage bonds, equipment trust certificates, collateral trust bonds and asset backed securities
Why would a trade have "when issued" settlement?
Most likely because it's a primary market (new issue) trade and the certificates have yet to be created.
Who is the associated person who primarily engages in or supervises municipal securities business?
Municipal Finance Professional (MFP)
What is an MFP?
Municipal Finance Professional (those subject to political contribution rules)
What is the appropriate registration designation to supervise the municipal activity for a BD?
Municipal Securities Principal (Series 53)
Who supervises a firm's municipal activities and provides account approval, transaction review, and complaint handling?
Municipal Securities Principal (Series 53)
Municipal bond interest is exempt from __________ tax.
Municipal bond interest is exempt from federal tax.
What is a Bond Anticipation Note (BAN)?
Municipal note issued for a capital project that will eventually be paid from the proceeds of a long-term bond
What is a Tax Anticipation Note (TAN)?
Municipal note issued in anticipation of future real estate taxes
What is a Grant Anticipation Note (GAN)?
Municipal note issued in anticipation of receiving government funding in the form of a grant
What is a Revenue Anticipation Note (RAN)?
Municipal note that will eventually be paid from future federal or state subsidies
What are some examples of tax-free money-market instruments?
Municipal notes and tax-exempt commercial paper
How may a mutual fund be capitalized?
Mutual (open-end) funds may only issue common stock to raise capital.
What are some examples of common mandatory corporate actions?
Name changes, mergers, reverse splits, liquidations, bond redemptions, and partial or full calls
Give examples of information included on a customer statement.
Name of securities (issuer), number of shares owned, price or market value of securities, and dividends or interest paid
What is some of the important information to obtain when opening a new client's account?
Name, address, age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience
Identify the acronym: NSCC
National Securities Clearing Corporation
Negotiable CDs (also called Jumbo CDs) have a minimum denomination of $__________.
Negotiable CDs (also called Jumbo CDs) have a minimum denomination of $100,000.
Identify the acronym: NAV
Net Asset Value
What is the formula for computing a mutual fund's net asset value (NAV)?
Net assets ÷ total shares outstanding
What are some examples of retail communication?
Newspapers, magazines, radio, TV, billboards, generally accessible Web sites
List some examples of retail communication.
Newspapers, magazines, radio, TV, videotape displays, publicly available Web pages, blogs, billboards
When do options trades settle between BD and the OCC?
Next business day (T+1)
Do clients need to sign a letter of authorization (LOA) to begin receiving confirmations and statements electronically?
No
Is a hedge fund investment considered liquid?
No
Is switching between annuity sub-accounts taxable?
No
May a Series 6 registered person engage in option trades?
No
Under the Customer Identification Program, may accounts be opened for clients refusing to provide required information?
No
When is confirmation of a transaction sent to a client?
No later than completion of the transaction
When is a privacy notice presented to a customer?
No later than when the relationship is established
What are the volume limitations on an affiliate or issuer repurchasing its own security?
No more than 25% of the average daily trading volume (ADTV) over a 4-week period in one day
For an exchange-listed follow-on offering, how long must a prospectus be made available in the secondary market?
No prospectus requirement exists for an exchange-listed follow-on offering.
What is the after-market prospectus requirement for the follow-on offering of an exchange-listed stock?
No requirement exists for the follow-on offering of an exchange-listed stock.
May Eurodollar bonds be issued in the U.S.?
No, and they are not registered with the SEC.
Does Rule 144 require a specific holding period for control stock?
No, but the SEC must be notified when a sell order is placed and volume limitations apply.
Is a fixed annuity a security?
No, but variable contracts (e.g., variable annuities or variable life insurance) are considered securities.
Is the conversion of a bond a taxable event?
No, it is a tax-free exchange. The taxable event would occur when the stock is sold.
Is interpositioning an acceptable practice?
No, it is generally prohibited.
Does the receipt of a stock dividend create a taxable event?
No, not until the stock is actually sold.
Is margin permitted in a minor's account?
No, securities must be fully paid.
Is discretionary authorization required to enter a not held order?
No, since discretion is limited to time and price on not held orders.
Is a mutual fund's redemption fee considered a sales charge?
No, since it does not go to selling brokers, but rather stays within the fund.
Do stop orders guarantee a specific price when buying or selling?
No, stop orders execute at the market price (which is uncertain) once they are activated.
ABC sets a record date of Wednesday, Oct. 19. Would a buyer of ABC on Tuesday, October 18 be entitled to the dividend?
No, the investor must own (trade settles) on or before the record date. This trade would not settle until October 20.
If a corporation executes a stock split, is there a resulting gain or loss for existing stockholders?
No, the overall position stays the same. Forward = more shares at lower price; Reverse = fewer shares at higher price.
Does an equity-indexed annuity transaction require the delivery of a prospectus?
No, these contracts are not considered securities by the SEC.
Can a registered broker-dealer state that the SEC has given its approval of the firm?
No, this is a prohibited practice. It is acceptable for the firm to simply state that it's a registered broker-dealer.
A BD's new applicant admits to a prior drug conviction (a misdemeanor). Is he subject to statutory disqualification?
No.
Can a mutual fund distributor pay for sales contests?
No. Although broker-dealers can run sales contests, the mutual fund distributor cannot pay for them.
An investor has a net worth of $100,000 and had annual income of $1 million last year. Is he an accredited investor?
No. Although his income exceeds $200,000, it has not been at that level for the last two years.
Must the custodian in an UGMA account be a parent?
No. Any adult may be custodian.
May an RR summarize a prospectus?
No. Any prospectus summary (profile) must be produced by the fund's sponsor.
Are CMOs exempt from registration under the Securities Act of 1933?
No. CMOs are corporate securities that must be registered.
May an RR disclose Series 6 examination content to his supervisor?
No. Disclosure of exam content may invalidate the result.
To comply with the Best Execution Rule, is a BD always required to obtain the best market price available for clients?
No. However, BDs are required to use reasonable diligence to obtain the best price possible.
Is an official statement or preliminary official statement considered retail communication?
No. However, a summary or abstract of an official statement is considered retail communication.
Is a letter of intent binding on the investor?
No. However, the letter is binding on the investment company.
An RR's mother plans to buy equity IPO shares from a BD that does not employ the RR. Is she restricted from purchasing?
No. If she is not supported by her child and purchases from a BD that does not employ her child, she is NOT restricted.
Is an income bond appropriate for a client who desires income?
No. Income (adjustment) bonds will only pay interest if the issuer has sufficient income.
Is SIPC part of the U.S. Government?
No. It is a non-profit entity funded by assessments on BD members.
Is it acceptable for a BD to give two tickets to a Broadway show (valued at $250) to an employee of another BD?
No. It is unacceptable. However, the gift limit would not be violated if the RR attends with the recipient.
Do all outside activities of an RR require notification to an employer?
No. Notification is only required for employment activities, not hobbies.
A client was screaming at an RR on the telephone. Is a record of this complaint required to be maintained?
No. Only records related to written complaints are required to be maintained.
An investor had granted power of attorney to his son. If the client dies, is the power of attorney still valid?
No. Power of attorney is cancelled at the time of the owner's death.
May an RR create her own breakpoint schedule?
No. RRs must follow the schedule found in the fund's prospectus.
Does SIPC insure client assets?
No. SIPC protects against firm bankruptcy.
Does SIPC protect customers from market losses?
No. SIPC protects customers from losses due to BD bankruptcy.
May a Series 6 registered person engage in the sale of individual stocks or bonds?
No. Series 6 RRs may only sell packaged products, such as mutual funds and annuities.
Hank, an RR, was charged with misdemeanor DUI last week. Is this reported to FINRA?
No. Since the charge is a misdemeanor, SRO notification is not required.
Is a redemption fee the same as a CDSC?
No. The CDSC is a sales charge, not a fee.
Does the MSRB have the authority to enforce its own rules?
No. The MSRB has no enforcement authority.
Will new purchases affect a fund's NAV?
No. The assets and number of shares increase proportionally.
Is an UGMA account considered a joint account?
No. The assets are the property of the child.
Does a mutual fund's board of directors make individual stock selections?
No. The board sets the fund's objectives, while the IA makes the portfolio selections.
An investor has been purchasing mutual fund shares using dollar cost averaging. Is she guaranteed against loss?
No. The market may never recover.
Will liquidating a fund position at a loss affect a fund's NAV?
No. The position has already been marked to market.
May an RR modify a prospectus?
No. The underlining, photocopying, or highlighting of a prospectus is prohibited.
Is there an income threshold for 529 College Savings Plan contributors?
No. There are no income limits imposed for these plans.
May an RR personally lend to, or borrow from, a client?
No. These actions are typically violations of FINRA rules.
Does a unit investment trust (UIT) have a board of directors?
No. These entities are supervised by a board of trustees.
Is a UIT actively managed?
No. These products are supervised and have a fixed portfolio.
May a Class B share be referred to as a "no-load" share?
No. This is a violation of FINRA rules.
Due to staff shortage, BD 1 gives a client order to BD 2 to execute with extra costs passed to the client. Acceptable?
No. This is interpositioning and is not advantageous to the client.
Is an agent permitted to execute securities trades for compensation and not record the trades on his BD's books and records?
No. This is referred to as "selling away."
A BD executes a proprietary put purchase before executing a client's stock sale. Is this practice permitted?
No. This prohibited practice is referred to as front-running.
Is a REIT a form of direct participation program (DPP)?
No. Unlike DPPs, REITs do not pass through losses.
Is a foreign issuer that sells securities to wealthy U.S. investors and institutions required to register with the SEC?
No; in this instance, it is likely that the issuer will qualify for a Regulation D Rule 506 Exemption.
Rank in order, from highest to lowest, the three yields on a bond priced at a premium.
Nominal Yield, Current Yield, YTM
List the three bond yields.
Nominal, Current, and Yield-to-Maturity
On a premium bond, which yield is the highest?
Nominal. Remember the seesaw on a premium bond - NY, CY, YTM (highest to lowest).
Which annuity is funded with after-tax dollars - Qualified or Non-Qualified?
Non-Qualified
Define penny stock.
Non-exchange traded securities that are priced at less than $5 per share
Which risk is diversifiable, systematic or non-systematic risk?
Non-systematic
Identify the acronym: NOBO
Nonobjecting beneficial owner
Identify the acronym: NASAA
North American Securities Administrators Association
Are immediate family members of member firm employees always restricted from purchasing equity IPOs?
Not if the individual receives no material support and is not purchasing from the firm employing their family member
What should an RR recommend to a client who is looking for an exciting investment?
Nothing, since exciting is not a valid objective
What advertises that municipal bonds are available and invites underwriters to bid on a new competitive issue?
Notice of Sale
Along with Web pages, what are some other examples of retail communication?
Notices, circulars, research reports, form letters, telemarketing scripts, and widely distributed instant messages
What list must be checked to identify suspected terrorists and criminals?
OFAC List (Treasury Department's Office of Foreign Assets Control)
Identify the acronym: OBO
Objecting beneficial owner
Jim is short 1 MNO Aug 40 Put at 4.50. Does Jim have a right or an obligation?
Obligation to buy at 40
An investor writes 1 DEF May 55 Call at 6. Does she have a right or an obligation?
Obligation to sell at 55
Identify the acronym: OFAC
Office of Foreign Assets Control List (U.S. Treasury Department's list of suspected terrorists and criminals)
Who meets FINRA's definition of associated person?
Officers, directors, partners, branch managers, and employees who are engaged in sales or investment banking
Describe a principal.
Officers, managers, or supervisory personnel who are involved in the day-to-day management of a member firm's business.
What is the disclosure document, similar to a prospectus, that is used for municipal bonds?
Official Statement
Omitting a _________ fact in an application or report to an SRO is grounds for statutory disqualification.
Omitting a material fact in an application or report to an SRO is grounds for statutory disqualification.
XYZ's record date is Thursday, May 3. With a regular-way trade, when could Emma sell her stock, but keep the dividend?
On Wednesday, May 2 or later. She must remain the owner at least through May 3 to keep the dividend.
When does a "seller's option" trade settle?
On a date longer than using regular way (i.e., more than T+2).
When may American-Style options be exercised?
On any business day up to the expiration date
Where may a client find details about her purchases, sales, credits, debits, dividend payments, receipts or deliveries?
On her account statement
When must RRs complete the Regulatory Element of Continuing Education?
On the 2-year anniversary of their registration and every 3 years thereafter.
When are clients required to pay for their Treasury or municipal bond purchases?
On the settlement date of the trade. For Treasuries, this is T + 1, but for municipals, it's T + 2.
In a custodial account, when does the minor own the assets?
On the trade date
For every rolling 12 months, how many times may a qualified plan be transferred via a rollover?
Once
Once Form 144 is filed, owners have __________ to sell their securities.
Once Form 144 is filed, owners have 90 days to sell their securities.
How often may an individual roll over an IRA?
Once per rolling 12 months
For a joint account, how many account numbers and SSNs are used for tax reporting?
One
What is a combined offering?
One in which the proceeds will be split between the issuing company and selling shareholders
Under the TCPA, how is an established customer defined?
One that has made an unsolicited inquiry or effected a transaction with the firm
What is the typical voting criteria for a mutual fund?
One vote allowed per one share owned
For an asset to be considered "current," how quickly should it be convertible into cash?
One year or less
May a Series 6 registered person engage in the sale of closed-end funds?
Only if the product is being sold in a primary (new issue) distribution.
May client information be given to a third party?
Only if the third party has legal authority (e.g., IRS) or the client provides written consent
When may European-Style options be exercised?
Only on the expiration date
Is income generated by a limited partnership taxed once or twice?
Only once, and it is at the partner's level. The program itself is not a taxable entity.
Only one IRA rollover is allowed per rolling ____ months.
Only one IRA rollover is allowed per rolling 12 months.
Only ______ custodian is allowed per minor's account.
Only one custodian is allowed per minor's account.
Only one rollover is allowed per rolling ____ months.
Only one rollover is allowed per rolling 12 months.
In a proceeds transaction, on how many trades is the markup based?
Only one trade (as if the trade was done for cash)
Who can charge a client for buying or selling securities?
Only registered broker-dealers can levy transaction-based charges. Remember, investment advisers charge fees for advice.
Who can charge a client for securities-related advice?
Only registered investment advisers. Remember, BDs charge a commission for executing trades, not for advice.
What will SIPC cover in a customer's margin account?
Only the customer's equity (securities clear of any outstanding loan)
In a Non-Qualified Annuity, how is the payout taxed?
Only the earnings portion is subject to tax as ordinary income
In a non-qualified annuity, how is the payout taxed?
Only the earnings portion is subject to tax as ordinary income
What are the two types of management companies?
Open-end and closed-end
Are open-end investment companies considered managed or unmanaged?
Open-end funds (mutual funds) are managed by an investment adviser.
What type of investment company is priced once per business day?
Open-end investment companies (mutual funds)
Open-end management companies are more commonly referred to as ____________.
Open-end management companies are more commonly referred to as mutual funds.
Identify the acronym: OCC
Options Clearing Corporation
Options will only have intrinsic value if they are ____-the-money.
Options will only have intrinsic value if they are in-the-money.
Name two priorities that preferred stock has over common stock.
Order of liquidation and dividends
Orders to sell all exchange-listed and over-the-counter equities must be marked _____ or ______.
Orders to sell all exchange-listed and over-the-counter equities must be marked long or short.
At what rate are short-term capital gains taxed?
Ordinary income rate (tax bracket)
Identify the acronym: OTC
Over-the-Counter
With options, what terms are synonymous with buyer?
Owner, holder, long
Under the Equity IPO Rule, who is considered to be part of an associated person's immediate family?
Parents, siblings, spouse, children, or in-laws
_______ management involves simply attempting to match the market by tracking an index.
Passive management involves simply attempting to match the market by tracking an index.
What items are acceptable as proof of identity under the Customer Identification Program (CIP)?
Passport or driver's license (both have a picture)
If an employee is qualified with a Series 50, what can he do?
Perform the services of a municipal advisor
What is the longest duration for a warrant?
Perpetual
Where may quotes for non-Nasdaq (OTC equity) stocks be found?
Pink Sheets or the OTC Bulletin Board
What should a broker-dealer do if it believes that a client's account has been financially exploited?
Place a hold on withdrawals. An important note is that it cannot halt securities transactions.
Hypothecation is synonymous with what term?
Pledge
Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $___ (per election).
Political contribution rules allow MFPs NOT able to vote for a candidate to contribute a max. of $0 (per election).
Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $_____ (per election).
Political contribution rules allow MFPs who may vote for a candidate to contribute a maximum of $250 (per election).
What must be included in a mutual fund confirmation?
Potential redemption fees or CDSCs that may apply
In a liquidation, place the following in priority: warrants, preferred shareholders, common shareholders
Preferred shareholders, common shareholders, then warrants
What group of stockholders receives dividends first?
Preferred stockholders
What risk is primarily associated with mortgage-backed securities?
Prepayment risk
What is a specific risk that may be attributed to a GNMA fund?
Prepayment risk. This is the risk that mortgages may be paid off early.
In general, what are the two types of securities markets?
Primary and secondary
______________ is the rate that banks charge their most creditworthy corporate clients.
Prime Rate is the rate that banks charge their most creditworthy corporate clients.
Principals have _____ business days from receiving an application to approve an annuity sale for suitability standards.
Principals have seven business days from receiving an application to approve an annuity sale for suitability standards.
__________ of a broker-dealer are responsible for supervising registered employees.
Principals of a broker-dealer are responsible for supervising registered employees.
Prior to age 59 1/2, penalty-free withdrawals from an IRA may be taken for ______________________ expenses.
Prior to age 59 1/2, penalty-free withdrawals from an IRA may be taken for qualified educational expenses.
In the process of opening a new account, when must an RR obtain customer information?
Prior to entering the first order
When are firms required to provide a non-customer (consumer) with a copy of their privacy notice?
Prior to the sharing of non-public personal information
Identify the acronym: PIPE
Private Investment in Public Equity
What are the benefits to an issuer who conducts a private placement of its securities?
Private placements are less expensive and a less time consuming method of raising capital.
If an employee is qualified with a Series 82, what can he sell?
Private placements as part of a primary offering
What types of investments do private equity and venture capital funds buy?
Privately held and start-up companies
When is a firm's business continuity plan made available to FINRA?
Promptly upon request
Local general obligation bonds are backed by what type of tax?
Property tax (e.g., school district bonds)
When analyzing GO bonds, what are some important considerations?
Property values, per capita income and debt, population, current debt, tax collection, unfunded pension liabilities
Sara, an RR of a BD, has recently been elected to the board of directors of a corporation. What is Sara required to do?
Provide her BD with written notification of her position on the board
What is the primary purpose of the Securities Act of 1933?
Provide investors with full and fair disclosure regarding new issues (prospectus)
Where would a customer find information about the disciplinary history of a member firm and its RRs?
Public Disclosure Program (PDP), also known as BrokerCheck
Identify the Acronym: POP
Public Offering Price
Identify the acronym: POP
Public Offering Price
Public offerings of securities require the delivery of a ___________.
Public offerings of securities require the delivery of a prospectus.
If the economy is experiencing a deflationary environment, what is the effect on purchasing power?
Purchasing power will increase.
Put buyers and call writers are __________.
Put buyers and call writers are bearish.
Put buyers are __________.
Put buyers are bearish.
Put sellers are __________.
Put sellers are bullish.
QIB stands for ___________________________.
QIB stands for Qualified Institutional Buyer (QIB).
QIBs are financial institutions that have at least $_________________ invested in securities of non-affiliated issuers.
QIBs are financial institutions that have at least $100 million invested in securities of non-affiliated issuers.
Which annuity allows for a pre-tax contribution - Qualified or Non-Qualified?
Qualified
What is a QIB?
Qualified Institutional Buyer (institutions defined under Rule 144A)
Qualified plan withdrawals prior to age 59 1/2 are taxable and also subject to a ____% IRS early withdrawal penalty.
Qualified plan withdrawals prior to age 59 1/2 are taxable and also subject to a 10% IRS early withdrawal penalty.
RRs who make recommendations that require continued purchases must consider their clients' ______________.
RRs who make recommendations that require continued purchases must consider their clients' ability to pay.
What method does the OCC use when issuing an exercise notice to a BD?
Random selection
Once a firm is randomly selected by the OCC to receive the exercise notice, how will it in turn assign the notice?
Random selection, first-in / first-out (FIFO), or any other fair and equitable method.
If a bond's price has risen from 98 to 108, what has likely happened to interest rates?
Rates have probably fallen, which has caused the increase in the bond's price.
If a bond's price has fallen from 98 to 91, what has likely happened to interest rates?
Rates have probably risen, which has caused the decline in the bond's price.
What typically happens to interest rates during an inflationary period?
Rates typically rise as investors need greater returns to compensate for rising prices.
What program generates no cash flow and is based on the speculation of land value appreciation?
Raw Land Program
What is a REIT?
Real Estate Investment Trust
What are some of the requirements of electronic record keeping?
Records must be nonrewriteable, nonerasable, tamper-evident, searchable or indexed, accurate, and readily available.
Reg. D exempts __________________ from the registration requirements of the Securities Act of 1933.
Reg. D exempts private placements from the registration requirements of the Securities Act of 1933.
Identify the acronym: RR
Registered Representative
What requirements apply to nonexempt securities?
Registration requirements
Registration status becomes __________ if the Regulatory Element of CE is not completed within the prescribed period.
Registration status becomes inactive if the Regulatory Element of CE is not completed within the prescribed period.
What does Rule 145 of the Securities Act of 1933 cover?
Registration/prospectus requirements of any reclassification of securities (primarily from mergers or acquisitions).
What regulation restricts activities that could be deemed manipulative during an offering?
Regulation M
What regulation protects the non-public personal information of customers?
Regulation S-P
Regulation S-P requires clients be provided with a ______________ detailing how BDs handle personal client information.
Regulation S-P requires clients be provided with a Privacy Notice detailing how BDs handle personal client information.
____________ governs the extension of credit by BDs.
Regulation T governs the extension of credit by BDs.
Identify the acronym: RMD
Required Minimum Distribution (only required of Traditional IRAs)
Under Regulation SP, what method of opting out of information sharing is considered too burdensome for a client?
Requiring the client to write a letter, however, a customer may opt out by calling the firm
__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
Reserve requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
If an associate requests a copy of his U5, how long does the member firm have to respond?
Response must be made within 2 business days of request.
Restricted or _______ stock may not be transferred (sold) unless an opinion letter is received from the issuer.
Restricted or legend stock may not be transferred (sold) unless an opinion letter is received from the issuer.
___________ securities are acquired from the issuer or an affiliate of the issuer, but not from a public offering.
Restricted securities are acquired from the issuer or an affiliate of the issuer, but not from a public offering.
Restricted stock has a ____ month holding period.
Restricted stock has a six month holding period.
Restricted stock may not be sold until the _______________ removes the legend.
Restricted stock may not be sold until the transfer agent removes the legend.
A posting on a BD's Facebook or Twitter page is considered what form of communication?
Retail communication
List the three forms of communications with the public.
Retail communication, institutional communication, and correspondence
Revenue bonds are backed by ___________________ generated by ________________________.
Revenue bonds are backed by specific revenue (user fees) generated by a project or facility.
What type of municipal bond requires a feasibility study?
Revenue bonds. Feasibility studies are conducted to determine whether a project is financially viable.
What two sources are used to pay debt service on a double-barreled bond?
Revenue dollars and tax dollars
What is the difference between a revocable and irrevocable trust?
Revocable trusts can be changed after they're established, while irrevocable trusts cannot be changed.
Sandra buys 1 ABC Dec 70 Call at 4. Does Sandra have a right or an obligation?
Right to buy at 70
An investor holds 1 XYZ Jan 80 Put at 5. Does she have a right or an obligation?
Right to sell at 80
Rights are a ______-term instrument allowing holders to buy additional shares at a discounted price.
Rights are a short-term instrument allowing holders to buy additional shares at a discounted price.
Are inflationary periods characterized by rising or falling interest rates?
Rising
Would inflationary periods be characterized by rising or falling interest rates?
Rising
_____________ return measures how much an investment returns in relation to the risk that was assumed to attain it.
Risk-adjusted return measures how much an investment returns in relation to the risk that was assumed to attain it.
Rollovers must be completed within ____ days.
Rollovers must be completed within ____ days.
How is a Roth IRA contribution different from a traditional IRA contribution?
Roth IRA contributions are always made after-tax, while traditional IRA contributions are deductible.
Rule 144 allows for the sale of __________ stock and _______ stock.
Rule 144 allows for the sale of restricted stock and control stock.
Rule 144A allows for the sale of restricted stock to _____________________________________.
Rule 144A allows for the sale of restricted stock to qualified institutional buyers (QIBs).
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a _____.
Rule 144A exempts sellers from the holding period and volume limitations of Rule 144 if trading is done with a QIB.
Reclassifications, merger or consolidation activities, and transfers of assets are regulated under what provision?
Rule 145
Rule 147 offerings may not be sold to an out-of-state investor for ____ months following the last sale of a new issue.
Rule 147 offerings may not be sold to an out-of-state investor for six months following the last sale of a new issue.
What types of industry issues are handled under the Code of Procedure (COP)?
Rule violations
How does S&P and Moody's further differentiate their ratings?
S&P uses + or - , while Moody's uses 1, 2, 3.
Jim's cash account contains $275,000 of cash and $185,000 of securities. How much SIPC coverage is provided?
SIPC coverage is provided for $250,000 of cash and the full $185,000 of securities.
How is the FDIC different from SIPC?
SIPC does not insure bank deposits. Instead, it insures BD clients against the loss of securities due to BD bankruptcy.
SIPC provides coverage of $_________ of which no more than $_________ can be cash.
SIPC provides coverage of $500,000 of which no more than $250,000 can be cash.
Sales charge is always expressed as a percentage of the ________.
Sales charge is always expressed as a percentage of the POP (public offering price).
What is not included in the expense ratio of a mutual fund?
Sales charges are not included in the expense ratio.
Sales of new issues and mutual funds and trades between members are _______ from the 5% policy.
Sales of new issues and mutual funds and trades between members are exempt from the 5% policy.
Describe a registered representative.
Sales personnel who are engaged in securities business activities
What training would NOT be applicable for a BD's Firm Element program?
Sales training
List the broker-dealer employees who need to be fingerprinted.
Salespersons, employees who handle money or securities, and anyone who deals with records of original entry
When will a cash trade for a municipal bond settle?
Same day
___________ is the settlement for cash transactions (also referred to as cash trades or cash settlement).
Same day is the settlement for cash transactions (also referred to as cash trades or cash settlement).
Secondary market trades involving U.S. Government securities settle _____________________.
Secondary market trades involving U.S. Government securities settle next business day (T + 1).
What trades would be covered by the 5% policy?
Secondary market trades of stocks, corporate bonds, and Treasuries
Which section of the Securities Exchange Act of 1934 contains specific, anti-manipulation provisions?
Section 10b-5
n a liquidation, place the following in priority: secured creditors, common shareholders, debentures
Secured creditors, debentures (unsecured creditors), then common shareholders
Which Act created SIPC?
Securities Investor Protection Act of 1970 (SIPA)
Identify the acronym: SIPC
Securities Investor Protection Corporation
_____________________________ protects customers from BD bankruptcy.
Securities Investor Protection Corporation (SIPC) protects customers from BD bankruptcy.
What is SIPC?
Securities Investor Protection Corporation. SIPC protects separate customers in the event of BD bankruptcy.
Identify the acronym: SEC
Securities and Exchange Commission
Securities issued under the Reg. D exemption are classified as __________ securities.
Securities issued under the Reg. D exemption are classified as restricted securities.
Securities offered publicly must satisfy all applicable _____________ requirements.
Securities offered publicly must satisfy all applicable registration requirements.
What information is included on a customer account statement?
Securities positions, cash balances, and any purchase, sale, transfer, or distribution activity since the last statement
Identify the acronym: SRO
Self-Regulatory Organization (such as FINRA)
Sell limit orders are placed ________ the market.
Sell limit orders are placed above the market.
Sell order tickets are marked long when clients have unconditional contracts to buy, but the trades have not ________.
Sell order tickets are marked long when clients have unconditional contracts to buy, but the trades have not settled.
_____________ is when a RR effects a private securities transaction for a syndicator without telling his employer.
Selling away is when a RR effects a private securities transaction for a syndicator without telling his employer.
What does selling short mean?
Selling securities that are not owned, but are borrowed from a BD
How often must a client receive reports from her mutual fund?
Semi-annually
Does SIPC protect separate customers or separate accounts?
Separate customers. A customer with both a cash and margin account with a BD would be covered once.
What is the maturity type where a portion of principal is retired each year?
Serial bond
What is the appropriate registration designation to supervise investment banking, market making, advertising and sales?
Series 24
What is the appropriate registration designation to supervise investment company sales, but not stock trades?
Series 26
What two types of securities registrations would allow an individual to offer variable annuities?
Series 6 or Series 7
What exam must be passed in order to be registered at the state level?
Series 63, 65, or 66
Series ____ or Series _____ will qualify an individual to sell municipal securities.
Series 7 or Series 52 will qualify an individual to sell municipal securities.
What is the appropriate registration designation to supervise sales, but not investment banking?
Series 9 and 10
Who is a lock-up agreement meant to protect?
Shareholders/investors
Identify the acronym: SBI
Shares of Beneficial Interest (This represents a client's UIT holdings.)
Give some examples of BD practices that are prohibited according to the Department of Justice.
Sharing client order information, selectively backing away from quotes, coordinating prices with other market makers
If a registered person joins the military, what is her registration status?
She falls under the special inactive status designation.
What is an RR permitted to do if they have limited discretionary authority over a client's account?
She may buy or sell securities in the account without consulting the client.
Who should a client contact if she finds a discrepancy on her account statement?
She should contact her RR or ask to speak with the firm's branch manager.
Shelf Registration is valid for up to _____ years.
Shelf Registration is valid for up to 3 years.
How often are assets valued in a variable contract?
Similar to mutual funds, assets are typically valued based on a daily NAV.
Bill, an RR of High Mark Brokerage, has been hired as a bartender on the weekends. What step must Bill take with his BD?
Since Bill will be compensated as a bartender, he must provide written notice to his BD.
John has opened an account with a BD. When is the firm required to provide John with a privacy notice?
Since John is a customer, it must be provided at the time the account is opened.
Since mutual funds are considered primary market issues, they must be sold by ____________.
Since mutual funds are considered primary market issues, they must be sold by prospectus.
What is the effect on the money supply if the Fed enters into a repurchase agreement (repo)?
Since the Fed is lending money, the money supply increases.
Since the _______ is responsible for any tax liability, custodial accounts use the tax ID of the _______.
Since the minor is responsible for any tax liability, custodial accounts use the tax ID of the minor.
For how long are securities restricted if received by the syndicate as compensation?
Six months
List some of the factors considered when attempting to obtain best execution.
Size/type of transaction, number of markets checked, accessibility of quotes, terms/conditions of the order
If a registered representative recommends a trade to a customer, how is the order ticket marked?
Solicited
What must a firm obtain prior to sending a client's account statements to a third party?
Specific written instructions from the account owner
Define pump and dump.
Spreading rumors about a stock and then selling the shares before the rumors can be verified
____________ is the only form of price manipulation allowed by the SEC.
Stabilization is the only form of price manipulation allowed by the SEC.
Standard & Poor's four ratings for municipal notes are ______, ______, ______, ______.
Standard & Poor's four ratings for municipal notes are SP-1+, SP-1, SP-2, SP-3.
Identify the acronym: SAI
Statement of Additional Information
What voting method permits one vote for each share owned to be voted for each director?
Statutory
Define control stock.
Stock that is owned by officers, directors, or greater than 10% owners. It is also referred to as affiliated stock).
Describe cumulative preferred stock.
Stock that requires payment of any missing dividends before common stockholders are paid
What should investors buy if they're worried about inflation?
Stocks and/or commodities (e.g., gold) are a good hedge against inflation.
List some examples of cyclical stocks.
Stocks of automobile companies, homebuilders, and airlines
List some examples of defensive stocks.
Stocks of consumer staple providers, such as utilities, basic food companies, or personal healthcare products manufacturers
Stop and stop-limit orders are triggered when a round lot trades at, or through, the _____ ______.
Stop and stop-limit orders are triggered when a round lot trades at, or through, the stop price.
Stop orders become _________ orders once they are triggered/activated.
Stop orders become market orders once they are triggered/activated.
Stop-limit orders become ________ orders once they are triggered/activated.
Stop-limit orders become limit orders once they are triggered/activated.
_________________ is the payout option that provides payments for the annuitant's whole life and will cease at death.
Straight-Life is the payout option that provides payments for the annuitant's whole life and will cease at death.
What modification is made to the Straight-Life payout option to guarantee payments for a minimum number of years?
Straight-Life with Period Certain
Which annuity payout option provides for the greatest monthly payment?
Straight-life
Strategic asset allocations assume that markets are ________.
Strategic asset allocations assume that markets are efficient.
Identify the acronym: SAR
Suspicious Activity Report
What report is filed when financial transactions have no apparent business purpose?
Suspicious Activity Report (SAR)
With mutual fund shares, what's the difference between switching and exchanging?
Switching is done outside of a fund family, while exchanging is done within a fund family.
What is the difference between a syndicate member and a firm in the selling group?
Syndicate members assume liability, while firms in the selling group do not.
When do corporate bond trades settle?
T + 2 (two business days after the trade date)
The following would be a quote for what security? Bid 4.26 Asked 4.22
T-Bill
T-Bills are issued in maturities of: ____ week, ____ week, ____ week, and ____ week
T-Bills are issued in maturities of: 4 week, 13 week, 26 week, and 52 week
Name some of the different types of money-market instruments.
T-Bills, Bankers' Acceptances (BAs), Commercial Paper, Negotiable CDs
List some examples of marketable Treasury securities.
T-bills, T-notes, T-bonds, T-STRIPS, TIPS and Cash Management Bills
Identify the acronym: TCPA
Telephone Consumer Protection Act (of 1991)
Give some examples of items that may be deemed a free writing prospectus.
Term sheets, e-mails, press releases, and marketing material
What is filed if a client opens an account with $12,000 and offers $1,000 in cash to keep the teller from filing a CTR?
The $1,000 incentive payment, which amounts to a bribe, triggers an SAR.
The $100 gift limit may be exceeded if the gift is given to a _______________.
The $100 gift limit may be exceeded if the gift is being given to a family member.
The _______ fee is assessed against the fund's assets to pay for marketing and distribution costs.
The 12b-1 fee is assessed against the fund's assets to pay for marketing and distribution costs.
The 5% policy is a __________, not a _____ for dealing with commissions and markups.
The 5% policy is a guideline, not a rule for dealing with commissions and markups.
Jim instructs his RR to use the BD's research and buy $10,000 worth of a stock of the firm's choosing. What is required?
The BD must have first obtained a written power of attorney from Jim.
The BrokerCheck system provides information on individuals who have been registered within the last __ years.
The BrokerCheck system provides information on individuals who have been registered within the last 10 years.
What is the CRD?
The Central Registration Depository (CRD). CRD is FINRA's database for member registrations.
What is the SRO for exchange-traded options?
The Chicago Board Options Exchange (CBOE)
The______________________ covers disciplinary actions by FINRA against member firms and their employees.
The Code of Procedure covers disciplinary actions by FINRA against member firms and their employees.
The _______________________ is often considered the most important measure of inflation.
The Consumer Price Index (CPI) is often considered the most important measure of inflation.
What is the role of the DTCC?
The DTCC provides securities settlement and clearing services in the U.S.
What federal law requires employers to provide a high degree of fiduciary responsibility to group plan participants?
The Employee Retirement Income Security Act (ERISA)
What Act governs private, qualified retirement accounts?
The Employee Retirement Security Act of 1974
The FRB will ______ securities to increase the money supply and ease credit.
The FRB will buy securities to increase the money supply and ease credit.
The FRB will ______ securities to decrease the money supply and tighten credit.
The FRB will sell securities to decrease the money supply and tighten credit.
58 of 87Identify the acronym: FDIC
The Federal Deposit Insurance Corporation
Identify the acronym: FDIC
The Federal Deposit Insurance Corporation
Which short-term interest rate is the most volatile?
The Federal Funds Rate is generally considered to fluctuate the most (be the most volatile).
What organization is responsible for implementing monetary policy in the United States?
The Federal Reserve Board
Identify the acronym: FinCEN
The Financial Crimes Enforcement Network
What is the SRO for corporate securities?
The Financial Industry Regulatory Authority (FINRA)
The __________________________________________ is the SRO for the OTC market.
The Financial Industry Regulatory Authority (FINRA) is the SRO for the OTC market.
What is FINRA?
The Financial Industry Regulatory Authority; created by the merger of the NASD and NYSE regulatory authorities
Who is responsible for approving the accuracy of a BD's financial reports?
The Financial and Operations Principal (FINOP)(Series 27)
The ________________ Agreement describes the customer's pledging of securities as collateral to the BD.
The Hypothecation Agreement describes the customer's pledging of securities as collateral to the BD.
The IC Act of '40 requires a fund with more than _____ shareholders to register with the SEC.
The IC Act of '40 requires a fund with more than 100 shareholders to register with the SEC.
What is the federal law that governs investment advisers?
The Investment Advisers Act of 1940
Who is responsible for the formulation and interpretation of rules for the municipal industry?
The MSRB
Which federal law created the NASD?
The Maloney Act of 1938
What is the SRO for municipal securities?
The Municipal Securities Rulemaking Board (MSRB)
The Maloney Act of 1938 is credited with creating which SRO?
The NASD. In 2007, the regulatory units of the NASD and NYSE merged to create FINRA.
The NAV of a mutual fund is like the _____ price of a stock.
The NAV of a mutual fund is like the bid price of a stock.
Where can you find quotes for stocks not listed on an exchange or Nasdaq?
The OTCBB and Pink Sheets
What is the OFAC List?
The Office of Foreign Assets Control of the U.S. Treasury List; it identifies suspected terrorists and criminals
Who guarantees and issues all exchange-listed option contracts?
The Options Clearing Corporation (OCC)
The ___________________________ issues and guarantees option contracts.
The Options Clearing Corporation (OCC) issues and guarantees option contracts.
What is the OTCBB?
The Over-the-Counter Bulletin Board -- provides electronic quotes for non-Nasdaq (OTC equity) stocks
What price is paid for mutual fund shares?
The Public Offering Price (POP). POP = NAV + Sales Charge (if applicable).
If an RR plans to engage in outside activities and receive compensation, who must the RR notify?
The RR's firm must receive prior written notification from a principal. Notification to regulators isn't required.
The _________ date is the date by which stock must be owned to receive the dividend.
The Record date is the date by which stock must be owned to receive the dividend.
What is another name for a preliminary prospectus?
The Red Herring. This document is distributed during the 20-day cooling-off period.
When an issuer performs a partial call, how does it choose which bonds to call?
The Reorganization Department must use an impartial lottery to select bonds.
Which department of a broker-dealer writes reports about markets and securities for investors?
The Research Department
How is a Roth IRA contribution different from a Traditional IRA contribution?
The Roth IRA contribution is always made on an after-tax basis.
At the federal level, with whom must securities be registered?
The SEC
The SEC can grant bounties of up to __% of the penalty for information in connection with insider trading violations.
The SEC can grant bounties of up to 30% of the penalty for information in connection with insider trading violations.
"For insider trading violations, the SEC can sue for treble damages." What does that statement mean?
The SEC can sue for three times the damage (profit made or loss avoided).
Which federal law governs the registration of new issues?
The Securities Act of 1933
The Securities Act of 1933 regulates ____________.
The Securities Act of 1933 regulates new issues.
The Securities Act of 1933 regulates _____________.
The Securities Act of 1933 regulates new issues.
Which federal law created the SEC?
The Securities Exchange Act of 1934
Which federal law governs the registration of RRs and their firms?
The Securities Exchange Act of 1934
The Securities Exchange Act of 1934 regulates the __________ _______.
The Securities Exchange Act of 1934 regulates the Secondary Market.
Under which federal law are firms, RRs, and exchanges registered?
The Securities and Exchange Act of 1934
From what do Self Regulatory Organisations (SROs) derive their power?
The Securities and Exchange Commission (SEC)
What U.S. Government agency, created by the '34 Act, enforces securities laws?
The Securities and Exchange Commission (SEC)
What is the purpose for obtaining a Series 9/10 or Series 24 registration?
The Series 9/10 or 24 the registrations required for supervising registered representatives.
The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.
The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.
In the foreign exchange markets, what is required to correct a trade deficit in the U.S.?
The U.S. dollar would need to weaken (i.e., fall in value)
What Act prevents terrorists from laundering money?
The USA PATRIOT Act
What is the advantage existing stockholders receive through rights offerings?
The ability to maintain their percentage of ownership and buy additional shares at a discount.
The aftermarket prospectus delivery requirement for listed IPOs is ___ days.
The aftermarket prospectus delivery requirement for listed IPOs is 25 days.
The aftermarket prospectus delivery requirement for non-listed IPOs is ___ days.
The aftermarket prospectus delivery requirement for non-listed IPOs is 90 days.
The aftermarket prospectus delivery requirement for non-listed follow-on offerings is ___ days.
The aftermarket prospectus delivery requirement for non-listed follow-on offerings is 40 days.
What is intrinsic value?
The amount by which the option is in-the-money
If a bond is trading at $900 and has a 5% coupon, how much interest will it pay per year?
The annual interest is $50.00 ($1,000 x 5%). Remember, the coupon rate is stated as a percentage of par.
If a bond is trading at $1,200 and has a 6% coupon, how much interest will it pay per year?
The annual interest is $60.00 ($1,000 x 6%). Remember, the coupon rate is stated as a percentage of par.
The annuity with growth dependent on the performance of securities in a separate account is called a __________ annuity.
The annuity with growth dependent on the performance of securities in a separate account is called a variable annuity.
What information is included on Form U5?
The applicable details regarding an individual's termination (e.g., whether voluntary or involuntary)
What is the price at which a dealer is willing to sell?
The ask or offer price
Who receives the benefit from a 529 plan?
The beneficiary
What is the price at which a dealer is willing to buy?
The bid price
The __________________ is responsible for overseeing a company and appointing its senior managers.
The board of directors is responsible for overseeing a company and appointing its senior managers.
Of what information must buyers of callable bonds be made aware?
The call date(s) and price(s) that may be found in the bond's indenture
The __________________ represents the amount above par that issuers pay to redeem bonds early.
The call premium represents the amount above par that issuers pay to redeem bonds early.
If Mary has a cash account as well as an IRA account, what coverage will SIPC provide?
The cash account is one customer and the IRA (which is a trust) is a second customer. So, $500,000 for each customer.
What are treble damages?
The civil penalty for insider trading, which is three times the profit made or loss avoided
What is the main concern when an RR recommends that a client diversify among several fund families?
The client may lose out on the opportunity to receive a breakpoint.
Who assumes the investment risk in a variable annuity contract?
The client or contract owner
What does it mean for a client to use a prime brokerage account?
The client trades through multiple BDs, but has its trades cleared and settled with one prime BD
When dealing with institutional client suitability, what are two important considerations?
The client's ability to evaluate independently the risk and the extent to which they are exercising that ability.
What happens to the CDSC holding period when a client switches to a new fund family?
The clock is reset to day one whenever the client switches to a new fund family.
Where is the best place to find information regarding share classes?
The comparison table found in the fund's prospectus
Describe the tax treatment of contributions that are made to 529A Plans.
The contributions are made on an after-tax basis, but they grow tax-free.
What must be examined to determine who has the authority to execute trades in a corporate account?
The corporate resolution
The criminal penalties for insider trading by individuals is a maximum of $____________ and/or ____ years in prison.
The criminal penalties for insider trading by individuals is a maximum of $5 million and/or 20 years in prison.
The criminal penalty for insider trading by an individual is a maximum of $_________ and/or ___ years in prison.
The criminal penalty for insider trading by an individual is a maximum of $5 million and/or 20 years in prison.
The current Reg T margin requirement is ____%.
The current Reg T margin requirement is 50%.
On Monday at 2:00 p.m., a customer places a call to sell her closed-end fund shares. What price will she receive?
The current bid price. Closed-end funds are traded throughout the day.
What would a customer find on her account statement?
The current value of all securities, number of shares, and all dividends and interest received
If a stock is trading at $50 and pays a $0.25 quarterly dividend, what is its current yield?
The current yield is 2%. $1.00 annual dividend ($0.25 quarterly dividend x 4 quarters) ÷ $50 stock price
Who holds the securities and cash for a mutual fund?
The custodian bank
When a child reaches legal age, what action is taken in the custodial account?
The custodian must transfer the assets to the owner.
Describe the dated date.
The date on which a newly issued bond's interest begins to accrue
What happens to the deceased's portion in a joint account with tenants-in-common?
The deceased's portion goes to his estate for tax purposes.
The ___________ date is the date on which a dividend is authorized by the company.
The declaration date is the date on which a dividend is authorized by the company.
What do the differences in mutual fund share classes represent?
The different methods by which the sales charge is collected
The __________ rate is the only rate directly controlled by the FRB.
The discount rate is the only rate directly controlled by the FRB.
Who pays the expenses incurred for mailing proxy materials or annual reports to clients whose assets are in street name?
The distributing corporation
In a 529 Plan, what happens if the funds are withdrawn, but not used for qualified education expenses?
The earnings would be subject to ordinary income tax plus a 10% penalty.
The _________ date is the first date on which orders for a new issue may be accepted.
The effective date is the first date on which orders for a new issue may be accepted.
The ___________ bears the investment risk in a defined contribution plan.
The employee bears the investment risk in a defined contribution plan.
The ___________ bears the investment risk in a defined benefit plan.
The employer bears the investment risk in a defined benefit plan.
In a qualified annuity, how is the payout taxed?
The entire payout is taxed as ordinary income, since the annuity was funded with pre-tax dollars.
When withdrawing from a qualified plan, how is the distribution taxed?
The entire withdrawal is taxed, since these plans are normally funded pre-tax and have a zero cost basis.
The ex-dividend date is ___ business days prior to the record date.
The ex-dividend date is one business day prior to the record date.
The ex-dividend date occurs ___ business day(s) ______ the record date.
The ex-dividend date occurs one business day before the record date.
Define selling away.
The execution of transactions by an associated person outside his employment with a member firm
What is the expense risk charge on an annuity?
The expense risk charge pays the issuer if the expenses for administering the annuity are more than estimated.
Describe a typical index fund's expenses and management style.
The expenses are generally low and it is passively managed.
The __________________ is the rate of interest banks charge each other on overnight loans.
The fed funds rate is the rate of interest banks charge each other on overnight loans.
The ____________________ will not appear in a red herring.
The final offering price will not appear in a red herring.
The final ________ _____ will not appear in a red herring.
The final offering price will not appear in a red herring.
If a client refuses to disclose her age when opening an account, what should the BD explain to her?
The firm should explain that without proof of age, an account may not be opened.
What must be checked before a BD makes telephone solicitations?
The firm's Do Not Call List
The formula for calculating a mutual fund's Expense Ratio is: ________ ÷ __________________
The formula for calculating a mutual fund's Expense Ratio is: Expenses ÷ Average Net Assets
The formula for finding a bond's annual interest payment is: ___ x ______________________
The formula for finding a bond's annual interest payment is: Par x Coupon (Interest) Rate
The formula for finding a bond's semi-annual interest payment is: (___ x ______________________) ÷ __
The formula for finding a bond's semi-annual interest payment is: (Par x Coupon (Interest) Rate) ÷ 2
The formula for finding conversion ratio is: ______ ÷ ____________
The formula for finding conversion ratio is: Par ÷ Conversion Price (par for a bond is $1,000)
The formula for finding conversion ratio on convertible preferred stock is: ______ ÷ ____________
The formula for finding conversion ratio is: Par ÷ Conversion Price (par for preferred is $100)
If the Hi-Tech Fund has a NAV of $4.25 and a POP of $4.50, what is its sales charge percentage?
The formula is (POP - NAV) divided by POP ($4.50 - $4.25 = $.25 ÷ $4.50 = 5.5%).
If the Green Fund has a NAV of $12.70 and a sales charge of 5.5%, what is the POP?
The formula is NAV ÷ (100% - Sales Charge %). $12.70 ÷ 94.5% = $13.44.
The ______ market refers to direct institution-to-institution trading and doesn't involve public exchanges.
The fourth market refers to direct institution-to-institution trading and doesn't involve public exchanges.
What is implied when a growth fund has a beta of 1.5?
The fund is more volatile than the general stock market.
Who records the names of mutual fund shareholders?
The fund's transfer agent
Define deflation.
The general decline in price levels
The _________ partner is in charge of management and decision-making for the partnership.
The general partner is in charge of management and decision-making for the partnership.
Define inflation.
The general rise in price levels
True or False: Tickets valued at $500 given to four people are considered excessive.True.
The gift limit considers both the dollar value and number of intended recipients.
What is an annuity's death benefit?
The greater of 1) the contributions into the annuity, or 2) the annuity's value on the day of the annuitant's death
The holding period for unregistered (restricted) securities under Rule 144 is __________.
The holding period for unregistered (restricted) securities under Rule 144 is 6 months.
With what should a client be concerned if an RR recommends a Class B share switch between fund families?
The holding period will be reset to zero in the new fund family and/or a CDSC may apply on the redemption.
A bond has a 4% coupon and inflation is 1%. What is this bond's inflation-adjusted rate of return?
The inflation-adjusted rate of return is 3% (4% - 1%).
If a bond has an 8% coupon and inflation is 3%, what is the bond's inflation-adjusted rate of return?
The inflation-adjusted rate of return is 5% (8% - 3%).
The interest rate charged on overnight loans on a bank-to-bank basis is referred to as the _________ rate.
The interest rate charged on overnight loans on a bank-to-bank basis is referred to as the fed funds rate.
If an issuer sends its 10-K or 10-Q to investors, who pays to ship them to investors for securities held in street name?
The issuer
The _______ instructs the transfer agent to remove a stock legend by presenting an _______________.
The issuer instructs the transfer agent to remove a stock legend by presenting an opinion letter.
How is the underwriter determined for a Competitive Sale?
The issuer invites syndicates to bid on the issue, with the best bid (lowest interest cost) winning the competition.
What must issuers have to qualify for the Rule 147 intrastate exemption?
The issuer must have its principal place of business in that state
Who validates a stock certificate?
The issuer or its agent (usually its transfer agent)
How is the underwriter determined for a Negotiated Sale?
The issuer selects the underwriter it would like to work with, and they negotiate the offering terms.
What is a lock-up period?
The length of time a pre-IPO shareholder must wait before selling his shares
What yield would be disclosed for a bond purchased at a premium and callable at a premium?
The lower of the YTM or YTC
What price do non-competitive bidders agree to pay at a Treasury auction?
The lowest price (highest yield) of the accepted competitive bids
Who must approve a change to mutual fund's objective?
The majority of voting shares (not shareholders)
What is the compensation paid to an investment adviser?
The management fee
What is a mutual fund's largest expense?
The management fee paid to its investment adviser
Explain the secondary market.
The market on which existing securities are traded
Explain the primary market.
The market on which new securities are offered
The maximum contribution to an IRA is ____% of earned income up to $_______.
The maximum contribution to an IRA is 100% of earned income up to $6,000.
The maximum contribution to an IRA is the lesser of $_______ or ____% of earned income.
The maximum contribution to an IRA is the lesser of $6,000 or 100% of earned income.
The maximum expiration for standard equity options is ____ months.
The maximum expiration for standard equity options is 9 months.
The maximum gain for an option seller is the ____________.
The maximum gain for an option seller is the premium.
The maximum loss for an option buyer is the ____________.
The maximum loss for an option buyer is the premium.
The maximum maturity of commercial paper is ____ days.
The maximum maturity of commercial paper is 270 days.
The maximum number of non-accredited investors in a Reg. D offering is _____.
The maximum number of non-accredited investors in a Reg. D offering is 35.
The maximum potential loss when selling short is ____________.
The maximum potential loss when selling short is unlimited.
The minimum face value of a T-Bill, T-Note or T-Bond is $______.
The minimum face value of a T-Bill, T-Note or T-Bond is $100.
The _________ is responsible for taxes on income in a custodial account.
The minor is responsible for taxes on income in a custodial account.
Custodial accounts are opened under whose Social Security number?
The minor's
Whose Social Security number is listed on a custodial account?
The minor's
The money invested in a variable annuity is used to buy _____________ _____.
The money invested in a variable annuity is used to buy accumulation units (similar to mutual fund shares).
The money invested in a variable annuity is used to buy ________________________.
The money invested in a variable annuity is used to buy accumulation units (similar to mutual fund shares).
What is the effect on the money supply if the Fed enters into a reverse repurchase agreement (repo)?
The money supply will tighten.
The most common security that's issued by government agencies is a mortgage-backed ____________ certificate.
The most common security that's issued by government agencies is a mortgage-backed pass-through certificate.
The new issue market is also known as the __________ market.
The new issue market is also known as the primary market.
If a stop order is activated, at what price will the trade be executed?
The next trade after activation.
If a stop-limit order is activated, at what price will the trade be executed?
The next trade that satisfies the limit price. Not receiving execution is possible.
Describe call protection.
The number of years after issuance during which bonds may not be called by the issuer
What is time value?
The option's premium minus the intrinsic value.
If a written complaint is received from a customer, what must be kept in the firm's complaint file?
The original complaint, the firm's response, as well as any action taken
Define Gross Domestic Product (GDP).
The output of all of the goods and services that are produced in the U.S., without regard to the origin of the producer.
Which market is the decentralized, negotiated market?
The over-the-counter market (OTC)
In an IRA rollover, to whom are the funds directed?
The owner
What is waived for a first-time homebuyer in the event of an IRA distribution?
The penalty is waived, however, taxes are still levied.
Define Regulation T.
The percentage a customer must deposit when purchasing securities or selling short
What is interpositioning?
The placement of another BD between a customer and the best market
What protects a brokerage client from theft or embezzlement?
The posting of a fidelity bond by the BD
An investor buys an OEX May 475 call at 10. What is his maximum loss?
The premium of $1,000 (the value of 10 x $100)
The principal value of TIPS may be adjusted based on changes to the __________________________.
The principal value of TIPS may be adjusted based on changes to the Consumer Price Index (CPI).
Who must review and approve all discretionary trades effected in a client's account?
The principal/supervisor of the BD
The private placement disclosure document is the _____________________.
The private placement disclosure document is the Offering Memorandum.
What must be addressed in a BD's business continuity plan?
The process for communicating with regulators and mission-critical systems (computers) required to continue business
Define selling dividends.
The prohibited practice of inducing purchases due to an impending dividend payment
The _________________________ is synonymous with the ask for a mutual fund.
The public offering price (POP) is synonymous with the ask for a mutual fund.
The purchase of a mutual fund is also known as a share ___________.
The purchase of a mutual fund is also known as a share issuance.
The rate of return on a U.S. Treasury ____ is most often used to represent the risk-free return rate.
The rate of return on a U.S. Treasury bill is most often used to represent the risk-free return rate.
By what date must a buyer own stock to be entitled to a dividend or stock split?
The record date
If using cash settlement, what is the last possible date to purchase a security and still be entitled to the dividend?
The record date, since cash settlement indicates same-day settlement
What's the purpose of a redemption fee?
The redemption fee is designed to discourage investors from redeeming shares too quickly.
Define disinflation.
The reduction in the rate of inflation
What does it mean to say "a limited partnership is a pass-through investment?"
The results of the business venture (profits and losses) flow through directly to the investor.
Define vesting.
The right an employee gradually acquires by length of service at a company to receive employer-contributed benefits
The risk that an investment cannot easily be converted into cash is known as __________ risk.
The risk that an investment cannot easily be converted into cash is known as liquidity risk.
Describe inflation or purchasing power risk.
The risk that today's investment will not be worth as much when the money is received in the future.
What is a covered call position?
The sale of a call (obligation to sell) against stock that is owned
What is an uncovered call position?
The sale of a call (obligation to sell) without owning the stock
The sale of a mutual fund is also known as a share _____________.
The sale of a mutual fund is also known as a share redemption.
What generates a capital gain or loss?
The sale of an asset at a price that exceeds its basis (gain) or at a price lower than its basis (loss)
What is not included in a mutual fund's expense ratio?
The sales charge, since only fees are included.
What are some of the factors to be considered when determining the markup on a transaction?
The security involved, its availability, its price, the total money involved, and the pattern of markups
What happens to Class B shares after a prescribed period?
The shares will automatically convert to Class A shares.
The shifting of funds from one IRA trustee/custodian directly to another trustee/custodian is called a _________.
The shifting of funds from one IRA trustee/custodian directly to another trustee/custodian is called a transfer.
What are some of the alternative names for a fund's underwriter?
The sponsor, distributor or wholesaler
The spread represents the difference between the _____ and _______ price of a stock.
The spread represents the difference between the bid and ask price of a stock.
Name three important factors for determining the premium of an equity option.
The stock's market price versus the strike price, time left until expiration, and volatility of the underlying security
What is the capitalization of a corporation?
The stocks and bonds a company has issued in order to raise funds for its own operations
The ___________________ must sign the account form.
The supervising principal must sign the account form (clients are not required to sign).
If a syndicate member sells a new issue, to what part(s) of the spread is it entitled?
The syndicate member is entitled to the underwriter's fee plus the selling concession (i.e., the total takedown).
The third market is the term used to describe ____ and ____ listed securities trading ________________.
The third market is the term used to describe NYSE and AMEX listed securities trading over-the-counter.
The ______________ is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.
The third market is where trades of NYSE or AMEX exchange-listed securities occur in the over-the-counter market.
If an insider trading violation occurs within a brokerage firm, what parties may be held liable?
The tipper, tippee, supervisor, and BD may be liable.
Define the term basis.
The total cost to acquire an asset.
Define debt service.
The total of all interest and principal payments for a bond offering
Who has the authority to remove the restriction or legend on a security?
The transfer agent
Who disburses checks for capital gains distributions to mutual fund shareholders?
The transfer agent, who is typically the paying agent as well
The type of bond that's backed by credit card receivables or home equity loans is considered an _____________________.
The type of bond that's backed by credit card receivables or home equity loans is considered an asset-backed security.
The type of bond where bondholders have a lien on real property is called a __________________.
The type of bond where bondholders have a lien on real property is called a mortgage bond.
What factors could justify a larger markup than 5%?
The type of security, the availability of the security, or the total transaction amount
Who is expected to apply for a CUSIP number on a new municipal bond?
The underwriter(s)
What is the difference between what the syndicate pays the issuer for the new issue and the public offering price?
The underwriting spread
When an investor buys a municipal bond in the primary market, what's on the confirmation?
The underwriting spread, agent fees, and the initial reoffering price for each maturity in the offering
The yield curve is ___________________________ when short-term bonds have higher yields than long-term bonds.
The yield curve is inverted (negative/descending) when short-term bond yields are higher than long-term bonds.
According to the TCPA, what information must telephone solicitors provide to clients?
Their name, firm name, a telephone number, or address where they can be contacted, and the purpose of the call
There is a ____% penalty for early withdrawals from an IRA.
There is a 10% penalty for early withdrawals from an IRA.
There is an inverse relationship between the movement of a world currency and the _____________.
There is an inverse relationship between the movement of a world currency and the U.S. dollar.
Order is entered to buy 5,000 RST at 97 stop-limit. Trades occur at 96.99...97...97.02...97.05. Execution price is:
There is no execution, since no trade occurring after the trigger satisfied the buy limit at $97.
In a one-year period, how many times may a qualified plan be transferred via a trustee transfer?
There is no limit to the number of trustee transfers.
Hank, age 71, has a Roth IRA. What penalty is assessed for his failure to begin distributions?
There is no penalty since Roth IRAs do not have a required minimum distribution.
Hank is a 71-year-old who has a Roth IRA. What penalty is assessed if Hank has failed to begin taking distributions?
There is no penalty, since Roth IRAs do not have RMDs.
What is the maximum sales charge that may be levied on a variable annuity sale?
There is no statutory maximum. FINRA rules require the charge be fair and reasonable.
In a Roth IRA, when must withdrawals begin in order to avoid a late withdrawal penalty?
There is no withdrawal requirement for Roth IRAs.
There would be a tightening of the money supply if the discount rate is __________.
There would be a tightening of the money supply if the discount rate is raised.
There would be an easing of the money supply if the discount rate is __________.
There would be an easing of the money supply if the discount rate is lowered.
Describe the tax treatment of contributions made to a 529 Plan.
They are after-tax contributions that may possibly grow tax-free.
For SIPC purposes, what happens to securities that are able to be specifically identified as belonging to a client?
They are distributed to the client without regard to the dollar amount limit.
What is the tax treatment of the distributions made by qualified retirement plans?
They are entirely taxed at ordinary income rates, since these plans have a zero cost basis.
What are some of the specific product disclosures that are required for variable contracts?
They are not mutual funds, a client's goals should be long-term, and surrender charges apply due to early redemption
If a BD goes bankrupt, what happens to securities registered in the customer's name?
They are returned to the customer without regard to SIPC limitations.
What is the purpose of 529 ABLE (or 529A) plans?
They are savings plans to assist individuals with disabilities to supplement Social Security benefits.
For tax purposes, what can passive losses be used against?
They can only be used against passive income. They cannot be taken against capital gains, ordinary income, or dividends.
What happens to Class B shares after a prescribed number of years?
They convert to Class A shares.
What are the specifics regarding the expiration of equity options?
They expire at 11:59 p.m. ET on the third Friday of the expiration month.
What time limit exists for issuers/affiliates of actively-traded securities that are repurchasing their own security?
They may not purchase their security within the last 10 minutes of the trading day
____________ authorization is required for a client's wife to effect trades in his account.
Third party authorization is required for a client's wife to effect trades in his account.
True or False: Broker-dealers that act as trustees for corporations can use shareholder lists to cold-call or prospect.
This is a violation of FTC rules.
What is the industry policy regarding an RR who sets up an outside business that involves paid public speaking?
This is considered employment and the RR must provide notice to his or her employer.
Explain the concept of holding securities in street name.
This is when client securities are held by and registered in the name of the BD
What is the benefit of the Straight-Life payout option to the annuitant?
This option provides the highest monthly income.
Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not ____________ sales.
Those qualified as municipal RRs (Series 52) may sell, trade, or underwrite municipals, but may not supervise sales.
Though some securities are exempt from registration, nothing is exempt from the ____________ provisions of the Act.
Though some securities are exempt from registration, nothing is exempt from the anti-fraud provisions of the Act.
Though subject to federal tax, interest on Treasuries is exempt from ________ and ________ tax.
Though subject to federal tax, interest on Treasuries is exempt from state and local tax.
Based on written request, what is the maximum period that a B/D may hold customer correspondence?
Three months. To exceed three months, the customer must provide the B/D with a valid reason for the request.
How is SIPC funded?
Through assessments on BDs that are SIPC members
Tim has both a cash and margin account with the same BD. If BD bankruptcy occurs, how are Tim's accounts handled?
Tim's accounts are combined for SIPC coverage purposes.
While waiting for her train, an RR overhears a rumor of an impending corporate takeover. What should she do?
Tips and unverified rumors must be reported to the firm's legal/compliance department.
What is FINRA's primary objective?
To adopt, administer, and enforce rules in the securities industry.
What is the purpose of BrokerCheck?
To allow investors to obtain information about registered individuals in the securities industry
To apply for a securities license, one must file Form _____ with FINRA.
To apply for a securities license, one must file Form U4 with FINRA.
What is the role of the FINOP?
To be solely responsible for the financial operations of a broker-dealer
To begin using a form of electronic storage (other than CD-ROM), the BD's DEA requires a ___-days advance notice.
To begin using a form of electronic storage (other than CD-ROM), the BD's DEA requires a 90-days advance notice.
To calculate the POP for a mutual fund, the formula is: ______ ÷ (______ - ___________)
To calculate the POP for a mutual fund, the formula is: NAV ÷ (100% - Sales Charge %)
What is the purpose of providing investors with a preliminary prospectus (red herring)?
To disclose information and obtain indications of interest
What is NASAA's primary responsibility?
To establish and modify the Uniform Securities Act (USA), which is the basis for most states' securities laws.
Why are CMBs issued?
To finance the U.S. government on a very short-term basis (often day-to-day).
What is the purpose of the Federal Deposit Insurance Corporation?
To guarantee the safety of cash deposited in FDIC member banks against bank failure
In the sale of a new issue, what is the purpose for including a selling group?
To increase the number of potential purchasers
To indicate that private placement securities are unregistered/restricted, a _______ is placed on the certificates.
To indicate that private placement securities are unregistered/restricted, a legend is placed on the certificates.
What is the purpose of the FDIC?
To insure bank deposits and also to examine and supervise financial institutions for safety and soundness
To keep outside brokerage accounts, new employees are required to obtain their employers written consent within __ days.
To keep outside brokerage accounts, new employees are required to obtain their employers written consent within 30 days.
What is the purpose of a BD's business continuity plan?
To prepare for significant business disruptions, including natural disasters
What is the purpose of a lock-up provision?
To prevent large shareholders from selling immediately after an IPO, since it could cause the share price to fall.
What is the purpose of an information barrier between trading and research departments?
To prevent the trading department from learning of an impending report about a stock in which the firm has a position
What is the role of a broker-dealer's operations department?
To process paperwork, handle funds and securities transfers, and settle and confirm transactions
To protect a long position, an investor would _____ a _____ option as a hedge.
To protect a long position, an investor would buy a put option as a hedge.
What are two uses of index options?
To speculate on market movement or to hedge a portfolio
Due to the violation of a firm rule, Frank was fined $5,000 and suspended for three weeks. To whom is this reported?
To the appropriate SRO (e.g., FINRA)
Tom has an individual account and a joint account with the same BD. How much SIPC coverage is provided?
Tom will have $1 million of coverage, since each account is covered separately.
How is the total spread calculated?
Total Spread = Manager's Fee + Underwriter's Fee + Selling Concession
What is the formula for determining a mutual fund's net assets?
Total assets (e.g., stocks, bonds, and cash) - total liabilities (e.g., expenses)
List some items that are found on a customer confirmation.
Trade date, time of trade (or available on request), buy/sell, description, price, number of shares/units, CUSIP number
Trades executed outside the scope of an RR's employment with a BD are known as ___________________ transactions.
Trades executed outside the scope of an RR's employment with a BD are known as private securities transactions.
Trades involving corporate or municipal securities settle by the _______________ day following the trade date (T + __).
Trades involving corporate or municipal securities settle by the second business day following the trade date (T + 2)
Which department of a broker-dealer executes securities transactions?
Trading
A BD is ready to issue a favorable research report. Information barriers must exist between what two departments?
Trading and research
What is exempt from the 5% policy?
Trading of municipal bonds, new issues, registered secondary offerings, and mutual funds
Trading on material, non-public information is considered ________ ________.
Trading on material, non-public information is considered insider trading.
Trading on material, non-public information is considered __________________.
Trading on material, non-public information is considered insider trading.
Transactions should be executed at a price that is reasonably related to the ________ _______ price.
Transactions should be executed at a price that is reasonably related to the current market price.
What are TIPS?
Treasury Inflation-Protected Securities
____________ stock is stock that was issued and repurchased by the issuing corporation.
Treasury stock is stock that was issued and repurchased by the issuing corporation.
True or False: 100% of investors must be state residents to qualify for the Rule 147 intrastate exemption.
True
True or False: A 110 call with the market at 108 is out-of-the-money.
True
True or False: A 60 call with the market at 63 is in-the-money.
True
True or False: A 60 put with the market at 60 is at-the-money.
True
True or False: A 95 put with the market at 90 is in-the-money.
True
True or False: A T-bill is a form of zero-coupon bond.
True
True or False: A breakpoint sale is a prohibited action of selling shares at just under where breakpoints are available.
True
True or False: A business continuity plan must address how a firm will communicate with its clients and employees.
True
True or False: A client may not be informed of the filing of a Suspicious Activity Report.
True
True or False: A flat yield curve reflects both long and short-term yields being the same.
True
True or False: A hedge fund is an example of a client that may benefit from a prime-brokerage arrangement.
True
True or False: A research report that includes information about a new offering could be a violation of the Act of 1933.
True
True or False: A significant goal of the Securities Act of 1933 is to prevent fraud in the sale of new issues.
True
True or False: A stockholder is able to vote for a director, but not an officer.
True
True or False: A strong U.S. dollar benefits foreign manufacturers that export their goods to the U.S.
True
True or False: According to the Insider Trading Act, both the tipper and tippee may be held liable for a violation.
True
True or False: Agency securities are typically AAA rated.
True
True or False: All registered personnel of a BD must complete the Regulatory Element of Continuing Education.
True
True or False: An increase in unfunded pension liabilities is a negative sign of the municipality's creditworthiness.
True
True or False: An investor may buy calls to speculate on a stock going up in price or to hedge a short position.
True
True or False: Annuity sales must be approved by a principal to determine whether they are suitable.
True
True or False: Aunts and uncles are not considered immediate family under the New Issue Rule.
True
True or False: Bonds with call features have higher yields, while bonds with put features have lower yields.
True
True or False: Book entry securities don't have physical certificates and can be settled electronically.
True
True or False: CRD provides a process for filing registration and withdrawal applications for individuals and BDs.
True
True or False: Coincident economic indicators reflect current trends in the business cycle.
True
True or False: Common shares vote to authorize the issuance of additional shares of a company.
True
True or False: Contributions made to qualified retirement plans are tax-deductible.
True
True or False: Covered call writing is a conservative option strategy that is designed to generate income.
True
True or False: Customer securities are under the control of a BD if they are held at a custodian bank or clearing corpration.
True
True or False: DPPs are pass-through investments.
True
True or False: During the pre-filing period, certain issuers may be prohibited from communicating with the public.
True
True or False: ETFs are marginable and may be sold short.
True
True or False: Electronic records must be searchable.
True
True or False: Every registered employee must be assigned to a principal.
True
True or False: FINRA's suitability rules for institutions are less stringent when compared to the rules for retail investors.
True
True or False: Firms must send to FINRA statistics and summary information regarding written customer complaints.
True
True or False: For an IPO, the brother of an RR is considered a restricted person.
True
True or False: For an IPO, the sister-in-law of an RR is considered a restricted person.
True
True or False: For trades involving bonds, confirmations must disclose the yield computation used (i.e., YTM or YTC).
True
True or False: GNP measures the output of goods and services by a national economy, both domestically and abroad.
True
True or False: Gifts made to minors are irrevocable.
True
True or False: Growth stocks have high P/E ratios and low dividend payouts.
True
True or False: IRA trustee-to-trustee transfers are tax-free.
True
True or False: If a registration statement has not been filed with the SEC, BDs may not discuss new issue information.
True
True or False: If a stock is shorted and a dividend is declared, the short seller must pay the lender the dividend.
True
True or False: If client suitability for a variable annuity is determined, an RR signs and documents the recommendation.
True
True or False: If revenue falls short, payments on moral obligation bonds only begin with legislative approval.
True
True or False: Income Programs purchase already producing wells, but offer few intangible drilling costs.
True
True or False: Interest-rate risk is the risk that changing interest rates will negatively impact the price of a bond.
True
True or False: Investors generally place stop orders to limit a loss or protect a profit on a stock position.
True
True or False: Keynesian economic policies are implemented through government fiscal policies.
True
True or False: Limited partnership units are illiquid and require permission of the general partner to sell.
True
True or False: Market makers are obligated to honor their quotes for both size and price (i.e., they are firm quotes).
True
True or False: Marketable Treasury securities can be bought and sold between investors.
True
True or False: Nasdaq is a securities exchange registered with the SEC.
True
True or False: Options are derivatives since their value is based on the changing value of an underlying instrument.
True
True or False: Proceeds transactions are subject to the 5% Markup Policy.
True
True or False: Qualified plans receive favorable tax treatment by the IRS.
True
True or False: RRs currently serving in the military can receive a CE waiver.
True
True or False: Registered representatives are prohibited from guaranteeing profits or reimbursing customers for losses.
True
True or False: Restricted stock will not be transferred by the transfer agent unless the legend is removed.
True
True or False: Reviewing account statements allows clients to identify problems or deficiencies in their accounts.
True
True or False: Securities issued by the U.S. Treasury and U.S. agencies are deemed exempt securities under the USA.
True
True or False: Shelf Registration gives flexibility to the issuer by allowing delayed or continuous sales.
True
True or False: Some transactions may justify a markup higher than 5%, while for others, 5% may be too high.
True
True or False: The FDIC is backed by the full faith and credit of the U.S. government.
True
True or False: The Investment Company Act of 1940 requires mutual funds to register.
True
True or False: The MSRB has no authority or control over municipal issuers.
True
True or False: The Syndicate Letter is also referred to as the Agreement Among Underwriters.
True
True or False: The acceptance of customer orders must be done by a registered employee.
True
True or False: The interest rate on TIPS is fixed, but the principal may be adjusted.
True
True or False: The interest rate reset periods on Auction Rate Securities range from 7, to 28, or 35 days.
True
True or False: To avoid a late withdrawal penalty, IRAs have a required minimum distribution (RMD) provision.
True
True or False: To close (sell) or to exercise for profit, option buyers want contracts to become in-the-money.
True
True or False: Trade confirmations may be sent electronically.
True
True or False: Treasury stock has no voting rights and receives no dividends.
True
True or False: Unless it is exempt, a security must be registered before it may be sold publicly.
True
True or False: Value stocks have low P/E ratios and high dividend payouts.
True
True or False: Variable annuities are subject to registration requirements of the Act of 1933 and sold by prospectus.
True
True or False: Warrants are generally attached to the delivery of another security (stock or bond).
True
True or False: Firm Element Continuing Education requires BDs to update employees on job and product-related subjects.
True or False: Firm Element Continuing Education requires BDs to update employees on job and product-related subjects.
True or False: Clients need not sign the account form for a cash account.
True, but signature would be required for an option or a margin account.
True or False: Uncovered option positions have a margin requirement, while covered positions do not.
True, however, no calculation of the requirement is tested.
True or False: For clients whose assets are in street name, proxy materials must be forwarded to the client.
True, provided the distributing corporation pays for the mailing expenses.
True or False: A 200-share trade of MSFT on Nasdaq is subject to the 5% policy.
True, the 5% Policy covers trades executed in the secondary market.
True or False: A 500-share trade of an NYSE stock executed in the OTC market is subject to the 5% Policy.
True, third market trades (exchange-listed securities traded OTC) are subject to the 5% Policy.
True or False: A market maker publishing a firm quote is obligated to honor the price and the number of shares quoted?
True. A BD providing a firm quote is obligated to honor both the price and size displayed.
True or False: In a straight-life annuity payout option, no beneficiary will receive payments at the annuitant's death.
True. All payments cease upon the annuitant's death.
True or False: Annuity owners can redeem their accumulation units at any time.
True. Although surrender charges and taxes may apply, investors can withdraw their money at any time.
True or False: Using a P.O. Box as an address is not acceptable to open an account.
True. An actual address is required; however, mail may be sent to a P.O. Box.
True or False: An opinion letter is necessary for the transfer agent to remove the legend from a restricted stock.
True. An opinion letter is necessary for the transfer agent to remove the legend from a stock if transfer is restricted.
True or False: DPP investments are often uncorrelated with the stock and bond markets.
True. DPPs are often purchased because they can diversify an investor's portfolio.
True or False: Jim's joint account with his wife is considered a separate customer by SIPC.
True. E.g. Jim's cash and margin account are combined for coverage, but Jim's joint account with his spouse is separate.
True or False: FinCEN is a government agency that provides financial intelligence to law enforcement officials.
True. FinCEN is part of the Department of Treasury and protects the U.S. financial market from corruption.
True or False: Firms are responsible for investigating the qualifications and experience of applicants for registration.
True. Firms must search "reasonably available public records" to verify the accuracy of Form U4 information.
True or False: Option writers want contracts to expire at- or out-of-the-money.
True. For options at- or out-of-the-money, the seller would retain the premium (maximum gain).
True or False: A gift in excess of $100 is allowed if given to a family member employed by another BD.
True. Gifts to family members are excluded from the Gift Limit Rule.
True or False: Cumulative voting benefits smaller shareholders since they can concentrate votes for a specific director.
True. However, it does not guarantee them representation on the board.
True or False: A RR who fails the Regulatory Element of CE is allowed to work for a B/D in an unregistered capacity.
True. However, the RR may not work in a registered capacity.
True or False: When deflation occurs (a decline in CPI), the principal value of TIPS will decrease.
True. However, the principal value will not decrease below par.
True or False: To lower sales charges, investors add mutual fund purchases in all accounts using Rights of Accumulation.
True. However, the purchases must all be from the same fund family.
True or False: Firms may establish their own in-house rules relating to payment dates and minimum requirements.
True. However, the requirements must be at least as stringent as those established by the regulators.
rue or False: Retired representatives can continue to receive commissions after they leave their broker-dealer.
True. However, they can only receive commissions based on investments that were made while they were working.
True or False: Customers of a broker-dealer can request to see the firm's balance sheet.
True. If requested, customers must be provided with the broker-dealer's most recent balance sheet.
True or False: Investors can buy fractional shares of a mutual fund.
True. Investors are not required to purchase full shares of a mutual fund.
True or False: Mutual funds and ADRs are required to register their securities with the SEC.
True. Mutual funds and ADRs are not exempt from the SEC's registration requirements.
True or False: There is no aftermarket prospectus delivery requirement for listed follow-on offerings.
True. No prospectus requirement applies to follow-on offerings.
True or False: Limited partners may be forced to invest more money into a partnership.
True. One of the risks of owning a partnership is a possible additional capital call (demand).
True or False: Corporate shareholders have limited liability.
True. Shareholders can only lose their original investment if a company declares bankruptcy.
True or False: The market price of closed-end shares could be higher, lower, or equal to the NAV.
True. Shares can trade at a premium or discount to NAV based on supply and demand forces.
True or False: When stock is sold, stock certificates must be endorsed with a signature or stock power.
True. Similar to when cashing a check, stock must be endorsed before it's sold.
True or False: Five stock certificates that have 300 shares each is considered good delivery.
True. Since each certificate is in a multiple of 100 shares, this is good delivery.
True or False: Hedge funds can assess a sales charge of more than 8.5%.
True. Since hedge funds are exempt from the Act of 1940, they can assess a sales charge of more than 8.5%.
True or False: Asset-backed securities typically offer higher yields.
True. Since the assets backing these bonds are riskier, they offer a higher rate of return.
True or False: A broker-dealer that buys stock at $30 has traded ahead of a client who placed a buy limit order at $35.
True. Since the broker-dealer is buying at a better (lower) price, it has violated the trading ahead rule.
True or False: The FINOP is responsible for the accuracy and final approval of a BD's financial reports.
True. The FINOP is responsible for operations department activities and the preparation of financial reports.
True or False: The FINOP is an employee who is solely responsible for the financial management of a BD.
True. The FINOP may be either full-time or part-time, but is solely responsible for the financial management of a BD.
True or False: MSRB rules regulate the municipal activities of BDs, banks, and the employees of these institutions.
True. The MSRB also regulates municipal advertising.
True or False: According to the Equity IPO Rule, all associated persons connected to a BD are restricted.
True. The associated persons of a BD include owners, officers, directors, and other employees.
True or False: A B/D that holds customer mail for more than three months must obtain a valid reason from the customer.
True. The broker-dealer must also obtain the customer's request in writing.
True or False: Interest paid on GNMA, FNMA, FHLMC, and SLMA agency bonds is fully taxable to investors.
True. The interest is taxed at the federal, state, and local level.
True or False: The manager of a syndicate giving each of its members a gift of $250 would violate the gift rule.
True. The maximum gift is $100 per person/per year and includes gifts between member firms.
True or False: Securities offered through a Reg D private placement are considered unregistered.
True. The unregistered (restricted) stock may be sold publicly only if registered or sold under a suitable exemption.
True or False: Agency-backed CMOs have high credit ratings.
True. They are usually highly rated because of the collateral backing them.
True or False: Municipal dealers must disclose all material information to a customer at or prior to a trade.
True. This is a requirement under MSRB Rule G-47.
True or False: A FINRA member firm must disclose whether it has the ability to influence the issuer of securities.
True. This is referred to as a control relationship which must be disclosed to investors.
True or False: With approval of the board, preferred dividends can be skipped in some years.
True. Unlike bond interest, preferred dividends are not required to paid each year.
True or False: Unlike equities, bonds do not have organized exchanges.
True. Unlike equity securities, corporate, municipal, and U.S. government bonds don't have organized exchanges.
True or False: To hedge a stock position, buying options provides more protection than writing options.
True. When long stock, investors may buy a put. When short stock, investors may buy a call.
True or False: A restricted person may buy an equity IPO from the issuer if he's related to an employee of the issuer.
True; however, the purchase must be from the issuer directly, not the underwriters.
On Monday at 5:00 p.m., a customer places a call to sell (redeem) her mutual fund shares. What price will she receive?
Tuesday's NAV. Since the client missed the 4:00 p.m. close, she will receive the next calculated NAV.
A customer buys stock on Thursday, July 3. When will the trade settle?
Tuesday, July 8. Notice that Friday, July 4 cannot be included as a business day.
If a customer buys stock on Friday, June 19, when will the trade settle?
Tuesday, June 23 (T + 2)
Calculate the price of a Treasury bond that is quoted at 98 16/32.
Turn the fraction to a decimal: 16 ÷ 32 = .50, add it to the percentage of par, then multiply $1,000 by 98.50% = $985.
A limited partnership could be formed by a minimum of how many individuals?
Two (one general partner and one limited partner)
When do municipal bond trades settle?
Two business days after the trade date (T+2)
After resignation of registration, how long does FINRA's jurisdiction last?
Two years
For how long may an RR leave the financial services industry without having to requalify?
Two years
When must a registered person complete the Regulatory Element of the CE requirement?
Two years after her initial registration, and every three years thereafter
In a firm's business continuity plan, how many emergency contacts must be provided?
Two, at least one of whom must be a member of senior management and a registered principal of the member firm
According to Regulation SP, what information must be included in a BD's privacy notice?
Type of personal information collected, third parties with whom the information is shared, and an opt-out provision
In what types of stocks would a value fund manager invest?
Typically stocks of out-of-favor issues
Typically, a mutual fund's ex-dividend date is the business day _________ the record date.
Typically, a mutual fund's ex-dividend date is the business day following the record date.
What types of debt instruments have the least amount of credit risk?
U.S. Treasuries
U.S. exporters prefer a _______ dollar since their products will be more competitive.
U.S. exporters prefer a weak dollar since their products will be more competitive.
U.S. importers prefer a _________ dollar since their cost of goods will be cheaper.
U.S. importers prefer a strong dollar since their cost of goods will be cheaper.
Explain a BD's obligations regarding its Customer Identification Procedures (CIP).
Under CIP, firms are required to obtain and verify certain customer information when opening accounts.
Under FINRA's communication rules, form letters sent to 12 retail investors is considered ______________.
Under FINRA's communication rules, form letters sent to 12 retail investors is considered correspondence.
Under Reg. D ____ is the maximum number of non-accredited investors allowed in a Private Placement.
Under Reg. D 35 is the maximum number of non-accredited investors allowed in a Private Placement.
Under Reg. D private placement, ___ is the maximum number of non-accredited investors allowed.
Under Reg. D private placement, 35 is the maximum number of non-accredited investors allowed.
Under Reg. D, securities may be offered to an unlimited number of __________ investors.
Under Reg. D, securities may be offered to an unlimited number of accredited investors.
Under Regulation SP, a _________ is someone who gives nonpublic, personal information to a BD that may result in trades.
Under Regulation SP, a consumer is someone who gives nonpublic, personal information to a BD that may result in trades.
Under Regulation SP, a _________ is someone who has an ongoing relationship with a firm.
Under Regulation SP, a customer is someone who has an ongoing relationship with a firm.
Under Rule 144, restricted stock must be held for ___ months before it can be sold.
Under Rule 144, restricted stock must be held for six months before it can be sold.
What is the dollar limit for a Rule 506 private placement?
Under Rule 506, an unlimited amount may be raised.
Under the communication rules, group e-mail sent to more than 25 retail investors is considered ____________________.
Under the communication rules, group e-mail sent to more than 25 retail investors is considered retail communication.
Underwriters operating under a best-efforts agreement with an issuer are acting in a ________________ capacity.
Underwriters operating under a best-efforts agreement with an issuer are acting in a agency/broker capacity.
Underwriters that have made a firm commitment to an issuer are acting in a ________________ capacity.
Underwriters that have made a firm commitment to an issuer are acting in a principal/dealer capacity.
What is the document that establishes the agreement between the issuer and the underwriter?
Underwriting Agreement
If an employee is qualified with a Series 52, what activities are permitted?
Underwriting, selling, and trading of municipal bonds
List some of the leading economic indicators.
Unemployment claims, housing permits, orders for consumer goods, M2, S&P 500, average work week, interest rate spread
Identify the acronym: UGMA/UTMA
Uniform Gifts to Minors Act / Uniform Transfers to Minors Act (governs custodial / minor's accounts)
Identify the acronym: UIT
Unit Investment Trust
What type of annuity guarantees that an amount equal to the value of the annuity is paid to a designated beneficiary?
Unit Refund annuity
How long can a short stock position be maintained?
Unlimited, provided the account maintains the minimum required equity.
Is a UIT considered managed or unmanaged?
Unmanaged, since the holdings are supervised as opposed to actively managed
What is the proper order of liquidation for a corporation at bankruptcy?
Unpaid workers, IRS, secured creditors, unsecured creditors, preferred, and then common.
What is restricted stock?
Unregistered stock that is typically bought through a private placement before shares are offered publicly
Are debentures considered secured or unsecured?
Unsecured. They are backed only by the issuer's full faith and credit.
If a trade is initiated by a customer, how is the order ticket marked?
Unsolicited
How long will a Day Limit order remain on the Display Book?
Until executed or the end of the day (if unexecuted)
For how long may a new issue be sold under a shelf registration?
Up to 3 years
When must the Statement of Additional Information (SAI) be distributed to clients?
Upon request
What does the Best Execution Rule require a member firm to do?
Use reasonable diligence to obtain the best price possible for a client
Which type of annuity is considered a security, fixed or variable?
Variable
Variable contract assets are placed in the insurance company's ___________ account.
Variable contract assets are placed in the insurance company's separate account.
How are voting issues determined, by shares or shareholders?
Voting issues are determined based on a majority of shares.
List some of the rights that shareholders receive.
Voting, inspecting books and records, receiving dividends, evidence of ownership, and transferability
Regarding rights, options, and warrants, which instrument has the longest maturity?
Warrants
______ and _________ are generally bundled as single investment securities.
Warrants and bonds are generally bundled as single investment securities.
Warrants are a ______-term right to buy stock at a preset price.
Warrants are a long-term right to buy stock at a preset price.
When considering business days, what days are excluded?
Weekend days, holidays, and any other days where the securities markets are closed
Describe the term structuring as it relates to money laundering.
When a customer deposits or transfers assets below the reporting thresholds in an attempt to avoid detection
When acting in a ____________ capacity, a firm is assuming risk.
When acting in a principal capacity, a firm is assuming risk (e.g., a firm-commitment underwriting).
When acting in an ________ capacity, firms assist customers, but do not assume risk.
When acting in an agency capacity, firms assist customers, but do not assume risk (e.g., a best-efforts underwriting).
When an individual reaches age ______, he may begin withdrawing from an IRA without penalty.
When an individual reaches age 59 1/2, he may begin withdrawing from an IRA without penalty.
When an individual reaches age ______, they may begin withdrawing from an IRA without penalty.
When an individual reaches age 59 1/2, they may begin withdrawing from an IRA without penalty.
When discussing a bond, the YTM may also be referred to as _______.
When discussing a bond, the YTM may also be referred to as basis.
When do gifts become the property of the minor in a custodial account?
When gifted
When interest rates go down, bond prices go __.
When interest rates go down, bond prices go up.
When interest rates go up, bond prices go ____.
When interest rates go up, bond prices go down.
When does a firm file a Suspicious Activity Report (SAR)?
When it knows or believes the client's funds derived from illegal activities, or the trades have no legitimate purpose
When is an individual (single filer) eligible to make tax-deductible contributions to a Traditional IRA?
When not covered by an employer-sponsored plan or when covered by a plan and below an adjusted gross income limit.
What is a mutual fund exchange?
When shares of one fund are sold and shares of another fund are bought from within the same family for no sales charge.
When the FOMC buys securities, it is pursuing a(n) _____ money policy in an attempt to _________ the economy.
When the FOMC buys securities, it is pursuing a(n) easy money policy in an attempt to stimulate the economy.
When the FOMC sells securities, it is pursuing a(n) _____ money policy in an attempt to ______ credit.
When the FOMC sells securities, it is pursuing a(n) tight money policy in an attempt to reduce credit.
When may a member firm lend the stock that belongs to a client?
When the client signs the loan consent agreement
When is interpositioning acceptable?
When the member firm is able to demonstrate that the execution was advantageous to the client
When must the privacy notice be provided to customers?
When the relationship is first established, followed by an updated version annually
When are BDs required to provide clients with information regarding their free credit balances?
Whenever account statements are provided to clients (at least quarterly)
When do companies issue proxy statements?
Whenever there is a voting issue for their shareholders.
What written documentation is required when recommending a 1035 exchange of a variable annuity?
Whether the client has completed a 1035 exchange in the past 36 months
What should an agent consider when determining suitability for an institutional client?
Whether the client is acting independently and has the capability to understand the risks
What may an RR do with full discretion, but not with limited discretion?
Withdraw money from the account
How are withdrawals from Roth IRAs treated for tax purposes?
Withdrawals are tax-free if the account is open for at least five years and is not considered an early withdrawal.
How are withdrawals from a Roth IRA treated for tax purposes?
Withdrawals will be tax-free if the account is open for at least 5 years and is not considered an early withdrawal.
When is a Currency Transaction Report (CTR) or FinCEN Form 104 filed?
Within 15 days following the transaction
When is a CTR required to be filed?
Within 15 days of the activity
If a member firm places a hold on the disbursement of client funds or securities, when must it provide notification?
Within 2 business days
On termination of an RR's employment, when must Form U5 be filed with FINRA and a copy provided to the RR?
Within 30 days
When must IRA rollovers be completed?
Within 60 days
When rolling over a distribution from a qualified plan, when must the participant complete the transfer?
Within 60 days from the receipt of the funds from the old plan
With options, what terms are synonymous with seller?
Writer, short
Identify the acronym: WSP
Written Supervisory Procedures
What is the name that's given to a broker-dealer's internal policies and procedures?
Written Supervisory Procedures (WSP)
What is required of an RR participating in a private securities transaction where compensation is received?
Written approval and recording the transaction on the books of the firm
Define free writing prospectus.
Written communication about an offering that does not meet the requirements of a statutory prospectus
What is required for a BD to place securities in a discretionary account when the they have a conflict in the offering?
Written consent of the client is required.
Written customer complaints should be documented, investigated, and responded to by a __________.
Written customer complaints should be documented, investigated, and responded to by a principal.
What is required if an RR effects a transaction outside her BD, but does NOT receive compensation?
Written notice to her employer
Define institutional communication.
Written or electronic communication that is distributed or made available only to institutional investors
What is needed to exercise discretion over a client's account?
Written power of attorney
A bond has a 12% coupon and is trading for $1,200. What is a realistic YTM for this bond?
YTM must be less than 10% since the current yield ($120 ÷ $1,200) is 10%.
Rank in order, from highest to lowest, the three yields on a bond priced at a discount.
YTM, Current Yield, Nominal Yield
On a discount bond, which yield is the highest?
YTM. Remember the seesaw on a discount bond - NY, CY, YTM (lowest to highest).
What bonds are dollar-denominated, U.S. registered, and issued by multinational companies and foreign governments?
Yankee Bonds
If not needed for a child's education, may the funds in a 529 Plan be transferred to a relative's 529 Plan?
Yes
Is a gift of $15,000 per person, per year, exempt from gift tax?
Yes
Is a limited partnership a security?
Yes
May Eurodollar bonds later trade in the U.S.?
Yes
May a cash account be opened without the customer's signature?
Yes
May a person contribute to her own 529 plan?
Yes
May a warrant be detached and traded separately?
Yes
May hedge funds sell stocks short and use margin?
Yes
Would a fine assessed by the CFTC (commodities-related) be reported on an RR's Form U4?
Yes
May a market maker acting as an underwriter for the issuer continue to make a market in the issuer's securities?
Yes, according to Reg M, but only as a passive market maker.
If a client refuses to provide certain information, may the account still be opened?
Yes, although name and address are required.
May a custodian remove funds from a custodial account?
Yes, but only for the benefit of the minor.
May a wholesaler sponsor a seminar for RRs?
Yes, but only reasonable expenses of the RR may be reimbursed.
May an RR have an outside job?
Yes, but she must notify her employer.
Will a bond's conversion price and conversion ratio be adjusted for stock splits or stock dividends?
Yes, due to a bond's non-dilutive feature.
Can a stop-limit order have a different stop and limit price?
Yes, e.g., Sell 500 ABC at 50 stop-49.50 limit triggers at or through 50. Then the investor will sell at 49.50 or above.
Is there any difference between the exercise of an index option and an equity option?
Yes, index options are cash-settled while equity options are settled by delivery of a specific security.
May a retired RR continue to collect commissions?
Yes, on existing assets if a written contract with her former employer exists.
If an agent (RR) received a power of attorney seven years ago, could she still trade that customer's account?
Yes, powers of attorney do not need to be renewed.
May an 85-year-old continue to contribute to a Roth IRA?
Yes, provided she has earned income.
May a client use a numbered account instead of her name?
Yes, provided the client's identity is known to the firm.
May a custodian make speculative investments in a minor's account?
Yes, provided they are suitable based on the objectives.
Are registered representatives permitted to have outside brokerage accounts?
Yes, provided they have the prior written consent of their employer.
An investor has a net worth of $2 million and annual income of $100,000 per year. Is she an accredited investor?
Yes, she is accredited since her net worth exceeds $1 million.
A company is incorporated in OH, but does its principal business in NJ, will Rule 147A allow it to sell to NJ residents?
Yes, since its principal business is in NJ, it may sell to NJ residents.
Are ADR holders exposed to currency risk?
Yes, since these securities will track the underlying stock.
May a money-market fund charge a 12b-1 fee?
Yes, up to .25% (25 basis points)
May an RR and a client share in an account?
Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.
May a wife enter trades in a husband's account?
Yes, with written third-party authorization.
Is the death benefit of an annuity included in the estate of a deceased client?
Yes. Additionally, any amount over the cost basis may be taxable to the beneficiary.
Would a civil lawsuit filed by a customer against an RR be reported on the RR's Form U4?
Yes. Arbitration cases and civil lawsuits are reportable events.
Can a mutual fund distributor pay for a training conference?
Yes. As long as the location is appropriate, this is an acceptable practice.
If a mutual fund wholesaler gives away golf balls to BDs, is a record of the gift required to be kept?
Yes. BDs must record gifts given to ensure they do not violate the $100 limit per year.
A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?
Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act.
May clients invest in an out-of-state 529 plan?
Yes. Clients may choose to invest either in-state or out-of-state.
May closed-end funds issue more than one type of security?
Yes. Closed-end funds may issue common stock, preferred stock, or bonds.
Is it acceptable for an RR of one BD to take an employee of another BD to an NFL game costing $300 per person?
Yes. If the RR attends with the recipient, it is considered a legitimate entertainment expense.
Is default possible on a municipal offering?
Yes. Only U.S. Government issues are considered free of default risk.
May a customer request to have trade confirmations e-mailed to her?
Yes. Sending trade confirmations electronically is acceptable.
Hank, an RR, was arrested and charged with grand theft (a felony). Is this reported to FINRA?
Yes. Since the charge involves a felony, SRO notification is required.
May an aunt set up a 529 plan for her niece?
Yes. The donor is not required to be a parent.
According to ERISA, are there any standards that must be followed regarding how money is invested?
Yes. The plan's trustee must abide by the Uniform Prudent Investor Act.
May a preliminary prospectus (red herring) be sent during the cooling-off period?
Yes. The red herring is used to obtain indications of interest from potential purchasers.
If attached to the issuance of a bond, may warrants be traded separately?
Yes. The two may be detached and traded separately.
Is it a violation for a BD to buy ABC calls for itself before executing a buy order it is holding from an institution?
Yes. The violation is referred to as front-running.
Do some mutual funds issue fractional shares?
Yes. This is a common practice.
Is a $300 political contribution from a joint checking account a violation if the check is only signed by the MFP?
Yes. To avoid a violation, the check must be signed by both owners.
Can a market maker have a quote displayed on different exchanges for the same stock?
Yes; however, the broker-dealer must have the same price on both markets.
What yield would be disclosed for a bond purchased at a premium and callable at par?
Yield to call (YTC)
What yield would be disclosed for a bond purchased at a discount?
Yield to maturity (YTM)
If an employer made all of the contributions into a pension plan, what is the employee's cost basis?
Zero
Zero coupon bonds are purchased at a __________ and mature at ____________.
Zero coupon bonds are purchased at a discount and mature at par value.
If a company's existing shareholders sell 2 million shares, by what amount will its shares outstanding increase?
Zero. If a company's existing shareholders are offering their shares, no new shares are being issued.
What is the formula for calculating total return?
[(Sale Price - Purchase Price) + Dividend or Interest] ÷ Purchase price
A competitive bid placed at a Treasury auction will indicate both ___________ and _________.
competitive bid placed at a Treasury auction will indicate both quantity and price.
Securities received from a private placement are called ___________ securities.
ecurities received from a private placement are called restricted securities.
In a __________ sale, an issuer selects the lead underwriter or senior manager that will sell the issue to the public.
n a negotiated sale, an issuer selects the lead underwriter or senior manager that will sell the issue to the public.
