SIE STC Ch. 15
Which of the following statements is NOT TRUE about a fidelity bond? AIt protects customers in the event their broker-dealer goes bankrupt. BIt's insurance that protects a broker-dealer in case of fraud such as forgery or counterfeit currency. CFINRA must be notified if the bond is cancelled or substantially modified. DIt covers securities that are held at the brokerage firm as well as those in transit.
A fidelity bond does not protect customers in the event of broker-dealer bankruptcy; that's the role of SIPC. Instead, a fidelity bond is insurance that protects a broker-dealer in case of fraud such as forgery or counterfeit currency. The bond covers securities that are held at the brokerage firm as well as those in transit. FINRA must be notified if the bond is cancelled or substantially modified
A broker-dealer's anti-money laundering (AML) compliance program must be approved: AIn writing by a member of senior management BBy FINRA and a member of senior management of the broker-dealer CBy the SEC and the head of compliance for the broker-dealer DIn writing by both the CEO and the CFO
A. Each member's AML program must be approved in writing by a member of senior management.
Which of the following statements is NOT TRUE? AClients must be notified of their free credit balances at least quarterly. BBroker-dealers must send customers balance sheets at least every six months. CDepending on the record, SEC record retention rules generally require a firm to maintain required records for either three years, six years, or the life of the firm. DSEC record retention rules generally require a firm to maintain records in an easily accessible location for the first three years.
All of the statements are true except that SEC record retention rules generally require a firm to maintain records in an easily accessible location for the first three years. Instead, a firm is required to maintain records in an easily accessible location for the first two years.
Which of the following statements are NOT TRUE about the SEC Customer Protection Rule? AA broker-dealer is required to maintain possession or control of all fully paid and excess margin securities that belong to customers. BDTCC is considered an acceptable location to hold securities. CExcess margin securities are equal to the client's equity in the account (market value minus debit balance). DHolding securities at the broker-dealer is considered an acceptable location.
All of the statements are true except that excess margin securities are equal to the client's equity in the account (market value minus debit balance). Instead, excess margin securities are considered those securities whose value exceeds 140% of the debit balance. The securities may be held at the broker-dealer or at a depository facility, such as the DTCC.
Which of the following information is required under anti-money laundering rules? The client's Social Security number The client's DOB The client's physical address Supporting documentation AI, II, III, and IV BII, III, and IV only CI and II only DII and IV only
Anti-money laundering rules require firms to verify the identity of clients for whom they are opening accounts. As a result firms must collect the client's name, date of birth, home or business street address, social security number and other supporting documentation.
All of the following forms of communication with the public that are used by a member firm fall under the industry definition of retail communication, EXCEPT: AAn advertisement for the firm that's published in a magazine BA billboard that describes the range of services offered by the firm CA seminar handout provided to 20 retail investors DA telemarketing script
Any written or electronic communication that is sent by a member firm to 25 or fewer retail investors is considered correspondence. For that reason, the seminar handout provided to 20 retail investors is not considered retail communication; it's considered correspondence. Retail communication is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Retail communication is the broadest category of communication and includes both advertising and sales literature. All materials that are prepared for the public media in which the ultimate audience is unknown are considered retail communications including: Television, radio, and billboards Magazines and newspapers Certain websites and online interactive electronic forums, such as chat rooms, blogs, or social networking sites (assuming retail investors have access to these sites) Telemarketing and sales scripts Independently prepared reprints (e.g., newspaper or magazine articles) that are sent to more than 25 retail investors
A broker-dealer's privacy notice must include all the following information, EXCEPT the: AType of personal information that the firm collects BNames of any other financial institutions with which the firm is affiliated CFact that clients may opt out of having their information shared with non-affiliates DTypes of third parties to which the firm may disclose information
B. A privacy notice is not required to include the names of any other financial institutions with which the firm is affiliated.
A broker-dealer's suitability obligation is: ATo protect the customer against a loss BA requirement by a broker-dealer to avoid conflicts of interest CTo make sure the recommended security fits the customer investment objectives DTo make sure a customer does not invest in risky securities
Broker-dealers have a suitability obligation to all customers. For noninstitutional or retail customers, the broker-dealer (or registered person at the firm) must have a reasonable basis for recommending a transaction based on information obtained from the customer concerning his investment profile. This would include the customer's age, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance. A broker-dealer may assist a customer in limiting a loss but not guarantee a customer against a loss. Conflicts of interest must be disclosed, but do not need to be avoided. A firm may recommend that a small amount of a customer's portfolio be invested in riskier securities if they fit into an overall investment strategy.
Broker-dealers must provide a privacy notice to every customer: AWhen the first trade occurs BWhen the account is opened CIf requested DBefore disclosing nonpublic, personal information
Broker-dealers, investment companies, and investment advisers must provide a privacy notice to customers when the account is opened. An updated version must be sent to customers annually.
A broker-dealer must file a Currency Transaction Report (CTR) when a customer: ADeposits bearer bonds with a face value of $100,000 BPurchases stock with a $20,000 personal check COpens an account with $11,000 in cash DOpens an account with a credit card debit check valued at $20,000
CTRs are filed on FinCEN Form 104 when a customer deposits a total amount of more than $10,000 in cash on any one day -Broker-dealers are required to file Bank Secrecy Act Currency Transaction Reports (BCTRs). The BCTR is filed for all cash transactions that exceed $10,000 and are executed by a single customer during one business day. The definition of currency includes both cash and coins. The reporting requirement is also triggered if a customer places multiple, smaller transactions in a single day that, in the aggregate, exceed $10,000.
An e-mail sent to an individual customer is defined as: ARetail communication BInternal communication CCorrespondence DA public appearance
Correspondence is defined as any written or electronic messages sent by a member firm to 25 or fewer retail investors.
In which of the following situations must a broker-dealer file a Currency Transaction Report (CTR)? AA customer deposits bearer bonds with a face value of $100,000 BA customer purchases stock with a $20,000 personal check CA customer opens an account with $11,000 in cash DA customer opens an account with a credit card debit check valued at $20,000
Currency Transaction Reports must be filed when a customer deposits a total of more than $10,000 in cash in any one day
Which of the following statements is NOT TRUE about a customer free credit balance at a broker-dealer? AA customer free credit balance represents funds that a customer can withdraw on demand. BNotification of the free credit balance must be provided on each statement. CThe notice must state if the funds are not segregated and may be used in the conduct of the broker-dealer's business. DNotification must be provided at least semi-annually.
D. All of the statements are true except that notification must be at least semi-annually. Actually, notification must be provided at least quarterly. If statements are sent more frequently (i.e., monthly), then notice must be provided on each statement.
A registered representative is sending an email to 20 individual investors. This is defined as a(n): ACorrespondence BInstitutional communication CRetail communication DPublic appearance
FINRA's Communications with the Public Rule defines different types of communication. Correspondence, which is defined as any written or electronic communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. Institutional communication, which is defined as any written or electronic communication that is distributed or made available only to institutional investors. This would not include any internal communication by the broker-dealer. Retail communication, which is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30 calendar-day period. Public appearances are situations where employees associated with a broker-dealer or sponsor participate in a television or radio interview, seminar, or forum, or make a public appearance, or engage in speaking activities that are unscripted and are not otherwise considered retail communication. Social media sites, which permit real-time communication or interactive, electronic forums, fall under the guidelines of a public appearance (e.g., Facebook, Twitter, and LinkedIn). Since the e-mail is being sent to 25 or fewer individual (retail) investors, it is defined as a correspondence. It makes no difference whether the investors have an account with the RR or the member firm.
Jerry is planning to open an account at Grace Securities. Grace must furnish him with a privacy notice: AOnly if it plans to disclose any of Jerry's private information to nonaffiliated third parties BBefore Jerry enters his first order in the account CBy the end of the year in which the account is opened and annually thereafter DAt the time he opens the account
Grace must furnish Jerry with a privacy notice at the time he opens the account. Jerry is establishing an ongoing relationship with Grace Securities by opening an account with them. Thus, he is considered a customer under Regulation SP and must receive a privacy notice at the time he opens the account (first establishes the ongoing relationship).
A registered representative is sending an email to five clients. Which of the following statements is TRUE? AIt is considered correspondence and subject to review by a principal. BIt is considered correspondence and subject to pre-approval by a principal. CIt is considered retail communication and subject to review by a principal. DIt is considered retail communication and subject to pre-approval by a principal.
It is considered correspondence and subject to review by a principal. Correspondence is defined as any written or electronic message that a member firm distributes or makes available to 25 or fewer retail investors within a 30-calendar-day period. On the other hand, retail communication is defined as any written or electronic communication that a member firm distributes or makes available to more than 25 retail investors within a 30-calendar-day period. A retail investor is considered any person who does not meet the definition of an institutional investor. Retail communications are generally subject to pre-approval; however, correspondence and institutional communications are subject to review and supervision.
A broker-dealer must maintain customer account records for how long after an account is closed? ATwo years BThree years CSix years DThe life of the firm
Records that relate to customer accounts must be maintained for a total of six years after the account is closed. For the first two years, the records must be in an easily accessible location.
As it relates to money laundering, which of the following choices best describes structuring? AA client bribes someone to accept the deposit of funds. BThe client uses fake companies to launder money. CThe client makes small deposits to evade AML reporting thresholds. DA client buys and sells securities illegally with foreign nationals.
Structuring occurs when a client attempts to circumvent anti-money laundering (AML) reporting requirements by depositing funds in amounts just below the reporting levels. The goal is to evade detection by engaging in numerous small deposits.
The SEC rules regarding the record retention generally require that records be kept in an easily accessible location for the: AFirst two years BFirst three years CFirst six years DLife of the firm
The SEC rules regarding record retention generally require that records be kept in an easily accessible location for the first two years. Records must generally be kept in total for either three years, six years, or the life of the firm depending on the specific record.
When can broker-dealers make unsolicited telephone calls? ABetween 8:00 a.m. and 9:00 p.m. BBetween 9:00 a.m. and 8:00 p.m. CBetween 10:00 a.m. and 6:00 p.m. DBetween 9:00 a.m. and 5:00 p.m
Under the Telephone Consumer Protection Act, solicitors are only permitted to contact consumers between 8:00 a.m. and 9:00 p.m. (17566)
