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Series 7 by Chapter > Industry Rules > Flashcards

Industry Rules Flashcards

1
Q

According to FINRA rules, list some of the persons that are considered institutional investors. 6

A
  1. Banks,
  2. insurance companies,
  3. investment companies,
  4. investment advisers,
  5. FINRA members
  6. RRs of FINRA members
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2
Q

What actions may the hearing panel take regarding rule violations? 5

A
  1. Censure,
  2. fine,
  3. suspension,
  4. request to requalify, or
  5. expulsion of the respondent
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3
Q

When a minor dispute is handled through simplified arbitration, is the ruling final and binding?

A

Yes, all arbitration decisions are final.

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4
Q

According to the TCPA, what information must telephone solicitors provide to clients? 4

A
  1. Their name,
  2. firm name,
  3. telephone number or address where they can be contacted, and
  4. the purpose of the call
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5
Q

Under Penny Stock Rules, when does a customer become established? 2

A
  1. When they have purchased 3 different penny stocks on 3 different occasions, or
  2. they have been a customer for one year
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6
Q

Define institutional communication.

A

Written or electronic communication that is distributed or made available only to institutional investors

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7
Q

List the three forms of communications with the public.

A
  1. Retail communication,
  2. Institutional communication, and
  3. Correspondence
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8
Q

True or False: On request, institutional communication may be provided to a retail client.

A

False. Institutional communication may never be provided to a retail investor.

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9
Q

All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.

A

All forms of communication with the public must be kept for three years, but easily accessible for the first two years.

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10
Q

Is correspondence subject to principal approval?

A

No, but it must be reviewed by the firm.

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11
Q

Churning is described as _____________________ designed to _____________________.

A

Churning is described as excessive trading designed to generate commissions.

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12
Q

Define research reports.

A

Written or electronic communication about equities, including information for a client to make an investment decision.

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13
Q

Is the 5% policy based upon the current market value of the security or the dealer’s cost?

A

Generally, the current market value

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14
Q

Industry disputes are handled through ______________.

A

Industry disputes are handled through Arbitration.

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15
Q

If a BD’s investment company communications include self-created rankings, when must they be filed with FINRA?

A

At least 10 business days prior to use

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16
Q

When arbitration involves public customers, __________ of arbitrators must be from outside the securities industry.

A

When arbitration involves public customers, a majority of arbitrators must be from outside the securities industry.

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17
Q

If a client seems confused and demands an unsuitable change of objective, what step should an RR take?

A

Confusion and/or dementia are concerns that may warrant an RR to request a meeting with the client and a family member.

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18
Q

Define correspondence.

A

Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.

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19
Q

For a firm’s first year as a FINRA member, when must its broadly disseminated retail communications be filed with FINRA?

A

10 business days prior to their first use

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20
Q

May firms allow for the free flow of information between their research department and investment banking department?

A

No, these two departments must be separated to avoid conflicts of interest.

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21
Q

What are some of the special standards that firms follow in regard to soliciting sales of penny stocks? 4

A
  1. Determine suitability,
  2. principal approval,
  3. send risk disclosure,
  4. client’s written authorization for the first 3 trades
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22
Q

What is exempt from the 5% policy? 4

A
  1. Trading of municipal bonds,
  2. new issues,
  3. registered secondary offerings, and
  4. mutual funds
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23
Q

May a customer be forced to use arbitration?

A

No, but signed pre-dispute arbitration agreements are binding.

24
Q

May an RR and a client share in an account?

A

Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.

25
Q

True or False: Institutional communication must be preapproved by a principal and filed with FINRA.

A

False. Institutional communication is not required to be preapproved or filed with FINRA.

26
Q

True or False: An RR may sell stock from a client’s non-discretionary account if a negative report is released.

A

False. Without written authorization, an RR may not choose the security to buy for or sell from a client’s account.

27
Q

A client’s name and number must be kept on the Do Not Call List ____________.

A

A client’s name and number must be kept on the Do Not Call List indefinitely.

28
Q

What forms of communication are required to be approved by a principal, but NOT filed with FINRA? 4

A
  1. Email recommendations,
  2. telemarketing or sales scripts,
  3. independently prepared reprints, and
  4. ads promoting products
29
Q

Which forms of communication are NOT required to be approved by a principal or filed with FINRA? 3

A
  1. Retail communications that do not recommend or promote a BD’s services,
  2. institutional communications, and
  3. correspondence
30
Q

Retail communication generally requires __________ ____________.

A

Retail communication requires principal preapproval.

31
Q

True or False: Firms writing research reports must disclose potential conflicts of interest.

A

True (e.g., firm makes a market in the stock or has had or will have an investment banking relationship with the issuer)

32
Q

True or False: The findings of an arbitration panel may be appealed.

A

False. Arbitration decisions are final and binding.

33
Q

Under FINRA’s communication rules, what is meant by the term broadly disseminated?

A

That material has been created for generally accessible Web sites, print media, and television or radio

34
Q

Hearing Panel findings may be appealed to the ___________________________,then the _____, and then ________________.

A

Hearing Panel findings may be appealed to the National Adjudicatory Council (NAC), then the SEC, and then federal court.

35
Q

May an RR write a research report and not hold the title research analyst?

A

Yes

36
Q

What action should be taken if a senior investor requests a meeting to make a significant change to her objectives?

A

Request that the client have a family member accompany her to the meeting

37
Q

The hearing panel may not impose a ___________________ due to rule violations.

A

The hearing panel may not impose a prison sentence due to rule violations.

38
Q

Under the TCPA, how is an established customer defined?

A

One that has made an unsolicited inquiry or effected a transaction with the firm

39
Q

When must a research report be approved?

A

Prior to first use by a Supervisory Analyst

40
Q

If an RR suspects that a client may be showing signs of dementia, what is the best course of action?

A

To request a meeting with both the client and a family member

41
Q

Does the 5% policy apply when a BD is acting in an agency capacity, a principal capacity, or both?

A

Both

42
Q

An unlisted, non-Nasdaq stock priced below $5.00 per share is called a ____________________.

A

An unlisted, non-Nasdaq stock priced below $5.00 per share is called a penny stock.

43
Q

Who must approve a research report?

A

Supervisory analyst

44
Q

What trades would be covered by the 5% policy?

A

Secondary market trades of stocks, corporate bonds, and Treasuries

45
Q

True or False: For an RR, a good business practice is to meet with a confused elderly client alone.

A

False. The best practice is to request that a family member of the client accompany her to meetings.

46
Q

True or False: The 5% Policy is a rule that may not be exceeded.

A

False, it’s a guideline, not a rule.

47
Q

May an RR in the research area be supervised by the investment banking department?

A

No

48
Q

For how long must retail communication, institutional communication, and correspondence be maintained?

A

For three years, but easily accessible for the first two years

49
Q

Retail communication concerning an investment company must be filed with FINRA within ___________ days of use.

A

Retail communication concerning an investment company must be filed with FINRA within 10 business days of use.

50
Q

Which retail communications are required to be filed with FINRA WITHIN 10 days of first use? 4

A

Those related to

  1. DPPs,
  2. CMOs, and
  3. ETNs,
  4. as well as templates for reports produced by investment analysis tools
51
Q

According to FINRA, the guideline for determining commission or markup on transactions is ___%.

A

According to FINRA, the guideline for determining commission or markup on transactions is 5%.

52
Q

Which retail communications are required to be filed with FINRA at least 10 business days PRIOR to first use? 3

A
  1. Those for investment companies with self-created rankings,
  2. bond funds including volatility ratings, and
  3. security futures
53
Q

The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.

A

The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.

54
Q

What must be checked before a BD makes telephone solicitations?

A

The firm’s Do Not Call List

55
Q

What factors could justify a larger markup than 5%? 3

A
  1. The type of security,
  2. the availability of the security, or
  3. the total transaction amount

Series 7 by Chapter (24 decks)

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