Question 1

What must a B-D observe in the conduct of their business?

Accepted Answer

``` A Broker-Dealer must observe high standards of commercial honor and just and equitable principles of trades in the conduct of their business. Ch 04(3) ```

Question 2

Is a B-D considered a fiduciary?

Accepted Answer

No. ``` there is no reference to a B-D being a fiduciary — a B-D is NOT considered to be a fiduciary. Ch 04(3) ```

Question 3

How many Model Rules on Broker-Dealers are there?

Accepted Answer

16. [same number as IAs] Ch 04(3)

Question 4

Model Rules on Broker-Dealers -- 1). B-Ds shall not engage in any pattern of unreasonable and unjustifiable delay in (1/16)

Accepted Answer

``` delivery of securities purchased and/or the payment of free credit balances based on transactions of customers. Ch 04(3) ```

Question 5

Model Rules on Broker-Dealers -- No. 01: What is a free credit balance ?

Accepted Answer

``` free credit balance — the cash held in a customer’s margin account at a B-D that s/he can withdraw on demand at any time. Ch 04(3) ```

Question 6

Model Rules on Broker-Dealers -- No. 01: Clients must receive written receipt immediately when

Accepted Answer

``` securities are taken into custody. Ch 04(3) ```

Question 7

Model Rules on Broker-Dealers -- 2). B-Ds shall not exercise any discretionary power in effecting a transaction for a customer’s account WITHOUT first (2/16)

Accepted Answer

obtaining written discretionary authority unless discretionary power relates solely to the TIME and/or PRICE for the execution of orders. ``` Written discretionary authority remains valid till revoked in writing. Ch 04(3) ```

Question 8

Model Rules on Broker-Dealers -- No. 02: When must the B-D have written discretionary authority?

Accepted Answer

BEFORE they execute the first transaction. ``` Unlike an investment advisor who also needs written discretionary authority, but who can execute transactions based on oral discretionary authority for the first 10 days. Ch 04(3) ```

Question 9

Model Rules on Broker-Dealers -- 3). B-Ds shall not execute any transactions in a margin account without (3/16)

Accepted Answer

``` securing client written margin agreement promptly after transaction. Ch 04(3) ```

Question 10

Model Rules on Broker-Dealers -- 4). B-Ds shall not fail to segregate customer’s (4/16)

Accepted Answer

``` free credit balances or securities held in safekeeping. Ch 04(3) ```

Question 11

Model Rules on Broker-Dealers -- 5). B-Ds shall NOT hypothecate (pledge for loan) a customer’s securities without (5/16)

Accepted Answer

``` obtaining a properly executed written consent from the customer (this applies to customers from a margin account — where a margin agreement would be required) promptly after the initial transaction, except as permitted by SEC rules. Ch 04(3) ```

Question 12

Model Rules on Broker-Dealers -- 6). B-Ds shall not fail to furnish to a customer purchasing securities in a public offering of a new issue, no later than the due date of the confirmation of the transaction, (6/16)

Accepted Answer

``` either a final or preliminary prospectus with additional documents, which together, includes all info included in a final prospectus. Ch 04(3) ```

Question 13

Model Rules on Broker-Dealers -- No. 06: Who does the B-D rule regarding furnishing a final/preliminary prospectus apply to? And not apply to?

Accepted Answer

``` Applies to purchase of shares of a open-end investment co. (aka. mutual fund), but would NOT apply to secondary market trades. Ch 04(3) ```

Question 14

Model Rules on Broker-Dealers -- 7). B-Ds shall not give a quote or enter in to a transaction with/for customer at a price not reasonably related to the (7/16)

Accepted Answer

``` CURRENT market price of the security, or receiving unreasonable commission/profit. Ch 04(3) ```

Question 15

Model Rules on Broker-Dealers -- 8). B-Ds shall not charge unreasonable and inequitable (8/16)

Accepted Answer

``` fees for services performed, including misc. services such as collection of monies due for principal, dividends, or interest, exchange or transfer of securities, appraisals, safekeeping or custody of securities and other services related to its security business. Ch 04(3) ```

Ch 04(3) NASAA Policy and Model Rules | B-Ds Flashcards

* Explain the Standards of Commercial Honor and Just and Equitable Principals of Trade for Broker-Dealers

Brainscape's Knowledge GenomeTM

Ch 04(3) NASAA Policy and Model Rules | B-Ds Flashcards

* Explain the Standards of Commercial Honor and Just and Equitable Principals of Trade for Broker-Dealers

Brainscape's Knowledge Genome^TM