Series 10 Cards

Question 1

Manning Rule

AKA

Answer 1

Limit Order Protection Rule

Question 2

Manning Rule Notion

Answer 2

Market Makers must provide best execution for Limit Orders

Question 3

Manning Rule
Covers and Does not Cover

Answer 3

NASDAQ, 3rd Mkt, Exchange listings and OTC Securities

Not Cover Debt Secuties

Question 4

140% Rule

Answer 4

140% of Debit Balance from bank to hypothecate

Question 5

When are block transfers allowed?

Answer 5

When prior (losing) BD agrees

Question 6

Regulation NMS
Trade Throughs
(1) when protected
(2) When not protected

Answer 6

(1)For Electronic Quotes
(2) For Manual Quotes

Question 7

Customer places order of 500 XYZ @ 30 but you execute 1000 XYZ at 29

Customer entitled to…

Answer 7

500 XYZ @ 29

Question 8

Clearing Firms act as gatekeepers in what

Answer 8

Customer compliance w/ securities laws and handling conflicts of interest

Question 9

Municipal Securities Sales

The Spread is set by who

Answer 9

Set by Manager

Question 10

Municipal Securities Sales

Who gets the takedown

Answer 10

The syndicate

Question 11

Municipal Securities Sales

Who gets the Managers Fee

Answer 11

Lead Underwriter

Question 12

Municipal Securities Sales

Who gets the Concession

Answer 12

The Selling Group

Question 13

MSRB Rules

What is a customer?

What is not a customer?

Answer 13

Person or entity

Not a Municipal Broker-Dealer
Not a Municipal Bank Dealer
(both acting in a capacity as such)

Question 14

Municipality

When it is not a customer?

When it is a customer?

Answer 14

When involved in sale of its own securities

When trading in its own investment account

Question 15

Nominal vs Subject quote

Answer 15

Nominal - Info only, not firm

Subject - Subject to a condition

Question 16

Conflict Rule when Municipal Advisory Relationship exists between a BD in writing with an issuer

1. Underwriting
2. Obtaining for own acct.
3. Obtaining for muni security dealer controled by BD

Answer 16

1-3 None are allowed

Question 17

Trust Indenture Act of 1939

1. Covers what securities
2. Exemptions

Answer 17

1. Debt securities
2. Certain small issues (i.e. Reg A offerings)

Question 18

Trade Review Investigation

1. Status update due from who
2. When is it due
3. Timeline to report completion of report

Answer 18

1. Principal of firm
2. by 15th of month following calendar QTR
3. due w/in 1 week of completion

Question 19

Electronic Blue Sheets

1. Types of trades investigated
2. How do they need to be ready

Answer 19

1. Suspicious or Insider Trades
2. in a timely fashion

Question 20

Matching

Answer 20

Prearranging crossing of customer orders through the same BD
NOT ALLOWED

Question 21

Participating in Rings or Pools

Answer 21

Creating artificially elevated prices for pool members to unload their stock

Question 22

Stabilization when allowed must appear in what

Answer 22

Prospectus

Question 23

Publically Announced Intent to Acquire Company

1. Tender offer timeline
2. Timeline if Tender offer changed

Answer 23

1. 20 BDs
2. 10 additional BDs from change

Question 24

Publically Announced Intent to Acquire Company

Target Company Statement on position
1. Timeline to make statement
2. Types Allowed

Answer 24

1. 10 BD of announcement
2. Accept, Reject, No Opinion or Unable to take a Position

Question 24

Publically Announced Intent to Acquire Company

Target Company Statement on position
1. Timeline to make statement
2. Types Allowed

Answer 24

1. 10 BD of announcement

Question 25

10b-18 Buy Back

1. What is it

Answer 25

issuer buys back its own stock in open market

Question 26

10b-18 Buy Back

Who executes

Answer 26

DMM or OTC Market maker

Question 27

10b-18 Buy Back

1. Transaction Limits
2. Purchases that do not count towards limit

Answer 27

1. 25% avg over 4-weeks
2. Block purchases outside normal flow

Question 28

10b-18 Buy Back

Safeharbor timeline

Answer 28

Neither the…
- 1st Transaction of day
- last 30 min of trading

Question 29

10b-18 Buy Back

Transaction Price Limit

Answer 29

No higher than highest independent Bid or last sale (whichever higher)

Question 30

Insider Trading Act Lawsuits Statute of Limitations

Answer 30

5 years

Question 31

Antidultion of IPOS

Restricted person ownership in Privately held company going public may buy shares if

1. Ownership prior how long?
2. % Equity interest restriction period?
3. Newly Acquired Shares locked up how long after purchase?

Answer 31

1. 1 year
2. No more than 3 months ownership
3. 3 months

Question 32

Standby purchasers of IPOs are restricted from resale for how long

Answer 32

3 months

Question 33

Joint Back Office (JBO) Broker Dealers

1. Who are they
2. Categorization by FINRA
3. New Equity Issue Eligibility

Answer 33

1. Hedge Funds
2. Hedge Funds
3. Eligible subject to de minimus rule & Carve out Procedures

Question 34

Carve Out Procedures

1. Restricted Persons limit of ownership of IPO
2. if 30% restricted persons & fund buys 10,000 shares of new issue
3. If 7% restricted persons & fund buys 10,000 shares of new issue

Answer 34

1. 10%
2. no more than 1,000 to restricted persons
3. No more than 700 to restricted persons

Question 35

Spinning

1. Practice?
2. Prohibited Participants to benefit from practice

Answer 35

1. Allocating hot IPO to firm in exchange for future business
2. • Firm Current Client
     
     • Company where Firm Received compensation in last 12 months
     • Company where firm knows it will retain business in next 3 months

Question 36

Flipping

1. Practice
2. Penalty Bid

Answer 36

1. Selling hot IPO within 30 days of purchase
2. Penalty for selling before 30 days

Question 37

de Minimus Rule for IPOS

Exemption

Answer 37

Restricted person’s interest in account does not exceed 10%

Question 38

Restriction on sales of IPOs under FINRA Rule 5130

Issues not covered

Answer 38

ADRs
Additional Offerings
Debt Securities

Question 39

Borrowing from or lending to customers

1. Process to Notify and get approval
2. Exception to Approval Process

Answer 39

1. Writing to Firm
   Written approval from Firm
2. When family or banks

Question 40

Borrowing from or lending to customers

Approval Retention Period in firm files

Answer 40

3 years after the arrangement terminated or Rep leaves the firm

Question 41

Regulation NMS

Minimum Increment Pricing Rule (Sub-Penny)
1. Stocks $1/share or greater
2. Stocks < $1/share

Answer 41

1. Min Increment is $0.01
2. Min Increment can be sub penny

Question 42

Regulation NMS

Minimum Increment Pricing Rule (Sub-Penny)

1. Stocks Covered
2. Stocks Not Covered

Answer 42

1. Those trading on Nat’l & Regional Exchanges
2. Pink Sheet Securities

Question 43

Regulation NMS Rule 606
Order Routing Methods

1. What’s Reported
2. Frequency

Answer 43

1. Market centers used and firm’s nature of relationship with center
2. Quarterly to the public

Question 44

Regulation NMS Rule 606
Order Routing Methods

1. Directed vs. NonDirected
2. Rule Applies to Which

Answer 44

1. Directed - Customer Specifies Market Center
   NonDirected - Firm Specifies Market Center
2. NonDirected only

Question 45

Regulation NMS Rule 606
Order Routing Methods

1. Customer Request for Disclosure
2. Normal Customer Disclosure

Answer 45

1. For prior 6 months
2. Annually

Question 46

Regulation NMS Rule 606
Order Routing Methods

Exemptions for Reporting

Answer 46

< 500 Orders per month
OR
<5% of NonDirected Order Flow

Question 47

2 situations where a Market Maker may back away from a firm Quote

Answer 47

1. if a revised quote is entered prior to order received
2. If MM is executing a trade during order time and at completion enters a revised quote

Question 48

Autoquote Policy

1. When Prohibited
2. When Allowed

Answer 48

1. if used to keep MM quote away from inside market
2. when used to ensure bid/ask price maintained the same in another trading system

Question 49

Regulation SHO

1. When is location & tag required
2. Date Needed to be considered long
3. Status of seller if they bought stock on Monday and selling it on Tuesday before paying for purchase (long or short)

Answer 49

1. Before Order
2. As of trade Date (NOT SETTLEMENT DATE)
3. Still considered long

Question 50

Regulation NMS Rule 612
Sub-Penny Rule

1. Buy Limit Order Quoted
2. Sell Limit Order Quoted
3. Timeline to Report Trades to TRF

Answer 50

1. Rounded down to nearest penny
2. Rounded up to nearest Penny
3. 10 Seconds

Question 51

Variable Annuities

1. Principal Approval Timeline after complete application Received by OSJ
2. Prospectus Delivery Timeline
3. Sales Commission Forfeiture

Answer 51

1. 7 BDs
2. Before or WITH Solicitation
3. If redeemed within 7 days of sale by customer

Question 52

1035 Exchanges

1. Frequency between exchanges
2. Inquiry into last exchange

Answer 52

1. 36 months
2. Documented as to nature & response from customer

Question 53

Members recommending a security

1. Price
2. Disclosures
3. Disclosure of # of shares owned by firm

Answer 53

1. At time required
2. if Market Maker
   if Firm owns 1% or more
3. Not required

Question 54

Tax Treatment of NonQual VA

Answer 54

Ordinary Income

Question 55

Penny Stock

1. Risk Disclosure Timeline
2. How Ack from Customer
3. Suitability Statement from customer requires

Answer 55

1. BEFORE Purchase
2. Written Ack
3. Customer must sign

Question 56

Penny Stock

1. Compensation Disclosure
2. Quote

Answer 56

1. BOTH Member and Registered Rep
2. Both Bid & Ask

Question 57

Penny Stock
Established Customer Exception

1. Non Penny Stock Transactions in the past OR Timeline before buying penny stock
2. Penny Stock Purchase History
3. Suitability Statement Requirement

Answer 57

1. Effected non-penny stock trans or 1 year before penny stock trade
2. 3 different stocks & 3 different days
3. May solicit without if established customer

Question 58

Penny Stock Key Points

BD Exception for Solicitation

Answer 58

5% or less in Penny Stock Business

Question 59

Penny Stock Key Points

Established Customer
1. Suitability Statement for Cold Calls
2. Disclosures

Answer 59

1. Exempt
2. Not Exempt for Disclosure

Question 60

Penny Stock Definition

Answer 60

Under $5 OTC Pink Sheet OR
OTC Bulletin Board Stocks

Question 61

Hedge Funds
Investors
Qualified Purchaser

Answer 61

$5M in Investments

Question 62

Hedge Funds

Lock Up Provisions

Answer 62

At least 3 months

Question 63

Hedge Funds

Blind Pool vs Blank Check Companies

Answer 63

Blind Pool - May disclose industry

Blank Check - no identity of investment intent

Question 64

Hedge Funds

“Switching”

Answer 64

Rep moves customer between funds for no good reason

Question 65

Management Companies

Shares Sold In
1. Closed End Funds
2. Open End Funds

Answer 65

1. Full Only
2. Fractional Allowed

Question 66

Management Companies

Capital Required to issue Securities

Answer 66

at least $100,000

Question 67

Management Companies

Borrowing Money
1. Closed End Funds
2. Open End Funds

Answer 67

1. Issue bonds, Preferred Stock, Loans from Banks
2. Short Term Only

Question 68

Investment Advisers Act of 1940

1. AUM required to register with SEC
2. AUM required to register with State
3. AUM dropped to triggering SEC to State Registration

Answer 68

1. $110M
2. <$100M
3. $90M

Question 69

Investment Advisers Act of 1940
3 types of Investment Companies

Answer 69

1. Face Amount Certificate Companies
2. UITs
3. Management Companies (Mutual Funds)

Question 70

Investment Advisers Act of 1940

Exemption to allow Advisory Fee Calculation based on Capital Gains Achieved

1. Client AUM
   OR
2. Client Net Worth
3. Index Used to Gauge Performance

Answer 70

1. $1M
2. $2.1M
3. S&P 500

Question 71

Mutual Funds

Prompt Payment Timeline

Answer 71

within 2 BD or trade date
OR
1 BD of receipt
WHICHEVER IS LATER

Question 72

Mutual Funds

Best Class to use in a Large Investment Share Recommendation

Answer 72

Class A Shares so they can get breakpoints

Breakpoints not available in Class B shares

Question 73

Mutual Funds

Board of Director participation of Company Officers & Directors Limits

Answer 73

No more than 60% of the board

Question 74

Mutual Funds

Referral Fees
1. Amount
2. To Who

Answer 74

1. Nominal (same regardless of size)
2. Certain Professionals allowed (lawyers, Accountants, ect.)

Question 75

Management Company

SEC Names Rule

1. % in given name (i.e. Growth fund)
2. Sector Funds Asset Reqt.

Answer 75

1. 80% (ie growth fund)
2. At least 25% in that sector

Question 76

Management Companies

Prospectus Updating
1. Time in use before updates necessary

2. Maximum age of Financial Information
3. Rule 482 (Omitting) Prospectus

Answer 76

1. 9 months
2. 16 months
3. Mutual FUnd Allowed to Advertise without the FULL DISCLOSURE in the Prospectus

Question 77

UITs

1. Impact on Interest Income when Interest Rates Increase
2. Authorities of Managers

Answer 77

1. Remains the Same
2. Limited (Portfolio is fixed & not traded).

Question 78

UITs

1. Fixed vs. Participating
2. Variable Annuity Status

Answer 78

1. Fixed - Not traded
   Participating - Portfolio of different Mutual Funds
2. Operate as Participating Unit Trusts

Question 79

Mutual Funds

Advisory Contracts
1. Initial Max Term
2. Termination Timeline Limit
3. Impact if Advisor Assigns relationship to another advisor

Answer 79

1. 2 years
2. 60 days written notice
3. Termination

Question 80

Mutual Funds

Advisory Contracts
1. Who reports & tracks compliance policies & procedures for the fund

2. State of Regulatory Compliance Review Frequency

Answer 80

1. Fund’s Chief Compliance Officer (CCO)
2. Annually

Question 81

Management Companies

Closed End vs Open End Fund

1. Where to shares go upon redemption

Answer 81

1. Closed End - to open market
   Open End- to Management Company only

Question 82

Mutual Funds

When members buying from principal is allowed at a discount from POP

Answer 82

When Contract between member & principal exists
AND
Bought to fill customer order already received

Question 83

12b-1 Fees

Limit for Mutual fund to advertise as “No Load”

Answer 83

0.25%

Question 84

12b-1 Fees

Limit allowed

Answer 84

0.75% of the average annual net assets of the Investment Company

Question 85

12b-1 Fees

“Trailer Commissions”

Answer 85

AKA Quarterly Trailers

Follow initial Sale and pays Rep %

Question 86

12b-1 Fees

Process required to terminate 12b-1 charges

Answer 86

OUTSIDE DIRECTOR Majority Vote

Question 87

12b-1 Fees

Reviews
1. Frequency
2. By who

Answer 87

1. Quarterly
2. BOD

Question 88

12b-1 Fees

Not allowed to be used for

Answer 88

Investment Advisory Fees

Question 89

Communications & Licenses

Required to approve Mutual Fund Retail Communications

Answer 89

General Securities Principal (Series 24)
OR
Investment Company Principal (Series 26)

Question 90

Communications & Licenses

Required to Approve Advertising for Municipal Fund Securities

Answer 90

Series 53
Series 51
Series 24

Question 91

Research Reports

Analyst using past recommendations in similar securities

Answer 91

must disclose ALL recommendations of past 12 months in similar securities
Cannot Cherry pick

Question 92

Research Reports

Foreign Issuer Paying a Member Firm to Follow and Issue Research Reports on its Stock

Answer 92

Acceptable if Payment disclosure Made

Question 93

Research Reports

Categorization of someone participating in an internet Chat Room

Answer 93

Public Appearance

Question 94

Independently prepared reports

1. Approval
2. Filing Requirements

Answer 94

1. Pre-use Approval by a principal
2. No FINRA Filing Required

Question 95

3 Categories of Communication

Answer 95

1. Retail
2. Correspondence
3. Institutional

Question 96

Public Appearance

1. Policy
2. Handouts, Scripts or Slides (including electronic)

Answer 96

1. Firm must have written procedures
2. Considered Communications

Question 97

Personal Communications

1. “Business As Such”
2. Use of Personal Social Media for Business
3. Posts to Social Media

Answer 97

1. Content vs device
2. Prohibited
3. Requires Principal Approval

Question 98

Retail Communications

1. Record Retention

Answer 98

3 years

Question 99

Status of Accredited Investors as it pertains to Retail Communications

Answer 99

Still considered Retail Investors

Question 100

Telemarketing
Cold Calling Timeframe

Answer 100

8AM to 9PM

Question 101

Telemarketing

Means of Communications Included

Answer 101

Phone, Fax or Email

Question 102

Telemarketing

Established Business Relationship within what timeframe

Answer 102

last 18 months

Question 103

Telemarketing

Established contact with the advisor within what timeline

Answer 103

last 3 months

Question 104

Telemarketing

Safeharbor for Do Not Call Violations

Answer 104

within 31 days of receipt of new list

Question 105

Telemarketing

When calling after 9pm is allowed

Answer 105

Acquaintances

Rep must attest in writing to BOM to genuine personal relationship

Question 106

Generic Advertisement

Answer 106

Doesn’t recommend a specific fund or security

Question 107

Transferring Assets to New Firm by Recruit

1. Timeline for Customer Education Delivery
2. When you can stop education delivery Requirement

Answer 107

1. w/in 3 BD of Initial Contact
2. 3 months after employment start date

Question 108

Transferring Assets to New Firm by Recruit

Education Delivery

1. Former client refuses to leave old firm
2. Means to deliver
3. Institutional Accts

Answer 108

1. Not Required
2. Can be email with hyperlink
3. Not Required

Question 109

Required Disclosures in Research Reports & Public Appearances

Analyst or Family Member Interest

1. %
2. Within what Timeframe of owning

Answer 109

1. 1% or more
2. Close of Previous Month

Question 110

Required Disclosures in Research Reports & Public Appearances

Firm Interest with Company:

1. Prior Fees received
2. Anticipated future fees or business

Answer 110

1. within last 12 months
2. in next 3 months

Question 111

Blackout Periods

1. Definition
2. New Issue Timeframe
3. Secondary Offering Timeframe

Answer 111

1. Quiet period for members who participated in underwriting
2. 10 days
3. 3 days

Question 112

Exceptions for Blackout Periods

2 Situations

Answer 112

Significant News Event

OR

Company is actively traded security by Reg M, Rule 139 already

Question 113

Research reports need to be distributed to how many persons

Answer 113

15

Question 114

Use of price history in a research report…timeline needed to cover

Answer 114

last 12 months

Question 115

Criteria for using past recommendations in building a research report

Answer 115

Only comparable companies over the last 12 months

Question 116

Rules for analysts in trading a stock it releases research on

1. Before
2. After

Answer 116

1. 30 days before
2. 5 days after

Question 117

Requirement when terminating coverage of a company as an analyst

Answer 117

Requires final report with a rating

Question 118

Unscripted Appearance in an online seminar

1. Approval
2. Supervision

Answer 118

1. No Approval Required
2. Must be supervised

Question 119

Electronic Forums

Approvals for Blogs:
1. Blogs (Static)
2. Blogs (Updated Frequently)
3. Blogs (Interactive)

Answer 119

1. Prior Principal Approval
2. Prior Principal Approval
3. No Prior Approval, Must be supervised

Question 120

1. Categorization of Social Media Tweets
2. Approvals?

Answer 120

1. Retail Communication
2. Require Prior Approval

Question 121

Associated Person using the Firm’s Static Content on his own personal blog

Answer 121

Allowed with Approval and record maintained

Question 122

Filing Required for Changes in Member Name, Admin Info, NASDAQ Symbol

Answer 122

No Filing Required

Question 123

FINRA Filing Requirements types for Post Filing for retail communications

Answer 123

10 days after 1st use for
Investment Company
DPP
CMO

Question 124

FINRA Filing Requirements types for Pre Filing for retail communications

Answer 124

10 days before 1st use for
Options
Securities Futures

Question 125

Testimonials

1. Disclosure Required
2. Special Experience or Knowledge claim
3. Use of clients

Answer 125

1. Paid $100 or more
2. Ad Must state Qualifications
3. Prohibited

Question 126

Use of “Free of Charge” Ads requires

Answer 126

must be without condition or obligation

Question 127

Mention of FINRA or SRO Membership in advertisements

Answer 127

Prohibited

Question 128

Advertising for Personnel Positions with Earnings Ranges

Answer 128

Must be reasonable and Realistic

Question 129

Municipal Securities Principal

1. Exam
2. Number Required
3. Qualification

Answer 129

1. Series 53
2. 2 (unless <11)
3. Supervise Municipal Securities

Question 130

Municipal Fund Securities Principal

1. Exam
2. Number Required
3. Qualification

Answer 130

1. Series 51 or 53
2. 2 (unless <11)
3. Supervise Municipal FUND Activities

Question 131

Municipal Securities Sales Principal

1. Exam
2. Number Required
3. Qualification

Answer 131

1. Series 9/10
2. 0
3. Supervise SALES Related Activity (may not approve advertising)

Question 132

Municipal Securities Representative

1. Exam
2. Qualification

Answer 132

1. Series 52 or 7
2. Purchase, Sell, Underwrite Municipal Securities

Question 133

Series 14

Answer 133

Compliance Officer

Required for Chief Compliance Offices

Question 134

Financial and Operations Principal (FinOp)

1. Exam
2. Number Required
3. Qualification

Answer 134

1. Series 27
2. 1 per firm
3. Supervise Financial Reporting and Clearance

Question 135

Types not requiring FINRA Registration

Answer 135

Insurance Agents
Commodities Futures Reps
Traders of Commercial Paper
US Treasury Traders

Question 136

Registration Required for Straight Annuity Sales Reps

Answer 136

FINRA Registration

Question 137

Active Duty Military

1. Training Tolled
2. CE Requirements
3. Timeline Followed upon return

Answer 137

1. 90 days after
2. None
3. Picks up where they left off after toll expires

Question 138

1. Days to pay monetary awards
2. Penalty if not met

Answer 138

1. 30 days
2. Suspension or revocation after giving 15 days written notice

Question 139

MSRB Rule Enforcement

1. Broker Dealer
2. National Banks
3. Non-National Banks
4. Non National Banks that are also Not Member of Fed Reserve System

Answer 139

1. FINRA & SEC
2. Comptroller of Currency
3. Federal Reserve Board
4. FDIC

Question 140

Appeal Cutoff

Answer 140

within 25 days of service of decision

Question 141

Appeal process next levels

Answer 141

1. Dept of Enforcement
2. National Adjudicatory Council (NAC)
3. Board of Governors
4. SEC

Question 142

Series 24

Answer 142

General Supervisory Functions

Can Approve Communications including Municipal

Question 143

Requirement of 2 Principals for a Municipal Securities Firm

2 Exceptions that warrant only 1 Principal

Answer 143

1. <11 Associated Persons
2. Firm belongs to another Securities Association such as FINRA

Question 144

Form U4

1. Signed by who
2. Employment History
3. Residence History

Answer 144

1. General Securities Principal
2. 10 years
3. 5 years

Question 145

Timeline for Member to Comply with FINRA Disciplinary Investigation

Consequences if not met

Answer 145

1. 20 days after written notification
2. Suspension

Question 146

Days to respond to customer request for pre-dispute Arbitration Agreement

Answer 146

10 Business Days

Question 147

Code of Procedure

1. Purpose
2. Days to Answer

Answer 147

1. Trade Practice Violation
2. 25 days to answer

Question 148

Arbitration

1. Days to answer Statement of Claim
2. Consequence for no response

Answer 148

1. 45 days
2. Barred from providing any evidence

Question 149

Simplified Arbitration

1. Threshold
2. Timeline to Pay Awards
3. Time Limit to Submit Claim

Answer 149

1. $50k or less
2. 30 days
3. 6 Years

Question 150

Timeline to submit Broker Dealer’s updated Contact inform to FINRA

Answer 150

17 Business Days after end or each QUARTER

Question 151

Statutory Disqualification events days to report to FINRA

Answer 151

Promptly NLT 30 days

Question 152

U4 Amendment Timelines

1. Statutory Disqualification Event
2. Other Amendments

Answer 152

1. 10 days
2. 30 days

Question 153

Written Complaint Filing Timeline to FINRA

Answer 153

15 days after end of each QTR

Question 154

Types of Securities allowed when a Member Firm joins in an Underwriting with NonMembers

Answer 154

Exempt Securities
OR
Foreign Underwritings

Question 155

U5

1. Days to submit after departure
2. Days to turn over to new employer if requested of employee

Answer 155

1. 30 days
2. 2 business days

Question 156

Approved duties of a NonRegistered Foreign Representative employed by a Nonmember Affiliate Overseas

& Things they may not do

Answer 156

Visit US Customer
Effect Trades through US Firm

May not ACCEPT ORDERS from a US Customer

Question 157

Settlement Thresholds that warrant Immediate FINRA Notification

1. Individual
2. Firm

Answer 157

1. $15,000
2. $25,000

Question 158

Exception to Notification to firm for transactions with other firms by Associated Person

Answer 158

Investment Company Products

Question 159

OSJ Inspection Frequency for Branches that supervise

Answer 159

Annually

Question 160

OSJ Inspection Frequency for Branches that do not supervise

Answer 160

every 3 years

Question 161

OSJ Inspection Frequency for Branches that Approve Research

Answer 161

No Inspection Required

Question 162

OSJ Inspection Frequency for Branches that just retain records

Answer 162

every 3 years

Question 163

Inspection Frequency for Internal Branch (Not OSJ)

Answer 163

As often as necessary

Question 164

Compliance exams (inspections) required how often of Municipal Broker Dealer Members of FINRA

Answer 164

Every 4 years

Question 165

Records on Gifts kept how long

Answer 165

6 years

Question 166

Temporary hiring of employee of other member firm

1. FINRA Permission
2. Record Retention

Answer 166

1. Not Required
2. 3 years

Question 167

Gift Limit

Answer 167

$100

Question 168

Principal Designation record retention timeline

Answer 168

6 years

Question 169

Tape Recording

Registered Reps & # from Disciplined Firms
1. Level A
2. Level B
3. Level C

Answer 169

1. 5-9 RR with 40% or more
2. 10 - 19 RR with 4 or More
3. 20+ RR with 20% or more

Question 170

Tape Recording

Frequency of reports to FINRA

Answer 170

Quarterly

Question 171

Tape Recording

Violation Period

Answer 171

within the last 3 years

Question 172

Tape Recording

Who must be monitored

Answer 172

Everyone

Question 173

Tape Recording

1. Days to Reduce #s
2. Days to Implement

Answer 173

1. 30
2. 60

Question 174

Political Contributions
MSRB Rule 37

Counted Contribution if
1. spouse of MFP gives from joint account
2. Spouse of MFP gives from single account

Answer 174

1. 50% of contribution
2. 0% (not covered by rule)

Question 175

Political Contributions
MSRB Rule 37

Form G37
1. Submittal Frequency
2. Years kept on File

Answer 175

1. Quarterly
   Jan 31, Apr 30, Jul 31, Oct 31
2. 6 Years

Question 176

Political Contributions
MSRB Rule 37

If donor was in different role when donation made

Answer 176

effective date of donation even if prior to MFP role

Question 177

FINRA Rule for Clearing Firms to provide their Correspondent Introducing Firms a List of their Exception Reports available for their use by what date>

Answer 177

July 1st

Question 178

Branch Office Rules

1. Securities Business Limits
2. NonSecurities Business Limits

Answer 178

1. <30 DAYS / year
2. < 25 TRANSACTIONs / year

Question 179

Rule G37
Automatic Exemption

1. Discovery Period
2. Dollar Limit
3. Recovery Period
4. # Allowed

Answer 179

1. within 4 months of contribution
2. Not exceed $250
3. Returned within 60 days of discovery
4. 2 per year

Question 180

FINRA Rule 2030

1. Time Out Period
2. Dollar Limit (entitled to vote)
3. Dollar Limit (not entitled to vote)

Answer 180

1. 2 year timeout period
2. $350
3. $150

Question 181

Selling Concessions and Discounts when Dealing with NonMembers

1. Standard Rule
2. Exception

Answer 181

1. only between Member Firms
2. Foreign NonMember not Eligible for FINRA Membership

Question 182

Associated Persons Outside Accounts when starting at. anew firm

1. Timeline to notify
2. Spouses & Children

Answer 182

1. 30 days
2. also covered

Question 183

Form Used to certify firm has supervisory procedures in place

Answer 183

Form BD

Question 184

Regulation X

1. What is it?
2. Collateral Restrictions
3. Check Cashing

Answer 184

1. Offshore Account Restriction
2. Requires Reg T Compliance for $ borrowed from outside US to buy US securities
3. Must clear before funds free for purchase

Question 185

Pattern Day Traders

Minimum Maintenance Margin

Answer 185

25%

Question 186

Pattern Day Traders

Buying Power vs. Regular Customer

Answer 186

PDT - 4 Times MAINT Margin Excess

RC - 2 Times SMA

Question 187

Cross Guarantee

1. Regular Customer
2. Day Trader

Answer 187

1. Allowed to use in his account to cover other Margin Calls
2. Not allowed to use other accounts to cover his margin Calls

Question 188

Prime Brokerage Account

Mechanics

Answer 188

Customer Trades
routed to
Executing Brokers A, B or C
routed to
Prime Broker

Question 189

Prime Brokerage Account

Purpose

Answer 189

Provides customer with reports and custody

Question 190

Prudent Expert Rule

1. What is it
2. Types of Investments

Answer 190

1. Permits Fiduciary to buy securities a prudent expert would buy
2. Non-Speculative, Low to mod risk, in line with Modern Portfolio Principles

Question 191

USA Patriot Act

Document required for ID when opening account for Nonresident Alien

Answer 191

Passport Number
or
Alien Registration Card

Question 192

Research Analyst Compensation

1. Prohibited Participants
2. Frequency for Approvals

Answer 192

1. Investment Banking Personnel
   Other Analysts
2. Annually

Question 193

Limitation to Requirement for Duplicate Copies for Employee with Outside account

Answer 193

Muni Funds
Variable Annuities
Mutual Funds
UITs

Question 194

Gives Real-time Prices Paid for Interdealer Transactions of Munis

Answer 194

EMMA
Electronic
Municipal
Market
Access

Question 195

Who has final Authority on all Negotiability and Good Delivery Matters involving Certificates

Answer 195

Transfer Agent

Question 196

What terminates the discretionary authority on a Discretionary Acct

Answer 196

Death or mental incompetence

Question 197

Not Held Order

Answer 197

Price and Time
Day orders

Question 198

Holding Mail

1. Convenience Limit
2. Acceptable Reasons for Longer Periods

Answer 198

1. 3 months
2. Safety or Security

Question 199

Offer of Rescission

1. What is it
2. Cost Basis
3. Interest
4. Timeline to Accept Offer

Answer 199

1. Firm offers to buy back security
2. Higher cost or Market Value
3. Interest Paid from date of purchase to repurchase date
4. 30 days

Question 200

Quantitative Suitability Obligation

Answer 200

Requires BD to ensure transactions are not excessive even if they are suitable individually

Suitability in the aggregate

Question 201

Municipal Broker Dealer

1. Who approves complaint resolutions
2. Time kept on file
   MSRB Rules
   FINRA Rules

Answer 201

1. Municipals Principal (Series 53)
   Municipal Sales Principal (Series 10)
2. MSRB - 6 years
   FINRA - 4 Years

Question 202

Bearer Bond Denominations

Answer 202

$1,000 or $5,000

Question 203

Registered Bond Denominations

Answer 203

$1,000 or $100,000

Question 204

Partial Delivery

1. MSRB Rules
2. FINRA Rules

Answer 204

1. Never Allowed
2. Only Round Lots

Question 205

Callable Bond Delivery

If ID’d at time of trade as called

Answer 205

Delivery of Called Bonds is Good

Question 206

Callable Bond Delivery

Partial called on or before settlement date

Answer 206

Seller must deliver only non-called bonds

Question 207

Callable Bond Delivery

Whole Call on/before Trade date

Answer 207

Seller must ID to Buyer that bond is called

Question 208

Callable Bond Delivery

Whole Called AFTER trade Date

Answer 208

Bond is good deliver - buyer must accept

Question 209

When are OTC securities marginable

Answer 209

Only if on Fed Reserves Marginable Securities List

Question 210

When are Standard Options Marginable

Answer 210

if > 9 months

Question 211

Margining LEAPS

1. Timeframe for eligibility
2. Reg T Requirement

Answer 211

1. > 9Months
2. 75% of Premium

Question 212

When is the Risk Disclosure Due on a Day Trading Account and how can delivery be made

Answer 212

Before Opening Account

In Writing or Electronically

Question 213

How long do you have to get approval if an account is engaging in day trading but not yet approved

Answer 213

10 days

Question 214

Disclosure for Day Trading requirements in an Institutional Account versus a Non-Institutional Account

Answer 214

Institutional does not require disclosure

Non-institutional does

Question 215

LGIPs

1. What are they
2. Guarantee

Answer 215

1. Pool of multiple municipal funds issued by State
2. Not guaranteed

Question 216

MSRB Rule 17

Answer 216

Proper Conduct Rule
Must deal fairly with all persons

Question 217

Municipal Securities Status WRT Securities Act of 1933

Answer 217

Exempt Securities

Question 218

MSRB Regulating over Municipalities

Answer 218

Municipalities are not subject to regulation by MSRB

Question 219

Form U6 Purpose

Answer 219

Used by regulators to report Disciplinary Action and Final Arbitration Awards

Question 220

Foreign Associates

1. Who Are they
2. Registration
3. Licensing

Answer 220

1. Conduct all business outside the US
2. Must Register with FINRA
3. Exempt from Exams

Question 221

Series 57

Answer 221

Securities Trader
Direct Access to the Marketplace

Question 222

Regulatory Element

Computer-Based Training Requirement
1. Initial
2. All Others

Answer 222

1. w/in 120 days of 2nd anniversary
2. Every 3 years after

Question 223

Series 9/10 Authorities when it comes to Municipal Securities and other General Securities

Answer 223

May supervise activities

May NOT Approve Advertising

Question 224

Minor Rule Violation Max Fine

Answer 224

$2,500

Question 225

Industrial Development Bonds

1. Tax Treatment
2. Who Issues

Answer 225

1. Alternative Min Tax
2. Municipality

Question 226

License Required to Sell Municipal FUND Securities

Answer 226

6, 7, or 52

Question 227

3 Stages of Money Laundering Process

Answer 227

Placement
Layering
Integration

Question 228

SIPC Coverage

1. Max Allowed
2. Cash Balance Max

Answer 228

1. $500,000 per client
2. $250,000 cash

Question 229

Outside Business Activities

1. Employee Requirement
2. Firm Requirement
3. Approval

Answer 229

1. Written Notification
2. May reject or restrict
3. Written Approval by Firm Not Required

Question 230

Effective Date for Sanctions

Answer 230

No earlier than 30 days

unless permanent cease & desist order

Question 231

Timeline to File Fingerprint Card with FINRA

Answer 231

NLT 30 days after filing U4

Question 232

Timeline a Member is still subject to a complaint for activity after having left the firm

Answer 232

2 years
(includes nonregistered personell)

Question 233

Arbitration

When must a customer submit a request for written explanation as to why a claim was granted or denied (explain the decision)?

Answer 233

Before Arbitration Panel Holds 1st Meeting

Question 234

A municipal securities sales principal (NYSE sales supervisor) may be given responsibility for directly supervising which of the following activities of a municipal securities dealer?

A)
Underwriting
B)
Approving customer accounts
C)
Trading
D)
Retail communications

Answer 234

B)
Approving customer accounts

Question 235

The MSRB regulates the municipal securities activities of all of the following except

A)
municipal brokers’ brokers.
B)
municipal issuers.
C)
municipal syndicates.
D)
municipal bank dealers.

Answer 235

B)
municipal issuers.

Question 236

Each of the following words or phrase are associated with Regulation A except

A)
12-month period.
B)
access equals delivery.
C)
Form 8-A.
D)
80% of the issuer’s assets located in the state of incorporation.

Answer 236

D)
80% of the issuer’s assets located in the state of incorporation.

Question 237

According to MSRB rules, to constitute good delivery, bonds must be accompanied by all of the following except

A)
the delivery ticket.
B)
an endorsement of the certificate.
C)
the legal opinion.
D)
the trust indenture.

Answer 237

D)
the trust indenture.

Question 238

Underwriters must submit copies of the official statement (OS)

A)
by overnight service.
B)
by First-Class Mail or some equally prompt means.
C)
electronically to a Nationally Recognized Municipal Securities Information Repository.
D)
electronically to EMMA.

Answer 238

D)
electronically to EMMA.

Question 239

Retail communications concerning which of the following must be filed with FINRA’s Advertising Regulation Department within 10 days of first use?

A)
Corporate straight-debt securities
B)
Equity securities
C)
Corporate convertible-debt securities
D)
Open-end investment company securities

Answer 239

D)
Open-end investment company securities

Question 240

Which statement is true concerning a municipal broker-dealer’s supervisory system?

A)
A municipal representative may not assist in the counting of physical securities.
B)
A municipal representative may supervise trainees.
C)
A municipal principal does not have to be located at each branch office where municipal business is conducted.
D)
A municipal principal must be physically located at each branch office where municipal business is conducted.

Answer 240

C)
A municipal principal does not have to be located at each branch office where municipal business is conducted.

Question 241

How many business days after the settlement date does a broker-dealer have to buy in a customer who has failed to deliver securities to satisfy a sale?

Answer 241

10 BDs

Question 242

FINRA members may charge separately for all of the following services except

A)
transfer of securities.
B)
appraisals of privately placed securities.
C)
recommendations of which securities to buy or sell.
D)
safekeeping of physical securities.

Answer 242

C)
recommendations of which securities to buy or sell.

Question 243

Control stock purchased in the open market is

I. restricted for one year from purchase.
II. not restricted.
III. subject to volume restrictions under Rule 144 when sold.
IV. not subject to volume restrictions under Rule 144 when sold.
A)
I and III
B)
II and IV
C)
I and IV
D)
II and III

Answer 243

II. not restricted.
III. subject to volume restrictions under Rule 144 when sold.

Question 244

Under MSRB Rule G-15, each of the following must be disclosed on a customer confirmation except

A)
control relationship (if any).
B)
CUSIP number.
C)
bond rating.
D)
the fact that a bond is not rated.

Answer 244

C)
bond rating.

Question 245

All of the following disputes that an associated person has with a member firm are excepted from the FINRA Code of Arbitration except

A)
discrimination.
B)
sexual harassment.
C)
hostile work environment.
D)
whistleblower retaliation.

Answer 245

C)
hostile work environment.

Question 246

A customer’s margin account may be guaranteed

A)
by another customer of the broker-dealer carrying the account.
B)
by a member of the customer’s immediate family.
C)
by the broker-dealer carrying the account.
D)
under no circumstances.

Answer 246

A)
by another customer of the broker-dealer carrying the account.

Question 247

Which of these individuals must register as a principal with FINRA?

A)
A director of human resources for a member firm
B)
A registered representative that manages a branch office
C)
A director actively engaged in a member firm’s securities business
D)
A nominal corporate officer of a member firm

Answer 247

C)
A director actively engaged in a member firm’s securities business

Question 248

You receive an email from a customer who requests that you contact one of his friends who is interested in opening up a brokerage account. The friend is on the National Do Not Call Registry. Under FINRA rules, you may

A)
contact this person by phone without restriction.
B)
contact this person by phone only if he is not on your firm’s do-not-call list.
C)
contact this person by phone only between 8:00 am and 9:00 pm.
D)
not contact this person by phone.

Answer 248

D)
not contact this person by phone.

Question 249

During a training session, representative asks you about common violations that she wishes to avoid. You tell her that of the following potential violations, the one you are least concerned about is

A)
rehypothecating fully paid customer securities with a third-party bank to secure a margin loan.
B)
commingling of a customer’s securities with those of other customers in a margin account.
C)
backing away from a quote.
D)
breakpoint sales.

Answer 249

B)
commingling of a customer’s securities with those of other customers in a margin account.

Question 250

An issuer may direct sales of a new issue to all of the following except

A)
officers of its largest supplier.
B)
officers of the managing underwriter.
C)
officers of its largest customer.
D)
officers of the issuer.

Answer 250

B)
officers of the managing underwriter.

Issuer-directed sales are permitted if the persons to whom the new issue is sold are not restricted. Officers of the managing underwriter are restricted.

Question 251

Rule 144 applies to the sale of securities by all of the following except

A)
nonissuers.
B)
affiliated persons.
C)
control persons.
D)
issuers.

Answer 251

D)
issuers.

the rule deals with the sale of unregistered securities by nonaffiliated persons (e.g., investors who bought unregistered shares in a private placement) and the sale of registered stock by control persons and their affiliates (e.g., spouses).

Question 252

If an investment adviser purchases a research report from the advisory arm of a nonaffiliated broker- dealer, the adviser may distribute this report to customers when

Answer 252

D)
if the customers are told that the report was prepared by a third party.

Question 253

Which statement concerning the delivery of an official statement (OS) to investors is not true?

A)
When a final official statement is not prepared but a preliminary OS is, that POS must be provided to investors with notice that a final OS will not be available.
B)
When an official statement is not prepared, notice of that is sent to customers.
C)
Underwriters are required to submit to the MSRB for posting on EMMA copies of the official statement for new issues of municipal securities.
D)
Official statements are not required to be sent to customers with exempt securities.

Answer 253

D)
Official statements are not required to be sent to customers with exempt securities.

Question 254

Activity Allowed during a trading Halt

Answer 254

Only cancel an open order

Question 255

Which of the following statements regarding corporate officers and affiliates are true?

I. The number of an issuer’s exchange-listed equity securities is limited in any 90-day period.
II. Short swing profits must be disgorged.
III. Form 13D must be filed when holdings reach 5%.
IV. Short selling is permitted.

Answer 255

I. The number of an issuer’s exchange-listed equity securities is limited in any 90-day period.
II. Short swing profits must be disgorged.

Question 256

Market participation in which of the following securities or activities is not subject to MSRB regulation?

A)
State IOUs (warrants)
B)
Build America Bonds (BABs)
C)
Issuer’s reliance on market participants placing private activity bonds (PABs)
D)
Bond ballot campaign contributions

Answer 256

The MSRB has no jurisdiction over issuers, including their reliance upon anything.

Question 257

Which of the following are true regarding the tiers of securities offerings available under Regulation A that facilitate capital raising by smaller companies?

A)
Neither tier requires public investors to be qualified or accredited.
B)
Both tiers require that public investors be accredited.
C)
Each tier is open to the public for investing.
D)
Both tiers specify maximum investment limits per offering for investors.

Answer 257

C)
Each tier is open to the public for investing.

Question 258

Under SEC rules, the ABC Growth Fund must have at least what percentage of its portfolio invested in growth stocks?

Answer 258

80%

Question 259

Confirmation of a regular way municipal securities trade between dealers must be mailed

Answer 259

on or before the business day following the trade date.

Question 260

A registered associated person of ABC Securities, a member firm, walks into your office and wants to open a brokerage account. Your firm must notify ABC Securities in writing before

Answer 260

opening the account.

Question 261

Under which of the following circumstances is a foreign issuer subject to Regulation S?

A)
U.S. residents own 9% of its debt securities or 21% of its voting securities
B)
U.S. residents own 22% of its debt securities or 51% of its voting securities
C)
U.S. residents own 12% of its debt securities or 31% of its voting securities
D)
U.S. residents own 19% of its debt securities or 41% of its voting securities

Answer 261

To be a foreign issuer, no more than 50% of its voting securities and no more than 20% of its debt securities can be owned by persons with U.S. addresses.

Question 262

Dealers participating in a secondary market joint account cannot quote the securities if the quotations indicate what

Answer 262

that there is more than one market for these bonds.

In other words, all participants must be offering the bonds at the same price.

Question 263

The FINRA 5% policy

Answer 263

only a guide to fair markups and commissions

Question 264

Under SEC Rule 10b-18, an issuer purchasing its own securities must adhere to the following rules:

1. # of Market Makers used
2. Daily Trading Volume Limit
3. Block Purchases

Answer 264

1. Only 1 MM
2. 25% average daily trading volume
3. Allowed

Question 265

Status of Outside Directors or Partners whose only connection with the firm is the contribution of capital

Answer 265

Associated Persons of the Broker Dealer

Question 266

U5 Form

Former Employer
1. Filing with CRD timeline
2. Providing to new Employer

Answer 266

1. 30 days
2. Not Required from former to new employer

Question 267

When might a Broker Dealer become exempt from filing Form G37

Answer 267

Not Engaged in Municipal Securities Business for
8 Consecutive Quarters

Question 268

Branch Officer Designated Supervisors Location

Answer 268

Not required to be physically located at the branch

Question 269

Certificate of Incumbency

1. What is it?
2. Valid for how long?

Answer 269

1. Appoints an individual to oversee guardianship account
2. 60 days

Question 270

UTMA/UGMA Accounts

Social Security Numbers of Minor

Answer 270

Required on Account

Question 271

140% Rule

1. Max Allowed by a firm to borrow
2. Max Allowed to Hypothecate

Answer 271

1. No More than 100% of Debit Balance
2. 140% of Debit Balance

Question 272

Maintenance Market Value Calculation

Answer 272

=DB/0.75

Question 273

Minimum Maintenance Calculation

Answer 273

25% of LMV

Question 274

Timeline to get Quarterly and Monthly Period Statements to customers by the end of the period

Answer 274

5 business days

Question 275

Requirement if a customer wishes to receive periodic statements as an alternative to immediate confirmations of individual transactions

1. Individual requirement
2. If Participating in a Group Plan

Answer 275

1. Customer Must Consent in writing
2. No Consent required

Question 276

Statement Requirement for

1. Periodic Municipal Fund Security Plans

vs

2. NonPeriodic Municipal Funds Security Programs

Answer 276

1. Quarterly
2. Monthly

Question 277

2 Situations that require permissoin from a discretionary Account Holder

Answer 277

1. Existence of Control Relationship
2. DPP Transaction

Question 278

Approval required for Municipal Securities Transaction in a Discretionary Account

Answer 278

Written approval of Municipal Securites Principal or Municipal Securities Sales Principal for EACH transaction

Includes Time & Date

Question 279

Free Credit Balance Notification Requirement

1. Active Accounts
2. Inactive Accounts

Answer 279

1. Monthly
2. Quarterly

Question 280

Private Placement Filing Requirement

Offerings Exempt from Registration under Securities Act of 1933
1. Investor Type
2. Advertising & Solicitation
3. Form Required
4. Timeline to File

Answer 280

1. Accredited Only
2. Not allowed
3. Form D
4. 15 days of the first sale

Question 281

Rule 144

1. Purpose
2. Status

Answer 281

1. Safeharbor to sellers allowing them to offer shares without being deemed engaged in a distribution
2. NOT UNDERWRITERS

Question 282

Rule 144 Private Placement

Holding Periods for
Control Stock vs Restricted Stock

Answer 282

Control - None
Restricted - Holding Period

Question 283

Rule 144 Private Placement

Volume Limits

Control Stock vs Restricted (Affiliate vs, Non)

Answer 283

Control Stock - Always apply

Restricted
Nonaffiliate - Sell freely after holding period
Affiliate - Volume Limits always

Question 284

Rule 144 Private Placement

Volume Limits

Control Stock
vs
Restricted Affiliate
vs
Restricted Non Affiliate

Answer 284

Control Stock - Always apply

Restricted
Nonaffiliate - Sell freely after holding period
Affiliate - Volume Limits always

Question 285

Rule 144

Restricted Stock held by estate volume limits and holding period

Answer 285

Exempt from holding period & volume limits

Question 286

Rule 144

Transactions should be executed how

Answer 286

Agency Only
UNLESS
Firm is registered Market Maker or Block Positioner in the shock

Question 287

Rule 144

When Callbacks are Authorized when interest expressed

1. Customers
2. Firms

Answer 287

1. 10 BDs
2. 60 Calendar Days

Question 288

Which Broker Dealers are Exempt from Penny Stock Rules

Answer 288

Those whose transactions are 5% or less of total revenues

Question 289

Action required when a security that represents 5% of total asset in a fund increases due to capital appreciation to maintain a diversified status

Answer 289

No Action Required

Question 290

Timeline to retain file for all correspondence

Answer 290

3 years

Question 291

Form U5 penalty for not disclosing a problem as a principal timeframe

Answer 291

2 years

Question 292

Uniformed Securities Act requires what?

Answer 292

Requires BDs to register in State

AKA “Blue Sky Laws”

Question 293

SIPC Coverage for Corporate & Partnership Accounts

Answer 293

Each account entitled to separate customer status; separate from the accounts of its directors, partners, or owners

Question 294

SIPC Coverage for Trust Accounts

Answer 294

Considered a separate customer from other parties

Question 295

SIPC Coverage for multiple Joint Accounts

Answer 295

Combined for coverage purposes

Question 296

SIPC Coverage for customer with both Margin and Cash Account

Answer 296

Combined for coverage purposes

Question 297

Freeriding

Answer 297

Buying stock and selling it the next day to cover original purchase

Question 298

Short Selling

Institutional lenders making their shares available rights

Answer 298

right to charge a fee to borrow

Question 299

Short Selling

Dividend Payouts:
1. To Lender
2. To Buyer

Answer 299

1. From Borrower’s Account
2. Directly from Issuer

Question 300

Short Selling

Stock Split impact

Answer 300

Lender retains right but goes to buyer

Borrower settles with lender on close-out

Question 301

Margin Agreements

Disclosure Document:
1. Initial Delivery
2. Subsequent Deliver

Answer 301

1. at or before Acct Opening
2. Annually

Question 302

Using Margin in Trust Accounts

Answer 302

Only if written into the trust

Question 303

Use of Margin Agreements for Customer Opening Online

Answer 303

Post Disclosure on Firm Website

Question 304

UGMA/UTMA

Status of a Gift

Answer 304

Irrevocable

Question 305

Double Barrel Bond

Answer 305

Both GO and Revenue Bond Combined

i.e. State University

Question 306

Bond Legal Opinion

1. Unqualified
2. Qualified
3. Ex-Legal

Answer 306

1. Unqual - without restriction
2. Qual - Expresses reservations with issue
3. No legal opinion

Question 307

Who pays shipping costs for bond certificate delivery

Answer 307

Seller

Question 308

Not Held Orders when client leaves country

Answer 308

Obtain Discretionary Authority

Question 309

Document required for mutilated bond certificate to be good delivery

Answer 309

Validation Letter

Question 310

Order ticket when a customer is Long and Short a position

Answer 310

Net Position entered for tracking Purposes

Question 311

Order Tickets retained for how long

Answer 311

3 years

Question 312

Information not required on a Customer Confirmation

Answer 312

Solicited/Unsolicited
Discretionary or not

Question 313

Proxy Materials

1. Customer Suspense to Return
2. Who Pays Shipping Costs

Answer 313

1. 10 days before Annual Meeting
2. Issuer reimburses firm

Question 314

Electronic Blue Sheets

Answer 314

Used to submit responses to insider trading inquiries from SEC

Question 315

Penalty for Controlled Person who makes trade in Insider Trading

Answer 315

Three Times the Profit made or loss avoided

Question 316

Insider Trading Statute of Limitations

Answer 316

5 years from transaction dates

Question 317

Relatives included in restricted persons definition

Answer 317

Spouse, Parents, Childre, Siblings, In Laws, person who lives in HH or provides material support to or receives material support from

DOES NOT INCLUDE Grandparents or Aunts/Uncles

Question 318

Standby Purchaser of an IPO is restricted from Resale for how long

Answer 318

3 months

Question 319

Sub Penny Rule

1. Minimum Increment Allowed
2. Pink Sheet Quotes Allowed
3. Pink Sheet Order Pricing Allowed

Answer 319

1. $0.0001
2. in Sub Pennies
3. Whole Pennies only

Question 320

Frequency Allowed between 1035 exchanges

Answer 320

36 months

Question 321

Penny Stocks

Risk Disclosure Requirement
1. Delivery
2. Customer Responsibility

Answer 321

1. Before Initial Transaction
2. Signed by customer

Question 322

Members and Associated Persons Sharing Commissions and Allowances with Nonmembers

1, Normal Practice
2. Exception

Answer 322

1. Not Allowed
2. Nonregistered Foreign persons may receive compensation for sending foreign referrals

Question 323

`Broker

Answer 323

Person engaging in business of effecting transactions in securities

Question 324

Dealer

Answer 324

Those acting on behalf of their own proprietary account

Question 325

OSJ Person in Charge

Answer 325

Resident Principal

Question 326

Time Limit for Registered Rep to fill in as Principal for a branch without qualification exams

Answer 326

120 days

Question 327

Grounds for FINRA to request that the FBI search its database using an Associated Person’s Name

Answer 327

After 3 unsuccessful attempts at reading a fingerprint card

Question 328

Types of claims Not Subject to FINRA Arbitration

Answer 328

Class Action Claims

Question 329

During Mediation

Once Mediation begins, when may a party withdraw

Answer 329

at any time without consent of the mediator or other party

Question 330

Who serves the balance of a 2-year prohibition when a MFP leaves a firm they committed the violation in and goes to a new one

Answer 330

Both Firms complete the balance

Question 331

Who gets the results once a branch exam is complete?

Answer 331

OSJ

Question 332

Suspended Member eligibility to participate as a Syndicate Member for an underwriting if their suspension ends before effective dates of the offering

Answer 332

Still prohibited

Question 333

Regulation National Market System (NMS)

Answer 333

Ensures investors get National Best Bid or Offer (NBBO)

Question 334

Information required when entering an order for a partnership, corporation, or joint account

Answer 334

Names & address of person entering order

Question 335

Form W8 vs W9

Answer 335

W8 - Foreign Validation Tax Status
W9 - US Validation Tax Status

Question 336

Currency Transaction Report (CTR)

1. Dollar Threshold
2. Filing Timeline
3. Form Used
4. Reports To

Answer 336

1.MORE THAN $10,000 single day
2. 15 Days
3. Form 112
4. Fed Reserve & Dept of Treasury

Question 337

Suspicious Activity Report (SAR)

1. Dollar Threshold
2. Filing Timeline
3. Form Used
4. Reports to

Answer 337

1. $5,000 in aggregate
2. 30 Days
3. FinCEN Report 111
4. FinCEN (Financial Crimes Enforcement Network)

Question 338

PATRIOT Act

Wire Transfer Records

1. Dollar Threshold
2. Form Used

Answer 338

1. $3,000
2. FinCEN Report 111

Question 339

Introducing (Fully Disclosed) Broker-Dealer

Answer 339

Like a Boutique Firm using Schwab to effect trades

Question 340

Specified Adult

1. Temporary Hold Timeline
2. Extension

Answer 340

1. 15 BDs
2. 10 BDs

Question 341

Options use in a Custodial Account

Answer 341

Covered Call Writing only

Question 342

Commingling Securities for Hypothecation

1. Among Customers
2. Proprietary Accounts

Answer 342

1. Allowed
2. Never Allowed

Question 343

Additional Purchases in a restricted account

Answer 343

Requires 50% up front

Question 344

When is SMA prohibited from being used

Answer 344

When it brings the account below minimum (25%)

Question 345

House Call

Answer 345

Firm’s Internal Minimum Margin for a Margin Account

Question 346

Setting Up A Short Account

1. Minimum Balance

Answer 346

1. $2,000

Question 347

Purchasing New Issues On Margin

TImeline To Pass before Allowed

Answer 347

30 days after IPO

Question 348

Time period required to pass before Mutual Fund can be used to meet Fed Fall on subsequent purchase of stock

Answer 348

30 days

Question 349

Purchasing Mutual Funds on Margin

Answer 349

Not Allowed

Question 350

Customers buying options in a Margin Account

Answer 350

Must pay FULL Premium

Question 351

18 Month Record

Answer 351

Exception Reports

Question 352

CTR (Form 112)
SAR (Form 111)
Records Related to Customer Identification

Answer 352

5 Year Records

Question 353

Advertising
FOCUS Reports
Trial Balances
Form U4, U5 and fingerprint cards for terminated personnel
Order Tickets
Customer Confirms
Compliance Manuals

Answer 353

3 Year Records

Question 354

Records of Designated Principals

Answer 354

6 Year Records

Question 355

ACATS

1. Validate & Return Trans Instruction to receiving member
2. Complete Transfer
3. Send Proceeds for NonACAT Assets

Answer 355

1. 1 BD
2. 3 BDs
3. 5 BDs

Question 356

Carrying member treatment of a transfer when there is a dispute over securities positions or the money balance in the account

Answer 356

Member must validate regardless

Question 357

Block transfers may only be used when the Registered Representative’s prior broker dealer…

Answer 357

Agrees to participate in the program

Question 358

Who Approves the rules for SROs

Answer 358

The SEC

Question 359

Examples of SROs

Answer 359

MSRB, FINRA, CBOE

Question 360

Other Name for General Obligation Bonds

Answer 360

Full-Faith & Credit Bonds

Question 361

Municipal Fund Securities requirement to register with the SEC under the

1. Securities Act of 1933
2. Investment Company Act of 1940

Answer 361

1. Exempt
2. Exempt

Question 362

Municipal Fund Security

1. Preparing Prospectus & Statement of Individual Information
   2.Daily Calculation of NAV
2. Establishing a BOD

Answer 362

All EXEMPT

Question 363

LGIPs risks when it comes to guarantees and the market

Answer 363

They are not backed by Government
Subject to Risks of hte Market

Question 364

Who controls the assets of a 529 plan after the student is of legal age

Answer 364

The Donor still controles

Question 365

Can a child benefit from an ESA and 529 at the same time

Answer 365

Yes

Question 366

Floating or Variable Rate Maturity

1. YTC or YTM
2. Current Interest Rate

Answer 366

1. Not Included
2. Included

Question 367

Fair & Reasonable Price Effort by Broker Dealer when effecting trades for a Sophisticated Municipal Market Maker under Rule G-48

Answer 367

The Duty is Eliminated

Question 368

New Municipal Offerings

Issuer’s Official Statement Review before bidding for purchase by underwriters for all offers above what amount.

Answer 368

$1M

Question 369

Bond Resolution

1. Authorization Resolution
   vs
2. Award Resolution

Answer 369

1. Authorizes issuance of the bonds
2. Authorized sale of the bonds

Question 370

Trust Indenture Requirment

Answer 370

Not Required by law

Question 371

Final Statement

1. Delivery Timeline to customer
2. Consequence if still not ready

Answer 371

1. On/Before Settlement
2. Syndicate Manager has violated Board Rules

Question 372

SMMP Entities
Sophisticated
Municipal
Market
Professionals

Answer 372

Bank
Insurance Company
Registered Investment Company
Investment Adviser
Natural Person with assets totaling over $50M

Question 373

Confirmation description for a noncallable municipal bond that has been advance refunded to the original maturity date

Answer 373

Must Describe as Escrowed to Maturity

Question 374

Customer Requests for information about a trade time to respond

1. Less than 30 days since trade
2. > 30 days after trade

Answer 374

1. 5 BD
2. 15 BD

Question 375

TIC accounts treatments of orders at the death of one tenant

Answer 375

Account is frozen until documents are presented

Question 376

Reg A Offering Circular

When does it need to be provided to purchases

Answer 376

at least 48 hours in advance of sales

Question 377

Qualified Invester under the Investment Company Act of 1940

Answer 377

Owns at least $5M in investments
or
Person with $25M in discretionary basis

Question 378

Reg D 506(b) vs 506(c)

Disclosure Document Required

Answer 378

506(b) - Required to Nonaccredited Investors

506(c) - None Required

Question 379

Reg D 506(b) vs 506(c)

Investor Status Verification

Answer 379

506(b) - Investor’s Word

506(c) - Issuer reasonable attempt to verify

Question 380

Reg D 506(b) vs 506(c)

Investor Type Allowed

Answer 380

506(b) - up to 35 Nonaccredited

506(c) - Accredited Only

Question 381

Reg D 506(b) vs 506(c)

Solicitation

Answer 381

506(b) - Pre-Existing Relationship Required

506(c) - Freely to any Accredited Investor

Question 382

Regulation S

Holding period for Debt Securities to be considered “Seasoned”

Answer 382

40 Days

Question 383

Regulation S

Holding Period
1. If Issuer is a Reporting Company (10K, 8K, ect.)
2. If Issuer is Nonreporting Company
3. Sales to SEC-Designated Offshore Securities Market

Answer 383

1. 6 Months
2. 1 Year
3. No Holding Period

Question 384

Regulation S

Answer 384

Offers and sales made outside the US by both US and Foreign issuer are excluded from Securites Act of 1933

Question 385

Insiders of a corporation investing in Options

1. Individuals
2. Corporate Accounts

Answer 385

1. Can only write calls against long positions
2. No options allowed

Question 386

FINRA Markup/Markdown Rules when it comes to Municipal Securities

Answer 386

Does not apply

Question 387

Breakpoints and Investments clubs

Answer 387

May not benefit from them

Question 388

“Weighted Average Price” when filling a trade

Answer 388

when traders are executing multiple trades in an attempt to fill a customer’s order

Question 389

Material Support as it pertains to inclusion in the Restricted Persona Family Member list

Answer 389

25% of person’s income over the last year directly or indirectly

Question 390

Representation Letter Requirement for sales of a new issue attesting to eligibility to purchase new issue

1. Initial Verification
2. Annual Verification

Answer 390

1. Positive Affirmation Letter
2. Negative Consent Letter

Question 391

Securities Purchased in a standby arrangement are restricted from resale for how long

Answer 391

3 months

Question 392

Diversification Rule 75-5-10 to be defined as “Diversified”

1. 75%
2. 5%
   3.10%
3. Remaining 25%

Answer 392

1. 75% in securities issued by other companies (not investment company itself)
2. No more than 5% in securities of any one issuer
3. No more than 10% of voting shares of any one issuer
4. No conditions on remaining 25%

Question 393

Including Distributions of Long-Term Capital Gains by a Mutual Fund as part of the Current Yield

Answer 393

Prohibited

Question 394

Who is the Market Maker for a Mutual Fund

Answer 394

The Fund itself

Question 395

One- Sided vs Two-Sided Quotes

Who May use which?

Answer 395

Nasdaq must be two-sided

OTC Market can be one-sided

Question 396

An associated person (AP) of a broker-dealer who is limited to the sale of Section 529 education savings plans passed the Series 51 qualification exam. In order to act as a municipal fund securities limited principal, the AP must also have what qualifications?

Answer 396

Series 24 or Series 26 Principal

Question 397

Who is responsible for disclosing teh finder’s fee when making client referrals to other professionals

Answer 397

The Registered Party (not necessarily the accountant, ect)

Question 398

Buy In Requirements under Regulation SHO on Threshold List (Hard to Borrow List) if there is a fail to deliver:

1. Regular Stock
2. Rule 144 Stock

Answer 398

1. 13 Consecutive Settlement Days
2. 35 Consecutive Settlement Days

Question 399

Margin Call

vs

Maintenance Margin

Answer 399

1. Original Call for Funds under Reg T (i.e <50%)
2. Call for Add’l Money (i.e <25%)

Question 400

A major shareholder makes repeated purchases and sales of XYZ Company common stock on the open market to give the impression that it is actively traded.

Known as Painting the Tape but what else is it known as

Answer 400

Matched Orders

Question 401

What happens to the power of attorney after a client dies

Answer 401

It ceases to be valid

Question 402

Which principals may approve, in writing, the opening of a municipal securities discretionary account and each transaction in the account?

Answer 402

A municipal securities principal
A municipal securities sales principal

Question 403

Which principals may approve, in writing, the opening of a municipal securities account?

Answer 403

A municipal securities principal
A municipal securities sales principal
A general securities principal

Question 404

Use of an Abstract of an Official Statement

Answer 404

Distribute it to institutional investors interested in the bond

Distribute it to a buying customer instead of the official statement (AS A TEMPORARY SUBSTITUTE)

Question 405

If a registered representative wishes to invest directly with an issuer by purchasing $50,000 of the issuer’s unregistered shares, they must do what?

Answer 405

The employer member firm must be notified.

Question 406

A customer market-on-open order to purchase 900 ABCD was effected by an order entry firm, which bought the shares from a market maker for 91.50, and simultaneously sold them to the customer at 91.60 net, which included a 10 cent per share markup. The trade is reported to the TRF as

Answer 406

900 shares of ABCD at 91.50.

The price to be reported through FINRA/Nasdaq Trade Reporting Facility (TRF) excludes commissions, markups, and markdowns.

Question 407

commission revenues directed to broker-dealers by institutional investors in return for third-party services such as research.

Answer 407

Soft Dollars

Question 408

A mark-up percentage based upon FINRA’s 5% policy is

Answer 408

lowest ask price at that moment.

Question 409

A research report distributed by a member firm on the common stock of a listed company must include all of the following information except

A)
whether a control relationship exists between the member and the issuer.
B)
whether the member firm is a third-market maker in the common stock.
C)
whether, within the past year, the member was part of a selling group offering the issuer’s securities.
D)
market price as of the report date.

Answer 409

C)
whether, within the past year, the member was part of a selling group offering the issuer’s securities.

Question 410

If a member receives an order from a conduit such as a bank,

1. Member Requirement
2. Identity Requirement

Answer 410

1. the member must make an inquiry as to whether the ultimate purchaser is restricted.
2. It is not necessary to determine the identity and business affiliations of the purchaser

Question 411

Under FINRA rules, if a member firm receives an order to buy a new equity issue on behalf of an undisclosed principal from a bank, the member must

A)
determine the identity of the purchaser.
B)
obtain a representation from the bank that the purchaser is not restricted.
C)
reject the order.
D)
accept the order.

Answer 411

B)
obtain a representation from the bank that the purchaser is not restricted.

Question 412

Fee Schedule

1. Initial Delivery
2. Changes Timeline to Notify
3. Means to notify of changes

Answer 412

1. no later than account opening.
2. at least 30 days in advance
3. may be done electronically (by email or posting on the firm’s website).

Question 413

Designated Examining Authority

Answer 413

i.e FINRA

Question 414

Under SEC Rule 606, how often are member firms required to make publicly available reports on their order routing methods?

Answer 414

Quarterly

Question 415

Which type of advertising is permissible in conjunction with a private placement offered under Regulation D?

Answer 415

Accredited Investors

informational meetings open solely to offerees and their representatives

Question 416

Active Duty Status

1. impact on Securities License
2. Performance of Duties as Registered Person
3. Receiving Commissions

Answer 416

1. specifically designated inactive status
2. Prohibited
3. Can still receive Commissions

Question 417

A municipal firm receives a claim from another dealer for an interest payment sent to the wrong party.

1. If claim is made within 60 days of the interest payment date
2. if the claim were received more than 60 days from the interest payment date.

Answer 417

1. 10 BDs
2. 20 BDs

Question 418

attempt to fall under the $10,000 radar to avoid a CTR filing by the receiving institution.

Answer 418

Structuring

Question 419

A member or an associated person may contact which of the following potential buyers of privately placed stock under Regulation D Rule 506(b)?

1. Customers
2. Other Member Broker Dealer

Answer 419

1. 10 BDs
2. 60 Calendar Days

Question 420

An individual who is licensed with the administrator as an agent of a broker-dealer wants to offer wrap fee programs sponsored by the firm. To do so, it would be necessary to

Answer 420

register with the state as an

Investment Adviser Representative.

Question 421

A Broker Dealer wants to offer wrap fee programs. To do so, it would be necessary to

Answer 421

register with the state as an

Investment Adviser.

Question 422

Under the Securities Act of 1933, commercial paper is exempt from the prospectus delivery requirements or registration, unless its maturity is more than how many months?

Answer 422

9 months

Question 423

Submission of the official statement in response to a customer request is required within how many days?

Answer 423

1 BD

Question 424

The MSRB defines a political contribution as a gift, loan, advance, or anything of value for the purpose of influencing an election for what kinds of offices

Answer 424

state, local, and federal office.

Question 425

An investor signed a letter of intent to purchase $50,000 worth of Intermountain West Mutual Fund. At the end of 13 months, he had only invested $48,000 in the fund.

What will the fund do?

Answer 425

The fund will liquidate shares to meet the additional sales charge.

Question 426

Mutual Fund Letter of Intent

Binding or Nonbinding to Investor

Answer 426

Nonbinding

Question 427

Mutual Fund Letter of Intent

Good for how many months

Answer 427

13 months

Question 428

Mutual Fund Letter of Intent

May be backdated how long

Answer 428

90 days

Question 429

By how much would the SMA increase if a customer bought $40,000 of marginable stock in a new existing margin account and paid in full for the transaction?

Answer 429

$20,000

Assuming that the customer paid for the securities in full, he would generate $20,000 in SMA. Because the customer need pay only half of the securities’ value ($20,000), the additional cash paid ($20,000) would be considered a nonrequired cash deposit and would be credited to the SMA. Another way to look at it is the customer has fully paid securities with a loan value of 50%, or $11,000.

Question 430

A client with limited assets seeking additional income in retirement would probably find which of these investment choices to be the least suitable?

A)
Exchange-traded funds (ETFs)
B)
Treasury bonds
C)
Exchange-traded notes (ETNs)
D)
Insured bank CDs

Answer 430

Exchange-traded notes (ETNs)

The question describes an individual with a low risk tolerance, so the Treasury bonds and CDs would certainly be considered appropriate. Because ETNs are debt securities backed solely by a single issuer while an ETF based on a specific index of debt securities represents a large group of issuers, they are only suitable for those who can understand and take the risks involved.

Question 431

The Securities Act of 1933 provides several exemptions from the registration of securities being offered by a company. Under Regulation D, Rule 504 offerings of securities sales may not exceed how much?

Answer 431

not exceed $10 million.

Regulation D offerings are exempt under the Securities Act of 1933. Rule 504 deals with private placements in which the dollar amount to be sold is $10 million or less.

Question 432

One way for an accredited investor with an aggressive stance to reduce the overall risk in his portfolio is by

A)
purchasing U.S. Treasury bills.
B)
purchasing a hedge fund.
C)
purchasing insured bank CDs.
D)
selling uncovered calls.

Answer 432

purchasing a hedge fund.

Although the T-bills and the CDs will reduce the overall risk, they are not the best answer because the question is dealing with an aggressive investor. One of the reasons high net worth customers buy hedge funds is for the diversification offered by adding an asset subclass to their portfolios.

Question 433

Claire Jones is an attorney whose husband is a compliance officer for a regional municipal securities dealer. She opens an account at another municipal securities dealer apart from her husband. Claire’s new municipal securities dealer

A)
need not take any action even though it is known that the spouse is married to an officer of another municipal securities broker-dealer.
B)
may not open an account without notification and permission from the spouse’s firm as part of new member firm’s standards of conduct and practices.
C)
is not required to take any action because the spouse is not an employee.
D)
must give written notice to the employing member firm.

Answer 433

is not required to take any action because the spouse is not an employee.

Although Rule G-28 applies to the spouse or minor children of a customer who is employed by another municipal securities dealer, there is currently no requirement for a municipal securities dealer to seek to obtain information about the employment status of spouses or minor children. Accordingly, a dealer is not required to ask customers whether their spouses are employed by another municipal securities dealer. A municipal securities dealer would have to comply with rule G-28 only if the dealer actually knows that a spouse is employed by another municipal securities broker-dealer which is not apparent in this question.

Question 434

How are disputes regarding delivery and payment for securities transactions settled between FINRA members?

Answer 434

Disputes regarding Uniform Practice Code provisions are handled through the Code of Arbitration Procedure.

Question 435

If ABC Securities holds an order to buy XYZ for a customer at $42, ABC may not

A)
buy XYZ at $39.75.
B)
sell XYZ at $40.
C)
buy or sell XYZ shares until the customer order is filled.
D)
buy XYZ at $42.50.

Answer 435

buy XYZ at $39.75.

A firm may not trade ahead of a customer’s order at a price equal to or better than the customer’s order.

Question 436

Trailer commissions are generally paid out of 12b-1 fees, which are levied against

1. What?
2. Paid by who

Answer 436

1. Assets of the fund
2. all shareholders.

Question 437

FINRA’s Conduct Rules require a member firm to do what with thier balance sheers

Answer 437

ONLY MAKE AVAILABLE UPON REQUEST

(not required)

Question 438

A customer of the firm is the chief operating officer of a public company who received 200,000 shares of the company’s stock as compensation. Concerning the sale of the stock received, the chief operations officer of the firm is obligated to file, either himself or his agent, a Form 144 with the SEC when?

Answer 438

contemporaneously with the sale or earlier.

Form 144 must be filed concurrently with or before the sale. The form must also be filed as amended if there a change.

Question 439

An investment adviser cannot lend money to a customer unless it is made through what kind of firm

Answer 439

a regulated lender such as an affiliated broker-dealer or an affiliated bank.

Question 440

Who Bears Mortality Risk in a variable Annuity

Answer 440

The insurance company issuing the variable annuity bears mortality risk, or the danger that some annuitants will live to surpass their average life expectancy.

Question 441

Type of Risk a VA owner has

Answer 441

inflationary risk
market risk
interest rate risk

Question 442

A client of the branch works at a nearby college and participates in a variable annuity retirement plan sponsored by the college, which contributed $30,000 to the plan. The client has contributed nothing. If after six years the client’s subaccount is valued at $36,000, the client’s cost basis for tax purposes is

Answer 442

None of the funds in the plan have been taxed so the employee’s cost basis is $0.
When funds from the annuity are taken during retirement, because none of the funds in the plan were taxed earlier, all of each annuity payment is taxed, but very likely at a lower rate.

Question 443

Which of the following events would subject a transaction to the registration requirements set forth in the Securities Act of 1933?

A)
A merger or acquisition
B)
A change in the par value of the company’s common stock if more than one cent
C)
A ruling by the SEC that no sale is involved
D)
A stock split or reverse stock split

Answer 443

Mergers and acquisitions require the filing of a registration statement (Form S-4) by the acquiring company. Changes in par value do not require a filing.

Question 444

Disposition of Client’s Funds and Securities when it comes to a Broker Dealer who has custody of them

Answer 444

keep the clients’ securities and funds segregated and identified.

Question 445

Broker Dealer who has custody of clients’ funds and securities must report at least how often with a written, itemized statement indicating the funds and or securities in possession by the firm and all transactions for the period.

Answer 445

At least Every 3 months

Question 446

After purchasing 75,000 shares of ABCD, an institutional customer instructs the member firm handling the trade to deliver the securities to an agent bank on a delivery versus payment basis. Which of the following statements are true?

1. Prior to delivery, the member must receive assurance from the institution for what?
2. If delivery is delayed, the member has up to how many days from the trade date to obtain payment.

Answer 446

1. that proper instructions have been given to the bank.
2. 35 Calendar Days

Question 447

In considering fairness of a markup and markdown, a municipal securities dealer takes into account

Answer 447

1- Fair Market Value
2. Dealer is entitled to a profit
3. Retail or Institutional client

Yield is the most important factor in determining the fairness and reasonableness of price in any given municipal securities transaction. The yield resulting from a trade should be in line with the yield found on other securities of comparable quality, maturity, coupon rate, and block size available in the market at that time. In this sense, improved market conditions may be relevant in determining a fair and reasonable price. Rule G-30 specifically states that the total dollar amount of the transaction is relevant in determining a fair and reasonable price. The fact that institutional transactions are frequently larger than retail transactions may also enter into fair and reasonable pricing.

Question 448

operating a broker-dealer branch in a bank location and a bank teller’s entering the broker-dealer branch with a client

Answer 448

Only allowed if the Teller is Registered

Question 449

Representative Jones places a day order to buy 500 LMN at 24.35. By the close, the customer has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome?

Answer 449

The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.

Question 450

A Trade Reporting and Compliance Engine (TRACE) report will display all of the following information except

A)
whether the trade was reported late.
B)
name(s) of the dealer(s) involved.
C)
execution date and time.
D)
price and yield.

Answer 450

name(s) of the dealer(s) involved.

Question 451

Concerning trades of municipal securities,

1. customer account records are posted NLT
2. trade confirmations sent NLT

Answer 451

1. settlement date
2. at or before the completion of the transaction (settlement day)

Question 452

An agent must obtain written verification of an investor’s net worth for which of the following investments?

A)
Direct participation programs
B)
Real estate investment trusts
C)
Unit investment trusts
D)
Variable contracts

Answer 452

DPPs require complete financial disclosure because of minimum suitability standards set by the states in which they are sold. REITs, unit investment trusts, and variable contracts do not have specific net worth suitability requirements for investors.

Question 453

Regulation A Offerings

Tier 1 Limits

Tier 2 Limits

Answer 453

$20M in 12 months and & $6M sold on behalf of shareholders

$75M & $15M

Question 454

Regulation A Offerings

General Solicitation

Answer 454

Allowed on TV, Social Media, ect.

Question 455

According to MSRB rules, the confirmation of a customer purchase transaction must contain

Answer 455

the lowest potential yield on the bond.

Question 456

A member firm loans stock to another member. The borrowing member must

Answer 456

deposit an amount, in cash, equal to the value of the borrowed shares.

Question 457

Municipal Bonds that Generally Require Voter Approval

Answer 457

GOs

Not Revenue Bonds

Question 458

Exchange-traded funds Categorization under the Investment Company Act of 1940

Answer 458

an investment company product

Question 459

ETF Prospectus Requirement

Answer 459

Initial Issues but not required for Secondary Market Trades of previously issued securities

Question 460

Where there is an unsecured debt, a demand for the difference between the contract price and the market price is called a

Answer 460

mark to the market.

When a securities contract has been entered into but not settled and the market value changes materially, the person who is partially unsecured may demand a mark to the market (or deposit) to cover the difference.

Question 461

Reverse convertible bonds are debt instruments with embedded put options that allow bond issuers the right to convert the bond’s principal into shares of equity at a predetermined set date. The issuer would exercise the option if the shares underlying the option fell below a set price. If this occurred,

Answer 461

the bondholders would receive the shares rather than their principal when the bond matured.

Question 462

Retaining a list of all continuing education courses for an Associated Person

Answer 462

Not Required

Question 463

Who is responsible for the taxes on a Revokable Trust for the benefit of another person

Answer 463

the Donor

Question 464

Your firm is managing a follow-on offering of common stock for Beta Corporation, an NYSE-listed company. A research analyst at your firm asks if he can attend a road show regarding the Beta offering. As a compliance officer, you would tell the analyst that

Answer 464

he may not attend nor speak at the road show.

Under the conflict of interest rules, research analysts are prohibited from participating in road shows relating to any investment banking transaction.

Question 465

calculated by totaling the dollar value of all trades and dividing that total by the total number of shares traded

Answer 465

volume-weighted average price (VWAP) of a security

Question 466

Who has control over the issuance of credit when trading securities according to the Securities Exchange Act of 1934.

Answer 466

the Federal Reserve Board

Question 467

Who has the power to make, amend, and rescind rules; issue cease and desist orders; administer oaths; conduct investigations; take evidence; and subpoena witnesses, books, and records according to the Securities Exchange Act of 1934?

Answer 467

the SEC

Question 468

If an advertisement has been prepared by a mutual fund’s sponsor (underwriter), who is responsible for filing the material with FINRA.

Answer 468

The Sponsor (Underwriter)

Question 469

If an advertisement has been prepared by a mutual fund’s sponsor (underwriter), when may a member start using it?

Answer 469

immediately after receiving it.

Question 470

After reviewing a clearly erroneous trade, Nasdaq makes a written determination.

Status of the decision made on an appeal?

Answer 470

Final & Binding

Question 471

After reviewing a clearly erroneous trade, Nasdaq makes a written determination.

Who can appeal?

Answer 471

Either Side

Question 472

After reviewing a clearly erroneous trade, Nasdaq makes a written determination.

Cutoff for Appeals

Answer 472

30 minutes

Question 473

After reviewing a clearly erroneous trade, Nasdaq makes a written determination.

Cutoff for Appeals

Answer 473

30 minutes

Question 474

If a registered representative is found to have engaged in criminal insider trading, the member firm can be fined up to

Answer 474

$25 million or treble damages, whichever is greater.

Question 475

Each willful criminal violation with regards to insider trading carry punishments for individuals (natural persons) of up to

1. Dollar Amount
2. Prison Sentence

Answer 475

1. $5M
2. 20 Years

Question 476

The SEC may also seek civil penalties against anyone it believes has violated the Insider Trading Act. The penalty for the person

Answer 476

up to three times the profit made or loss avoided (i.e., treble damages)

Question 477

The SEC may also seek civil penalties against anyone it believes has violated the Insider Trading Act. The controlling person (i.e., as the name implies, someone like a member firm who controls the offender) can be fined

Answer 477

$1 million or three times the amount of profit made or loss avoided, whichever is greater.

Question 478

Under FINRA rules, maintenance calls on portfolio margin accounts must be met

Answer 478

within 3 business days.

Question 479

Tax-sheltered annuities are

Answer 479

tax-qualified or pre-tax

Question 480

Any appeal of Nasdaq’s written determination regarding a clearly erroneous trade must be made within 30 minutes to

Answer 480

the Market Operations Review Committee (MORC).

Question 481

Under Regulation A, when must a broker-dealer furnish an offering circular to purchasers?

Answer 481

At least 48 hours before the confirmation

Question 482

Municipal securities investors looking to file a written complaint may look to what document for guidance?

Answer 482

The Investor Brochure

Question 483

Municipal broker-dealers must send the investor brochure out how often?

Answer 483

Annually in writing or electronic

Question 484

The initial confirmation of a when-issued municipal bond contains which of the following?

I. Number of bonds involved in the transaction
II. Settlement date
III. Yield to maturity
IV. Total dollar amount due

Answer 484

Number of bonds involved in the transaction

Yield to maturity

Question 485

If a trustee is the beneficiary of the trust and directs trades to himself as a registered representative.

1. Sole Beneficiary
2. Multiple Beneficiaries

Answer 485

1. Allowed
2. Allowed if all beneficiaries approved

Question 486

In a combined margin account, the market value of the long position declines while the market value of the short position increases by the same dollar amount. As a result, equity in the account

Answer 486

decreases.

Question 487

Corporate securities distributed in a private placement under Regulation D can be issued in compliance with Rule 506 if

Answer 487

purchasers receive specific information about the proposed issue.

Under Rule 506 of Regulation D, investors must be given specific information about the proposed private placement, including financial statements.

Question 488

A registered representative has written an article about internet investing for individual investors, which appears in a national business magazine. The article must be

I. approved by the NYSE.
II. approved by a designated supervisor.
III. approved by a designated supervisor only if specific recommendations are made.
IV. retained for three years.

Answer 488

approved by a designated supervisor.

retained for three years.

Question 489

Trading along with an institutional order to buy or sell is

Answer 489

permitted on an order-by-order basis.

Trading along requires an agreement with the customer on an order-by-order basis. Blanket approvals are prohibited.

Question 490

A registered representative is hoping to make a prospecting call after the “cold calling” cut off time. The prospective customer is a newly made friend met on a cruise ship. Which of the following statements is true?

A)
Calling acquaintances after 9:00 pm may be deemed acceptable only if the representative attests in writing to the branch office manager (BOM) that a personal relationship has existed for more than 90 days before the attempted call.
B)
Calling anyone after 9:00 pm in their time zone is subject to sanctions by the firm, the FTC, and the DEA.
C)
Calling customers after 9:00 pm in their time zone is in violation of the “cold calling” rule.
D)
Calling noncustomers who are acquaintances may be acceptable within telemarketing rules.

Answer 490

D) Calling noncustomers who are acquaintances may be acceptable within telemarketing rules.

A personal relationship exception under the cold calling rule means any family member, friend, or acquaintance of the AP who makes an outbound telephone call.

Question 491

A bank has a separately identifiable department that transacts municipal securities business and meets all MSRB requirements. One of the bank’s vice presidents has an overall responsibility for this department, but no other relationship to its municipal securities activities. If the vice president (VP) is to continue exercising this function, the VP

A)
need not be designated as a supervisor of the separately identifiable department.
B)
should be designated as a supervisor of the separately identifiable department.
C)
should only be involved in municipal securities business.
D)
should abstain from voting on allocations to the separately identifiable department.

Answer 491

A) need not be designated as a supervisor of the separately identifiable department.

A senior officer of the bank may set bank policies that affect the bank dealer without being considered the dealer’s supervisor. The supervisor is the person responsible for the dealer’s day-to-day business.

Question 492

In a margin account, a customer is long 200 shares of ABCD currently trading at $35 per share. Under FINRA rules, the minimum maintenance margin requirement for this account is

A)
$2,100.
B)
$3,500.
C)
$2,000.
D)
$1,750.

Answer 492

Minimum maintenance margin in a long account is 25% of the current market value. The computation is as follows: 25% × $7,000 = $1,750.

Question 493

Rule 144 applies to the sale of all of the following except

A)
registered securities by a minority shareholder of the issuer.
B)
unregistered nonexempt securities by an officer of the issuer.
C)
registered securities by an officer of the issuer.
D)
unregistered securities by a minority shareholder of the issuer.

Answer 493

A) registered securities by a minority shareholder of the issuer.

Rule 144 applies to the sale of unregistered securities owned by affiliates or nonaffiliates and the sale of control stock. It does not apply to the sale of registered securities by nonaffiliated persons.

Question 494

Under the Code of Procedure, which of the following disciplinary decisions will not be released to the public by FINRA?

A)
A monetary sanction of $7,500 imposed on a trader for failure to follow the requirements of SEC Rule 15c2-11
B)
The revocation of an associated person’s registration
C)
The suspension of a member firm
D)
The suspension of an associated person’s registration

Answer 494

D) The suspension of an associated person’s registration

FINRA releases information to the public with respect to any disciplinary decision that imposes a suspension, cancellation, or expulsion of a member; suspends or revokes an associated person’s registration; suspends or bars an associated person; or imposes monetary sanctions of $15,000 or more.

Question 495

The 24-month time restriction on bidding in municipalities in which prohibited political contributions were made pertains to what kind of bids?

Answer 495

negotiated bids.

Competitive bids may be made within the 24-month period.

Question 496

A general securities registered representative resigns from Tri-State Securities Company to take a new job as a mortgage broker. After a year-and-a-half, she is called up for active duty in the United States Marines. Her active duty deployment lasted two-and-a-half-years. Following her release, she decides to register again to work in the securities business. She is hired by a member firm 80 days after separating from active duty. Which statement is true?

A)
She must pass the Securities Industry Essentials and the Series 7 examinations.
B)
She must satisfy the Regulatory Element.
C)
She must pass the Series 7 examination and satisfy the Regulatory Element.
D)
There is no requirement to take the Series 7 exam and she returns to the Regulatory Element rotation based on original registration hire date.

Answer 496

D) There is no requirement to take the Series 7 exam and she returns to the Regulatory Element rotation based on original registration hire date.

Special inactive status is granted to those people called up for active duty in the Armed Forces of the United States, including those called up for active duty in the 24 months following separation from a member firm. The individual is under no obligation to fulfill a continuing education requirement until she returns from active duty. In this case, she re-associates with a member firm within 90 days of return and will fall back into her normal CE rotation and there is no need to requalify by exam.

Question 497

Which of the following statements regarding the sale of securities under the provisions of Rule 144 are true?

I. Adequate current information must be available regarding the issuer.
II. If restricted stock acquired under an investment letter agreement is involved, the stock must have been held for at least three years.
III. The stock must be fully paid.
IV. There are no volume restrictions for control persons.

Answer 497

I. Adequate current information must be available regarding the issuer.

III. The stock must be fully paid.

To sell unregistered stock under Rule 144, the shares must be held fully paid for six months, and there must be current information available regarding the issuer (e.g., the issuer is filing reports with the SEC). Control stock is always subject to volume restrictions.

Question 498

In an active, competitive market, the markup on stock sold as principal to a customer is based on the

A)
inside bid.
B)
most representative offer.
C)
inside offer.
D)
most representative bid.

Answer 498

C)
inside offer.

Under the 5% policy, markup percentages are calculated from the prevailing market price. This is a sale to a customer from inventory, so FINRA requires the markup to be calculated from the inside offer at the time of the sale.

Question 499

Under MSRB Rule G-37, restrictions on municipal securities business due to political contributions include which of the following?

A)
Treasury debt offerings
B)
Negotiated offerings
C)
Corporate debt offerings
D)
Competitive offerings

Answer 499

B) Negotiated offerings

MSRB Rule G-37 deals with negotiated offerings and financial advisory work. The rule prohibits municipal firms from engaging in municipal securities business with an issuer for two years after any political contribution is made to an official of that issuer by the firm. It does not affect competitive offerings in which a firm is chosen as an underwriter based on lowest net interest cost.

Question 500

Commissions on the sale of mutual funds may be paid from

I. back-end loads.
II. front-end loads.
III. 12b-1 fees.

Answer 500

All

Commissions may be paid from sales charges, both front end and back end. In addition, 12b-1 fees, which are charged against the assets of the fund, may also be used.

Question 501

Under SEC Rule 15c3-3, a member firm must reduce to its possession or control customer securities as often as

Answer 501

daily

Carrying firms have the daily requirement to bring under possession (in‑house) or control (in an account controlled by the firm) all fully paid for customer securities and all excess margin securities. Each day, from the prior day’s settlement records, a carrying firm must take steps to ensure that it has obtained physical possession or control over such securities.

Question 502

Persons that sell restricted securities under Rule 144 must notify

A)
the SEC no later than the time the order is placed.
B)
the SEC no later than 10 days before the date of sale.
C)
FINRA no later than 10 days before the date of sale.
D)
FINRA no later than the time the order is placed.

Answer 502

the SEC no later than the time the order is placed.

The SEC must be notified on Form 144 concurrent with or before the time the order is placed.

Question 503

A call loan is characterized by

A)
a mutual agreement to cancel.
B)
a fixed maturity.
C)
interest on a monthly basis.
D)
fluctuating interest.

Answer 503

D) fluctuating interest.

Customers pay interest on margin debit balances based on the call loan rate (also known as broker’s call). This rate fluctuates daily.

Question 504

A call loan is characterized by

A)
a mutual agreement to cancel.
B)
a fixed maturity.
C)
interest on a monthly basis.
D)
fluctuating interest.

Answer 504

D) fluctuating interest.

Customers pay interest on margin debit balances based on the call loan rate (also known as broker’s call). This rate fluctuates daily.

Question 505

A roll-up transaction occurs when

A)
a call option is replaced with another call option.
B)
preferred shares are exchanged for common stock of the same company.
C)
a put option is replaced with another put option.
D)
one or more limited partnerships are combined into a new entity.

Answer 505

D) one or more limited partnerships are combined into a new entity.

A roll-up transaction frequently involves the formation of a new partnership by combining one or more existing partnerships into a single, more liquid entity.

Question 506

Pushing up the issue price of an IPO through promotion to please the issuer and secure a larger allotment is termed

A)
painting the tape.
B)
laddering.
C)
marking the close.
D)
interpositioning.

Answer 506

B) laddering.

Laddering is the prohibited practice of inflating pre-IPO prices for the sake of obtaining a greater allotment of the offering.

Question 507

the prohibited practice of inflating pre-IPO prices for the sake of obtaining a greater allotment of the offering.

Answer 507

laddering.

Question 508

All of the following acts could subject an individual to a statutory disqualification except

A)
suspension.
B)
denial of registration.
C)
censure.
D)
expulsion.

Answer 508

Censure, which is used by an SRO to sanction a member firm for minor violations, is not grounds for a statutory disqualification.

Question 509

A person looking to be employed by your member firm tells you that he was once registered. In your subsequent search for the person on BrokerCheck, a record does not appear of that person’s registration history. What would be the most likely reason for that?

A)
The person has not been registered with FINRA, a national securities exchange, or a state securities regulator within the last five years.
B)
The applicant has not been registered with FINRA, a national securities exchange, or a state securities regulator within the last two years.
C)
The person has not been registered with FINRA, a national securities exchange, or a state securities regulator within the last 20 years and had no disciplinary action or judgments.
D)
The person has not been registered with FINRA, a national securities exchange, or a state securities regulator within the last 10 years.

Answer 509

D) The person has not been registered with FINRA, a national securities exchange, or a state securities regulator within the last 10 years.

The individual is not included in BrokerCheck because he is not currently registered with FINRA, a national securities exchange, or a state securities regulator and has not been so registered within the last 10 years. Alternatively, the representative has not been registered and either is not the subject of a final regulatory action; has not been convicted of or pled guilty or no contest to certain crimes; has not been subject to a civil injunction involving investment-related activity or been found in a civil court to have been involved in a violation of investment-related statutes or regulations; or has not been named as a respondent or defendant in an arbitration or civil litigation in which he was alleged to have committed a sales practice violation, and which resulted in an award or civil judgment against the individual.

Question 510

An officer of an issuer of unregistered securities may act as a purchaser representative

A)
for an accredited retail investor.
B)
for a qualified institutional buyer.
C)
under no circumstances.
D)
for a family member.

Answer 510

D) for a family member.

Unless the prospective buyer is a family member, officers and directors of issuers may not act as purchaser representatives.

Question 511

Which of the following statements regarding seller’s option contracts under FINRA rules are true?

I. A seller is not obligated to deliver securities on the second business day following the trade date.
II. A seller can make delivery and collect proceeds on any day following the second business day (the normal settlement date) through the final calendar date specified in the contract, provided the seller gives the buyer a one-day notice.
III. The selling price and sale proceeds on a seller’s option contract are left open at the time of the trade and determined as of the date delivery is made.
IV. Seller’s option contracts are used exclusively in connection with new issue public offering securities.

Answer 511

I. A seller is not obligated to deliver securities on the second business day following the trade date.

II. A seller can make delivery and collect proceeds on any day following the second business day (the normal settlement date) through the final calendar date specified in the contract, provided the seller gives the buyer a one-day notice.

Seller’s option contracts are used to lock in a selling price on a security that, for whatever reason, is not immediately available for delivery.

Question 512

used to lock in a selling price on a security that, for whatever reason, is not immediately available for delivery.

Answer 512

Seller’s option contracts

Question 513

In an active, competitive market, the prevailing market price for determining a markdown is the

A)
lowest bid.
B)
highest offer.
C)
lowest offer.
D)
highest bid.

Answer 513

D) highest bid.

In an active, competitive market, the prevailing market price for determining markup or markdown is the inside market at time of sale. For markups, it is the lowest offer. For markdowns, it is the highest bid.

Question 514

In an active, competitive market, the prevailing market price for determining markup is what?

Answer 514

lowest offer.

Question 515

In an active, competitive market, the prevailing market price for determining markdown is what?

Answer 515

highest bid.

Question 516

Use of Margin in a discretionary account

Answer 516

Allowed

Question 517

A research report distributed by a member firm on the common stock of a listed company must include all of the following information except

A)
whether, within the past year, the member was part of a selling group offering the issuer’s securities.
B)
whether the member firm is a third-market maker in the common stock.
C)
market price as of the report date.
D)
whether a control relationship exists between the member and the issuer.

Answer 517

A)
whether, within the past year, the member was part of a selling group offering the issuer’s securities.

Under FINRA rules, research reports must disclose whether the member is a market maker in the security being recommended, whether a control relationship exists between the member and the issuer of the recommended security, the market price of the recommended security as of the report date, and whether the member was a manager or co-manager of any offering of the issuer within the prior year. Being part of a selling group is not a required disclosure.

Question 518

Rehypotecation

Answer 518

taking customer securities in a margin account to another bank to do the loan.

Question 519

Regulation T vs Regualtion U

Answer 519

Reg T - Broker Dealer to Customer loans

Reg U - Bank to Broker Dealer loans

Question 520

Restricted Account

Answer 520

Below Reg T min of 50%

Question 521

Failure to pay for a purchase 2 BD after normal settlement in a Margin Account

1. Firm Actions
2. Account Status
3. New Security Purchase

Answer 521

1. Sell Out
2. Account Frozen for 90 days
3. May still purchase but must fund 100%

Question 522

When must funds be deposited during a maintenance call?

Answer 522

Promptly

Question 523

Code of Procedure

Respondent has how many days to answer the Dept. of Enforcement/Dept. of Market Regulation

Answer 523

25 days

Question 524

Monetary sanction threshold before being subject to disclosure on BrokerCheck

Answer 524

$15,000 or more

Question 525

Disciplinary Proceedings Appeal Cutoff

Answer 525

25 days

Question 526

Seller’s/Buyer’s Option

If delivery is made early, how much notice does seller need to provide before seller needs to make payment

Answer 526

1 day prior notice,

Buyer must pay for stock at that time

Question 527

When- Issued Confirmations

Answer 527

No Settlement Date,
No Accrued Interest
No Total Dollar Amount

Question 528

Record Retention (focus reports, advertising, U4s, fingerprint cards, ect.)

FINRA
vs
MSRB

Answer 528

FINRA - 3 Years

MSRB - 4 Years

Question 529

An institutional customer placed a limit order with a market maker to pay 38.15 for 100,000 shares of WXYZ. Later, the market maker receives an order to sell 60,000 shares and immediately executes 30,000 for the institution’s account at 38.15, taking the remaining shares for the market maker’s trading account. This is most likely an example of

A)
front running.
B)
trading along.
C)
freeriding.
D)
interpositioning.

Answer 529

B)
trading along.

Trading along allows a market maker to buy or sell an agreed-upon amount at a price that would satisfy an institution’s order to buy or sell. For example, assume an institution wants to buy 100,000 shares at 38.15. If 60,000 shares become available at that price and the market maker has an agreement in place to trade along on a 50-50 basis, the market maker would take 30,000 shares as principal and the institution the remaining 30,000 shares. Without an agreement with the institution, the market maker, under the limit order protection rule, would be obligated to execute the entire 60,000 shares for the institution’s account. Under FINRA rules, trading along agreements must be on an order-by-order basis. There can be no blanket agreements.

Question 530

The MSRB coordinates with each of the following on matters of enforcement, examinations, and surveillance except

A)
bank regulators.
B)
the SEC.
C)
SIFMA.
D)
FINRA.

Answer 530

C)
SIFMA.

The MSRB works in the SEC, FINRA, and with banking regulators on matters of rule enforcement, examinations of members, and surveillance.

Question 531

A trailer commission is usually associated with

Answer 531

Trailer commissions, also known as quarterly trailers, are associated with mutual funds that charge 12b-1 fees. These fees are charged periodically, and the registered representative who sold the fund receives a percentage. These fees, and their commissions, follow the initial sale.

Question 532

A representative of a FINRA member firm would likely be permitted to borrow money from which of these clients?

A)
An investment adviser representative’s father for graduate school tuition
B)
The Mid-Atlantic Short-Term Municipal Bond Fund
C)
MNO Mortgage Brokers U.S., LLC
D)
The Longshoremen Credit Union

Answer 532

D)
The Longshoremen Credit Union

Securities professionals are quite limited in their ability to borrow money, especially from clients. The prime exception is when the client is in the money-lending business, for example, if the client is a credit union. Mortgage brokers do not lend money—they put borrowers and lenders together. The representative may also borrow money from immediate family members, but this is not clear in the choices. “An” investment adviser representative’s father is too vague.

Question 533

To launder illicit funds effectively, the money must go through a process known as layering. Layering will typically involve

A)
over-invoicing techniques that commingle illegal funds with legitimate funds.
B)
the deposit of illegal funds in a financial institution willing to launder them.
C)
the use of illegal funds to purchase goods that can later be sold.
D)
the use of transfers through several legal and governmental jurisdictions.

Answer 533

D)
the use of transfers through several legal and governmental jurisdictions.

The layering stage is where launderers attempt to conceal the source of the funds or assets. During this phase, launderers will wire transfer funds to multiple jurisdictions, deposit cash overseas, and resell assets in multiple jurisdictions. The key to successful layering is the crossing of several legal and governmental jurisdictions. This allows launderers to take full advantage of the varying degrees of regulation and the bureaucracy of different governmental cooperation laws.

Question 534

Member of a syndicate or selling group may sell shares of a new issue of common stock to a registered representative

A)
under no circumstances.
B)
if the principal approves of the sale in writing by the end of the trading day.
C)
resides outside the United States.
D)
if the issue does not trade at a premium of greater than 5% in the secondary market.

Answer 534

A)
under no circumstances.

Registered representatives are forbidden from buying a new issue from an underwriter under Rule 5130.

Question 535

Under SIPC rules, customer claims are valued how & when

Answer 535

Market value on the date a federal court is petitioned to appoint a trustee

Question 536

All SRO rules require that the account name or number be placed on an order ticket when?

Answer 536

before order execution.

Question 537

If there is a significant news event affecting the subject company during the quiet period following an IPO, which of these are true?

I. The firm may issue a research report on the subject company.
II. The firm may not issue a research report on the subject company.
III. An analyst may make a public appearance regarding the subject company.
IV. An analyst may not make a public appearance regarding the subject company.

Answer 537

The firm may issue a research report on the subject company.

III. An analyst may make a public appearance regarding the subject company.

If there is a significant news event affecting the subject company during the 10-day quiet period, a firm may issue a research report, and an analyst may make a public appearance if authorized to do so by a legal or compliance department official.

Question 538

Under Rule 144, which of the following sales are subject to volume limitations?

I. Control person selling registered stock held for one year
II. Control person selling restricted stock held for two years
III. Nonaffiliate selling registered stock held for one year
IV. Nonaffiliate selling restricted stock held for two years

Answer 538

I. Control person selling registered stock held for one year
II. Control person selling restricted stock held for two years

Control persons are always subject to volume limitations.

Question 539

One of your brokers has left a partially completed new account form on your desk with a note stating, ‘‘There are a few suitability blanks that need to be filled in. I have to go to a meeting outside the office. Would you ask one of our sales assistants to complete the form?’’ As branch manager, you should

A)
do nothing until the broker returns to the office.
B)
ask a sales assistant to call the client to complete the form and then review the account for approval.
C)
have a registered person call the client, complete the form, and then review the account for approval.
D)
personally call the client to complete the form.

Answer 539

C)
have a registered person call the client, complete the form, and then review the account for approval.

A registered person, not a sales assistant, must contact the client for the purpose of determining suitability.

Question 540

Which of the following falls under the internal filing requirements under FINRA rules regarding communications with the public?

I. Reprint of an article that has not been independently prepared
II. Advertisement for recruiting registered representatives
III. Tombstone showing a broker-dealer’s involvement in a recent syndicate offering new shares of common stock

Answer 540

I. Reprint of an article that has not been independently prepared
II. Advertisement for recruiting registered representatives

Tombstone advertisements relating to equity or debt securities are examples of items that are exempt from the filing and spot checking requirements under FINRA rules. Reprints, whether prepared independently or in-house, must be kept in an internal file for a minimum of three years. If the firm prepares a reprint, it is considered retail communication and, if dealing with investment company products, must be filed with FINRA within 10 days of first use (postfiling). Independently prepared reprints are subject to internal approval and filing only.

Question 541

A member firm may contact a person on the National-Do-Not Call list if that person inquired about the member’s products or services within the last

Answer 541

3 months

As long as the contact is made within three months of the inquiry, there is no violation.

Question 542

Control stock purchased in the open market is

I. restricted for one year from purchase.
II. not restricted.
III. subject to volume restrictions under Rule 144 when sold.
IV. not subject to volume restrictions under Rule 144 when sold.

Answer 542

II. not restricted.
III. subject to volume restrictions under Rule 144 when sold.

Control stock purchased in the open market is registered and is therefore not restricted. While unrestricted control stock is not subject to the holding period requirements of Rule 144, it is always subject to the volume requirements of the rule.

Question 543

Where is Each Reported

1. Municipal Debt Securities
2. Treasury Securities
3. Rule 144 Stocks
4. Over-the-Counter Securities

Answer 543

1. EMMA
2. TRACE
3. TRF
4. Over-the-Counter Reporting Facility (ORF)

Question 544

Which of the following offers the opportunity to realize a capital gain rather than ordinary income?

A)
Section 529 plans
B)
Cash dividends
C)
Stock dividends
D)
Deferred annuities

Answer 544

C)
Stock dividends

Stock dividends, unlike cash dividends, are not taxable in the year of receipt. Instead, they reduce the owner’s cost basis and, when sold at a price above that cost basis, are treated as capital gain rather than ordinary income. Deferred annuities never generate anything but ordinary income, and qualified withdrawals from Section 529 plans result in no taxation on the earnings. If they are not qualified, there is ordinary income tax plus a penalty.

Question 545

Under Nasdaq trading rules, if a firm attempts to place a bid at the inside offer during regular market hours, the order will

A)
lock the market.
B)
be routed to the next market maker in line.
C)
be automatically withdrawn by the system.
D)
be placed in reserve pending a market move.

Answer 545

B)
be routed to the next market maker in line.

Under Nasdaq trading rules, locked or crossed markets will be eliminated during regular market hours. If a firm attempts to lock the market, the order will be routed to the next market maker in line for an execution at the locking quote.In a firm-commitment arrangement, any losses incurred are divided among the underwriters’ syndicate members, according to the terms in the agreement among underwriters.

Question 546

If a buying member fails to pay for securities purchased when they are delivered on the settlement date, the selling member can sell out the position

A)
after giving one day’s written notice.
B)
after giving three days’ written notice.
C)
any time after the settlement date.
D)
after giving two days’ written notice.

Answer 546

C)
any time after the settlement date.

A sellout occurs when a member sells securities to another member (the buyer) and the buyer fails to pay when the securities are delivered on settlement date. Sellouts can be executed any time after the settlement date. Unlike buy-ins, no prior written notice is required.

Question 547

When necessary, Form G-37 may be filed within approved guidelines established by the MSRB by which of the following methods?

A)
By filing three copies of the paper Form G-37 with the board by registered mail or some other equally prompt means
B)
The individual appointed at the firm to be the compliance contact person files copies of Form G-37 with the board by mail
C)
By filing a copy of Form G-37 with the board by facsimile
D)
By completion in an online data entry system and uploading Form G-37 in portable document file (PDF) format

Answer 547

D)
By completion in an online data entry system and uploading Form G-37 in portable document file (PDF) format

The filing of Form G-37 may be accomplished online by uploading it on the data entry system. All uploaded attachments must be PDFs. Form G-37 is available to the public for viewing and printing through the MSRB website. No other method, including email or fax is permissible.

Question 548

Two of your clients, a couple in their early 30s, ask you to recommend a plan to save for their newborn child’s education. They are only able to contribute $1,800 per year. Which of the following would most likely be the best fit for their situation?

A)
Section 529 plan
B)
Uniform Transfers to Minors Act (UTMA) account
C)
Equity index annuity
D)
Coverdell Education Savings Account (ESA)

Answer 548

D)
Coverdell Education Savings Account (ESA)

The key to this choice is the contribution level. The Coverdell ESA has a maximum annual limit of $2,000 and offers tax-free growth. Why not the Section 529 plan? Invariably, that will be the correct choice when the question involves higher contribution amounts or tax benefits on a state level. When the couple can only contribute $1,800 per year, it seems logical to assume that they are in a low tax bracket where those benefits would be of minimal value. UTMA accounts offer less flexibility, and the annuity would not be suitable for anyone wishing to use the funds before age 59½.

Question 549

A customer buys 500 XYZ at $70 per share on Monday, August 3. He sells his position the following day for a $2,000 gain. On Friday of that week, the customer walks into your office to pay for the purchase and pick up a check for the proceeds. As branch manager, you should

A)
tear up the customer’s check and give him a branch check for the gain.
B)
freeze the customer’s account for 90 days before authorizing payment.
C)
require the customer’s check to clear before authorizing payment.
D)
accept the customer’s payment and give him a branch check for the proceeds.

Answer 549

C)
require the customer’s check to clear before authorizing payment.

It is a good practice to wait for the customer’s check to clear before authorizing payment for the proceeds.

Question 550

Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer?

A)
The transactions are odd lots.
B)
The securities are exempt under the Securities Act of 1933.
C)
The customer is a member of the agent’s immediate family.
D)
The agent receives no compensation for assisting a family member transfer ownership of a security to another party.

Answer 550

D)
The agent receives no compensation for assisting a family member transfer ownership of a security to another party.

Under the law, it would be considered contrary to the standards imposed for an agent to effect securities transactions not recorded on the regular books or records of the broker-dealer that the agent represents. If, however, someone asks for help in transferring ownership of a security to another party and no compensation is paid, it is allowed.

Question 551

Providing liquidity in the over-the-counter (OTC) market is the primary function of

Answer 551

Market makers—broker-dealers all over the country who have agreed to maintain an inventory of a particular company’s stock—drive the OTC market. They are said to be “making the market” in the stock of that company. A market maker must stand willing to buy or sell at least one round lot of shares of the company for which it is a market maker at the current bid price that it has published. Therefore, if a customer is a buyer or seller of a stock that has sufficient investor interest to have a member firm register as a market maker, there is a willing party representing the other side to your trade. This is the liquidity of the OTC market. Designated market makers (DMMs) are similar but operate on the NYSE not in the OTC market.

Question 552

The definition of a branch office is

A)
a hotel conference center where a registered representative meets with clients occasionally as a matter of convenience.
B)
a registered representative’s primary residence where meetings with clients take place on a regular basis.
C)
a registered representative’s vacation home where clients and friends are occasionally entertained.
D)
a temporary office set up to handle all of the functions of a branch office under the firm’s business continuity plan.

Answer 552

B)
a registered representative’s primary residence where meetings with clients take place on a regular basis.

For a primary residence to be exempt, the representative may not meet with customers at this location.

Question 553

Under FINRA Rule 5130 a restricted person has a small equity interest in XYZ Corporation, a privately held company. XYZ now wishes to go public with an offering of its common stock. Under which of the following circumstances could your firm, acting as syndicate manager, sell shares at the offering price to the account of this restricted person?

A)
Without restriction because this person already has an equity position in XYZ
B)
If the sale will not increase the account’s percentage equity ownership in XYZ above the level as of three months before filing the registration statement
C)
If the restricted person agrees not to resell the newly issued shares for two years from the effective date of the offering
D)
Under no circumstances

Answer 553

B)
If the sale will not increase the account’s percentage equity ownership in XYZ above the level as of three months before filing the registration statement

Question 554

A branch office manager in reviewing account activity notices that a 50-year-old customer with a 12- to 15-year investment time horizon purchased $600,000 of XYZ mutual fund Class C shares within the last 90 days. The BOM made an appointment to interview the newly qualified representative about this investment activity. During the interview the representative forcefully asserted to have spoken with the customer about the benefits and drawbacks of different classes of fund shares. In the end, the customer chose Class C shares. What further action, if any, should the BOM take?

A)
No action should be taken because the customer was well informed of the differences between the various classes of fund shares.
B)
Arrangements should be made to retrain the representative with enhanced supervision including the recording of telephone calls.
C)
The branch office manager should call the customer to review the features of Class A shares and the reasons for the customers Class C share purchase decision.
D)
The Class C shares should be promptly redeemed for more suitable shares.

Answer 554

C)
The branch office manager should call the customer to review the features of Class A shares and the reasons for the customers Class C share purchase decision.

Question 555

Delivery on seller’s option settlement cannot be made sooner than

A)
five business days following the transaction date.
B)
the business day following the trade date.
C)
three business day following the transaction date.
D)
seven calendar days following the transaction day.

Answer 555

C)
three business day following the transaction date.

Seller’s (and buyer’s) option trade settlements are made no earlier than three business days after the trade date, or in other words, one day following regular way settlement for corporate securities, T+2 business days. If the seller or buyer could deliver earlier, there would be no need for a contract.

Question 556

Investment analysis tools for use by institutional customers must be submitted to FINRA’s Department of Advertising

A)
only if the tool is likely to be passed on to retail customers by the recipient.
B)
at least 10 days before first use.
C)
within 10 days of first use.
D)
only upon a written request.

Answer 556

A)
only if the tool is likely to be passed on to retail customers by the recipient.

Ordinarily, members who submit an analysis tool to institutional customers are under no burden of having to submit it to FINRA. However, if it reasonable believes that the tool would be then forwarded by the institution to its retail customers, it is then subject to the requirements of Rule 2210 to file with FINRA.

Question 557

In a firm-commitment arrangement, any losses incurred are divided among who

Answer 557

the underwriters’ syndicate members, according to the terms in the agreement among underwriters.

Question 558

What information must be included on the application for an UGMA account?

A)
Minor’s and custodian’s names
B)
Custodian’s name and minor’s name and Social Security number
C)
Custodian’s name, minor’s name and Social Security number, and state of registration
D)
Minor’s name and custodian’s name and Social Security number

Answer 558

C)
Custodian’s name, minor’s name and Social Security number, and state of registration

Each account set up under UGMA must include the state of registration, the minor’s name and Social Security number, and the custodian’s name (the nominal owner of the account).

Question 559

A male broker reports to human resources that a female broker made remarks verbally and by instant message that constitute unwelcome sexual advances. How may this settled?

A)
Through the Uniform Practice Code
B)
Open court proceedings
C)
Outside arbitration only
D)
Human resources peer review panel

Answer 559

B)
Open court proceedings

Harassment and discrimination controversies are eligible to be litigated in open court.

Question 560

According to MSRB rules, which of the following is an advertisement?

A)
Listing of dealer inventory
B)
Preliminary official statement
C)
Abstract of an official statement
D)
Official statement

Answer 560

C)
Abstract of an official statement

MSRB rules consider all forms of mass public communication to be advertising except listings of dealer inventories, official statements, and preliminary official statements.

Question 561

Under Regulation SHO, securities that have large open short positions at a registered clearing agency are termed

Answer 561

threshold securities.

Question 562

Under FINRA Rule 5130, if 30% of a hedge fund’s partners are restricted persons and the fund buys 10,000 shares of a common stock IPO, how many shares may be attributed to the accounts of the restricted partners in the aggregate?

Answer 562

1,000

With carve-out procedures in place, no more than 10% of the shares from a new issue equity investment may be attributed to the accounts of restricted partners.

Question 563

When determining the value of a gift, the tax and delivery charges are factored how?

Answer 563

Gifts should be valued at the higher of cost or market value, exclusive of tax and delivery charges.

Question 564

The MSRB defines time of trade for reporting purposes to be the time the

Answer 564

trade is executed.

Question 565

A firm publishing a research report must disclose all of the following except

A)
whether the firm managed or co-managed a public offering for the subject company within the past 12 months.
B)
whether the firm expects to receive any investment banking fees from the subject company in the 3 months following publication.
C)
whether the firm received investment banking fees from the subject company within the past 12 months.
D)
whether the firm owns 1% or more of the subject company’s debt securities.

Answer 565

D)
whether the firm owns 1% or more of the subject company’s debt securities.

The firm must disclose whether it owned, at the close of the previous month, 1% or more of any class of the subject issuer’s equity securities. Firms must also explain their rating systems and disclose whether analyst compensation is tied to the firm’s investment banking revenues, the analyst or household members have any financial interest in the subject company, the firm has received fees for investment banking services or has managed or co-managed a public offering for the subject issuer within the past 12 months, and the firm either expects to receive or intends to seek any investment banking fees from the subject issuer in the 3 months following publication.

Question 566

Who do Member firms need to identify the person responsible for compliance with the firm’s anti-money-laundering program to?

Answer 566

FINRA (not the SEC)

Question 567

In reviewing office correspondence, you note the following email sent to a client regarding a new issue your firm is underwriting: “I’m glad you enjoyed the magazine article I sent you on XYZ Corp. The deal should be effective early next week. I deposited the $12,000 check you sent to your account. This should be more than enough to guarantee you at least 500 shares.” As branch manager, you would be most concerned with

A)
guaranteeing shares.
B)
accepting the check.
C)
sending the magazine article.
D)
sending an email without prior approval.

Answer 567

B)
accepting the check.

Accepting and depositing a check for securities not yet registered constitutes a sale. Selling unregistered securities raises a host of violations at both the federal and state levels.

Question 568

Unless they are directed to a particular person (issuer official), contributions to a political party, while reportable, are treated how?

Answer 568

Not subject to the 2 year band

Question 569

contributions to an inaugural committee are viewed as

Answer 569

contributions to that person.

Question 570

Education plan that has the unique 5-year front-loading feature

Answer 570

Section 529 only

Question 571

10% penalty for non-qualified withdrawal in a 529 plan is levied against what?

Answer 571

Earnings only

Question 572

If a member firm wishes to have a clearly erroneous trade reviewed, it must notify

1. Who
2. Appeals of any decition made to who?

Answer 572

1. Nasdaq Market Operations within 30 minutes
2. Market Operations Review Committee within 30 minutes

To have a clearly erroneous trade reviewed, a member must notify Nasdaq Market Operations within 30 minutes of the trade. Appeals of any decision are made to the Market Operations Review Committee.

Question 573

A firm’s contribution to the election of a municipal official will

Answer 573

always trigger a two-year bar from the municipality’s negotiated underwriting activity.

Question 574

Sending the research summary to subject issuer before releasing the research report for their review.

Answer 574

must be excluded from the report before presenting it to the subject issuer.

Question 575

Sharing commissions between agents of different broker-dealers under different common ownership or control.

Answer 575

generally prohibited unless the broker-dealers with which the agents are associated are under common ownership or control.

Question 576

Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 four years ago. The annuity has grown to a value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS?

A)
$4,500.00
B)
$0.00
C)
$3,000.00
D)
$4,000.00

Answer 576

D)
$4,000.00

Because this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. The tax on this amount is $3,000. However, because the client is not yet age 59½ when making the withdrawal, he also pays a 10% tax penalty, or $1,000. This makes a total of $4,000 tax and tax penalty paid on the random withdrawal.

Question 577

A customer confirmation of a municipal securities transaction the time of execution may be shown on the customer confirmation. If the time of execution does not appear, the confirmation must

Answer 577

inform the customer that it will be provided if the customer makes a written request.

Question 578

Which of the following individuals is eligible to purchase a new equity issue at the public offering price (POP)?

A)
An unregistered employee at a full-service carrying firm
B)
A registered representative at a limited business broker-dealer
C)
A clerical employee at a full-service introducing firm
D)
A limited business broker-dealer for its investment account

Answer 578

B)
A registered representative at a limited business broker-dealer

A limited business broker-dealer is one engaged solely in the purchase and sale of investment company/variable contract securities and/or direct participation programs. Employees of these firms, registered or otherwise, are permitted to buy new equity issues at the POP. Note that this exemption applies only to employees of these firms not to the firm itself.

Question 579

A customer delivers a fixed income certificate in the name of Smith & Company. It may be signed

A)
Smith & Company.
B)
Smith & Company or “Smith & Co.”
C)
Smith & Company, aka Smith Co.
D)
Smith & Company, “Smith & Co.”, or “Smith and Company.”

Answer 579

D)
Smith & Company, “Smith & Co.”, or “Smith and Company.”

Corporate signers are the exception to the general rule that endorsement of a certificate must match exactly the name on the front. The word and may be substituted with & and the word company may be abbreviated Co.

Question 580

An underwriter that agrees to act as agent for an issuer, but states that it will return to the issuer any shares not sold, engages in what type of underwriting?

Answer 580

Best efforts

Underwriters assume no financial liability for unsold shares in a best efforts underwriting.

Question 581

Regulation S under the Securities Act of 1933 permits the sale of unregistered securities by

Answer 581

U.S.-based issuers to non-U.S. residents.

Regulation S provides a safe harbor for U.S.-based issuers that sell securities outside the United States. As long as the provisions of Regulation S are met, the securities are exempt from registration with the SEC. To get the exemption, the issue must be sold in an offshore transaction to non-U.S. residents.

Question 582

A registered representative purchases a large number of a thinly traded shares of common stock shortly before the market close, causing the price to increase. The stock opens higher the next day, and the representative sells her position. This is known as

Answer 582

marking the close.

Marking the close is a form of market manipulation. It is an attempt at influencing the closing price of a stock by purchasing (or selling) at or near the close. The effect of this can artificially inflate (or deflate in the case of selling) the closing price as well as affect the price of market-on-close orders. Severe sanctions may be imposed on those looking to manipulate the market by marking the close.

Question 583

The tax consequence of transferring proceeds from one fund to another within the same family of funds is

Answer 583

on the date of the transaction, any gain or loss is recognized for tax purposes.

Question 584

All of the following have the authority to discipline a member or associated person with fines, censure, suspension, and expulsion from FINRA except

A)
the Board of Governors.
B)
the Securities and Exchange Commission.
C)
the Uniform Practice Code Committee.
D)
the National Adjudicatory Council.

Answer 584

C)
the Uniform Practice Code Committee.

FINRA disciplinary proceedings take place under the Code of Procedure where the Department of Enforcement and various appellate bodies may sanction members and associated persons. The Uniform Practice Code covers such rules as regular way and being T+2 for corporate securities. That code has nothing to do with enforcement.

Question 585

A municipal principal is responsible for which of the following?

A)
Reviewing order tickets for trades of more than $100,000 daily
B)
Reviewing all order tickets daily
C)
Reporting all trades promptly and reviewing customer accounts frequently
D)
Reviewing customer accounts weekly

Answer 585

G-27 is the MSRB rule covering supervision. It requires all trades to be reported promptly and customer accounts to be reviewed frequently.

Question 586

Any dealer selling municipal securities to a customer during the issue’s underwriting period must deliver the official statement in final form, if any, to the customer by

Answer 586

settlement of the transaction.

Rule G-32 requires that any dealer (not just the underwriter) selling municipal securities to a customer during the issue’s underwriting period must deliver the official statement in final form, if any, to the customer by settlement of the transaction.

Question 587

What is the total amount that may be invested in a Coverdell Education Savings Account (ESA) in a single year?

A)
The current maximum per family member
B)
The current maximum per couple
C)
The current maximum per child
D)
The current maximum per parent

Answer 587

C)
The current maximum per child

An indexed maximum contribution may be invested in each child’s Coverdell ESA every year. For instance, if a couple has three children, they may invest the current maximum into each of three accounts.

Question 588

Rules requiring analysts who circulate research reports for broker-dealers include all of the following except

A)
a statement by the analyst certifying that the views expressed reflect the analyst’s personal views.
B)
a statement by the analyst certifying that he has not or ever will accept compensation for specific recommendations or views contained in a research report.
C)
a statement by the analyst certifying that no part of his compensation is related to the specific recommendation.
D)
a statement by the analyst certifying the source, amount, and purpose of compensation if the analyst’s compensation is related to the specific recommendation.

Answer 588

B)
a statement by the analyst certifying that he has not or ever will accept compensation for specific recommendations or views contained in a research report.

Analysts that provide research reports must include a statement certifying that the views expressed in the reports accurately reflect the analyst’s personal views about the subject securities and issuers and that no part of his compensation is related to the specific recommendations. However, if the analyst’s compensation is, in fact, related to the specific recommendations or views, the statement must include the source, amount, and purpose of the compensation and further disclose that it may influence the recommendation in the research report.

Question 589

Under adverse market conditions, it is not unusual for mutual fund investors who had been investing on a regular basis to cease or reduce their level of financial commitment. This can have the effect of

A)
a reduction in the fund’s net operating income due to a reduction in sales charges received.
B)
net redemptions.
C)
reducing the NAV of the fund as the demand for new shares wanes.
D)
reducing the operating expense ratio of the fund.

Answer 589

B)
net redemptions.

In adverse market conditions, not only do some investors stop putting money in, they also liquidate their holdings. If new sales fall while liquidations rise, the effect could be net redemptions. The NAV is not affected by supply and demand, and if anything, the expense ratio would rise because some of the expenses would remain the same but would be shared by fewer assets. Mutual funds do not receive the sales charges—they go to the underwriter. ** This question deals with material not covered in your LEM, but it relates to recent rule changes and/or student feedback.

Question 590

Which of the following customer actions are indicators of potential money laundering?

I. Excessive journal entry transactions between related accounts
II. Excessive journal entry transactions between unrelated accounts
III. Lack of concern regarding risk
IV. Excessive concern regarding risk

Answer 590

II. Excessive journal entry transactions between unrelated accounts
III. Lack of concern regarding risk

Examples of red flags that may indicate money laundering include a lack of concern regarding risks, commissions, or other transaction costs, and a large number of wire transfers to unrelated third parties.

Question 591

Under FINRA Rule 5130 concerning restrictions on sales of equity initial public offerings (IPOs), which of the following statements are true regarding restricted persons?

I. Employees of limited business member firms may purchase an equity IPO.
II. Employees of limited business member firms may not purchase an equity IPO.
III. Limited business member firms may purchase an equity IPO.
IV. Limited business member firms may not purchase an equity IPO.

Answer 591

I. Employees of limited business member firms may purchase an equity IPO.

IV. Limited business member firms may not purchase an equity IPO.

There is an exemption under the rule for employees of limited business member firms. A limited business firm is one engaged solely in the purchase and sale of investment company securities and/or direct participation programs. The exemption only applies to employees of a limited business firm not to the firm itself.

Question 592

Under MSRB Rule G-32, a final official statement must be delivered to customers by when?

Answer 592

on or before settlement.

Question 593

If a registered Rep is trying to open an account with a nonmember firm

Answer 593

still needs to give written notification and receive written approval from employer member

Question 594

Excess margin securities are defined as securities in excess of

Answer 594

140% of the customer’s debit balance.

Excess margin securities are securities in excess of 140% of the customer’s debit balance. Margin securities (140% of the debit balance) are at a bank collateralizing the customer’s debit. For example, if a customer purchases $20,000 of stock, the customer will put up $10,000 and borrow $10,000. The member will take $14,000 of the stock to a bank to collateralize the $10,000 debit. The balance ($6,000) of the stock must be placed in segregation (excess margin securities).

Question 595

Contributing securities to a 529 plan

Answer 595

not allowed

Question 596

Rights of accumulation if multiple accounts from multiple family members are in the same fund family

Answer 596

apply to all family members within the same fund family

Question 597

FINRA members whose lines of business include underwriting are permitted to join with non­members in underwriting which of the following?

A)
Municipal bonds
B)
Municipal debt mutual funds
C)
Private placement of corporate debentures
D)
Non-convertible corporate bonds

Answer 597

A)
Municipal bonds

A FINRA member can only join in underwritings of non-exempt securities with other members. Municipal bonds as well as U.S. government debt can be underwritten by non-member banks.

Question 598

Every sell order must be marked as

Answer 598

Every sell order must be marked as either a long, short, or short exempt.

Question 599

A principal officer of a member firm must attest and certify to FINRA that the firm is in compliance with the research analyst conflict of interest rules how often

Answer 599

Annually

Question 600

Registered Rep buying a new issue from an underwriter under Rule 5130.

Answer 600

Forbidden

Question 601

Prior principal approval for institutional sales material.

Answer 601

is not required

Question 602

An order ticket for an agency transaction of a Cape May, NJ GO bond must include all of the following except

A)
the time of order entry.
B)
the time of order receipt.
C)
the time of order approval.
D)
the time of order execution, to the extent possible.

Answer 602

A)
the time of order entry.

The MSRB requires the following be placed on an agency order ticket: time of receipt, date of receipt, and execution price. Time of order entry on the ticket is not required. This question refers to a recordkeeping rule of the MSRB. Specifically, Rule G-8(a)(vi) covers recordkeeping and (vii) deals with principal trades, which is very similar.

Question 603

A member firm that engages in investment banking services must file with FINRA a written report describing each internal investigation

A)
annually.
B)
monthly.
C)
quarterly.
D)
upon request.

Answer 603

C)
quarterly.

FINRA Rule 3110(d) states that within 10 business days of the end of each calendar quarter, a written report describing each internal investigation of its investment banking activities initiated in the previous calendar quarter by the member firm must be submitted to FINRA.

Question 604

Contributions made by municipal securities finance professionals or executive officers to officials of issuers for whom the contributor is eligible to vote and that do not exceed $250 are

Answer 604

not required to be reported on Form G-37.

Question 605

targets members of identifiable groups, such as the elderly, or religious or ethnic communities in social media.

Answer 605

Affinity fraud

Question 606

Certain conditions must be satisfied for restricted, unregistered, and control stock to be sold or resold including all of the following except

A)
registered securities by a minority shareholder of the issuer.
B)
registered securities by an officer of the well-known seasoned issuer.
C)
unregistered securities by an executive officer of the issuer.
D)
unregistered securities by a minority shareholder of any issuer.

Answer 606

A)
registered securities by a minority shareholder of the issuer.

SEC Rule 144 pertains to the sale of unregistered securities owned by affiliates or nonaffiliates and the sale of control stock. It does not apply to the sale of registered securities by nonaffiliated persons.

Question 607

Associated persons (AP) owning a 5% financial interest in an NYSE member firm.

Answer 607

must receive prior employer approval in order to engage

Question 608

A stabilizing bid can be no higher than what?

Answer 608

highest current independent bid in the security’s principal market.

Question 609

Any written communication that offers a security for sale—including advertisements published in newspapers, public websites, and communications broadcast over radio and television—is considered

Answer 609

a prospectus.

Question 610

for Professionals to qualify as Public Arbitrators they need to spend…

1. Less than what % of their time servicing the securities industry
2. Over the last How many Years

Answer 610

1. 20%
2. 5 Years

Question 611

Under SEC rules, broker-dealers must notify customers of free credit balances at least

Answer 611

quarterly.

Question 612

A registered investment adviser that recommends a stock that will be sold to his client in a principal transaction.

Answer 612

requires both written disclosure to and consent of the client before the completion of the transaction.

Question 613

Rule 145 exempts (from registration) additional shares resulting from

Answer 613

stock splits or stock dividends.

Question 614

When a customer purchases securities in a regular way trade and pays by check on the trade date, this purchase transaction is considered complete

A)
when the securities are delivered into the customer’s account.
B)
on the date the check clears.
C)
on trade date.
D)
one day following trade date.

Answer 614

A)
when the securities are delivered into the customer’s account.

Under FINRA rules, if a customer pays for securities purchased before the settlement date, the trade is considered complete when the securities are delivered into the account. This should occur on settlement date.

Question 615

Required when selling from the firm’s inventory or proprietary account to a customer

Answer 615

disclosure to the client

Question 616

Rule G37 If someone is running for national office, who is not in a position of authority to influence the award of a bond issue,

Answer 616

Does not apply

Question 617

Jill Carter is a representative of Fair Isle, Inc., a FINRA member firm with municipal debt as a line of business. Jill’s close friend and client, George Cannon, comes in for a portfolio analysis. When examining George’s IRA, which of the following holdings would Jill likely need to review immediately?

A)
GHI Large-Cap Equity Index Fund
B)
XYZ Municipal Bond Fund
C)
DEF U.S. Government Bond Fund
D)
JKL Money Market Fund

Answer 617

B)
XYZ Municipal Bond Fund

Tax-exempt securities (such as municipal bonds) are generally considered unsuitable to include in a tax-deferred retirement plan. That said, if the municipal bonds were taxable then that’s a different story.

Question 618

A municipal dealer is obligated to disclose which of the following on a confirmation of a trade to a retail customer?

A)
The total prevailing market price, the markup, and the markup percentage
B)
The amount of the commission and markup (or markdown) combined
C)
The commission only
D)
The prevailing market price only

Answer 618

A)
The total prevailing market price, the markup, and the markup percentage

The confirmation must show the PMP amount, the markup, and the markup percentage. With this information being transparent, a fairer and more reasonable markup amount is likely.

Question 619

a best efforts underwriting in which a minimum number of shares must be sold or else the deal will be canceled. If the minimum is reached, the offering is effective.

Answer 619

A mini-max

Question 620

Prior approval of a research report can be granted by

I. a CFA qualified associated person.
II. a research principal, and with limited exceptions, a general securities principal.
III. an allied member.
IV. a general securities principal.

Answer 620

II. a research principal, and with limited exceptions, a general securities principal.

Research reports must be prepared by a supervisory analyst and approved by a research principal. A chartered financial analyst is not qualified to approve reports based solely on that professional designation.

Question 621

At a social gathering, a registered representative overhears a rumor about an NYSE-listed company. The representative should

A)
do nothing.
B)
avoid soliciting orders for the security.
C)
report the rumor to the SEC.
D)
report the rumor to the branch manager.

Answer 621

Rumors must be reported to the branch manager.

Question 622

A corporate bond paying interest on March 1 and September 1 is purchased on Friday, May 19, in a regular way trade. The number of days of accrued interest payable to the seller is

A) 84.
B) 82.
C) 78.
D) 79.

Answer 622

B) 82.

Interest begins to accrue on the prior interest payment date and accrues up to—but not including—settlement date. Regular way settlement for a trade executed on Friday, May 19, is Tuesday, May 23. The computation is 30 days (March) + 30 days (April) + 22 days (May) = 82 days (total). For corporate and municipal bonds, every month has 30 interest days.

Question 623

A customer calls the branch manager and says she has been the subject of sexual harassment by the broker handling her account. Under FINRA rules, the claim must be submitted to

A)
arbitration.
B)
arbitration at the insistence of the customer
C)
arbitration only if both parties agree.
D)
a court of competent jurisdiction.

Answer 623

C)
arbitration only if both parties agree.

Claims alleging discrimination, including sexual harassment claims, are not required to be arbitrated unless both parties agree.

Question 624

A member firm receives an order from an investment adviser to purchase shares in a common stock initial public offering. Under FINRA Rule 5130, the member must

A)
refuse to accept the order.
B)
obtain a representation from the conduit that the purchaser is not a restricted person.
C)
obtain a list of all of the adviser’s clients to determine eligibility.
D)
obtain a list of the client(s) whose account(s) will be credited with the shares in order to determine eligibility.

Answer 624

B)
obtain a representation from the conduit that the purchaser is not a restricted person.

When receiving an order to buy a new equity issue from a bank, investment adviser, or another conduit, a member must obtain a representation from the conduit that all purchasers comply with FINRA Rule 5130 (i.e., they are not restricted persons).

Question 625

Open-end companies may issue only what kinds of securities?

Answer 625

common stock.

Question 626

If a firm suspects that an account is engaged in money laundering, the firm will file

A)
a SAR with the IRS.
B)
Form 112 with the IRS.
C)
Form 1099 with FinCEN.
D)
a SAR with FinCEN.

Answer 626

A suspicious activity report must be filed with FinCEN if a firm suspects a customer is engaged in money laundering.

Question 627

Your firm is holding $50,000 of Atlantic City general obligation bonds for Jean-Marie Bergeron, who resides in Sherbrooke Quebec, Canada. The issuer sent a notice that the bonds will be advance refunded. The firm

A)
does not need to send the notice, but it may do so if it chooses.
B)
must file for a new CUSIP number effective on the date of refunding.
C)
must transmit the bonds to the bondholder before the bonds are advance refunded.
D)
must promptly forward the notice as soon as possible.

Answer 627

A)
does not need to send the notice, but it may do so if it chooses.

There is no requirement to transmit the notice to a customer outside the United States.

Question 628

The Trade Reporting and Compliance Engine (TRACE) provides trade reporting information on all of the following except

A)
municipal bonds.
B)
investment-grade corporate bonds.
C)
noninvestment grade corporate bonds.
D)
foreign private issuers.

Answer 628

A)
municipal bonds.

Exempt securities such as U.S. government and municipal bonds are not reported on the TRACE system. Municipal debt trades are reported through the Electronic Municipal Market Access (EMMA) system.

Question 629

If a registered representative of a FINRA member firm is suspended by the National Futures Association for sales practices used in selling livestock futures, who needs to be notified?

Answer 629

FINRA (not SEC)

If an associated person is denied registration, suspended, or expelled by another SRO, FINRA must be notified promptly. There is no requirement to notify the SEC.

Question 630

Which of these items is not required under the customer identification program (CIP)?

A)
Date of birth
B)
Sex
C)
Visa details for non-citizens
D)
Physical address

Answer 630

The CIP does not ask if the account holder is male or female.

Question 631

If municipal bonds that are subject to the alternative minimum tax (AMT) are described in an advertisement as tax exempt, it is

A)
misleading if no explanation is given of the usual meaning of tax exempt.
B)
not misleading because all municipal bonds may be advertised as tax exempt.
C)
not misleading if the bonds are also described as subject to AMT.
D)
misleading because the term tax exempt must never be used in connection with such bonds.

Answer 631

C)
not misleading if the bonds are also described as subject to AMT.

If the income from a bond is subject to the AMT, advertisements for the bond must state this fact. The AMT does not affect the majority of taxpayers; therefore, the income tax is exempt for most customers. The bonds may be described as tax exempt without violating MSRB rules.

Question 632

A customer’s written complaint is not fully resolved before the registered representative resigns from the member firm and accepts a position outside the securities industry. FINRA, however, retains jurisdiction over the former representative for

A)
two years.
B)
until the complaint is fully satisfied.
C)
three years.
D)
six years.

Answer 632

A)
two years.

Although an associated person’s resignation is not effective with FINRA for 30 days, if a customer complaint or some other unresolved concern exists, FINRA retains jurisdiction over the AP for up to two years. In other words, if FINRA chooses to call the former AP in for a hearing, that person would be obligated to attend for up to two years.

Question 633

Unless an exception is available, carrying firms must perform a reserve computation how often?

Answer 633

Weekly

Carrying firms must perform a reserve computation weekly, usually on Monday or Friday. Firms compute monies owed to the firm by customers (debits) and monies owed by the firm to customers (credits). If credits exceed debits, that difference must be on deposit in their Special Reserve Bank Account for the exclusive benefit of customers by 10:00 am on Tuesday. Performing the reserve computation monthly is an available option under certain conditions; however, the standard practice is weekly.

Question 634

For companies looking to raise capital using a Regulation A offering, the SEC will integrate the current offering with any securities offering of the issuer occurring within the prior

Answer 634

12 Months

A Regulation A Tier 2 offering exemption allows issuers to sell up to $75 million of securities without going through a full-blown registration. A Regulation A offering is sometimes called the small offering exemption. The $75 million ceiling is measured over a 12-month period. Regulation A is sometimes known as Regulation A+.

Question 635

A customer of a member transfers her account to another member firm. Under SEC rules, the member must maintain copies of the customer’s account records for how many years following the transfer?

A)
Six years
B)
Three years
C)
Five years
D)
Two years

Answer 635

A)
Six years

Under SEC rules, customer account records must be maintained for six years following the closing of an account.

Question 636

One of your customers was the founder of a startup that became a tech unicorn, that is, a new venture that reached a market capitalization of at least $1 billion. Although much of the equity was given to venture capital and private equity funds, your customer still owns enough of the company to be considered a control person. The customer wishes to purchase a luxury condominium downtown and would like to sell some of the stock to pay for the purchase. The current market price of the stock is $50 per share, and there are thirty-five million shares outstanding. The average daily trading volume over the past four weeks has been 300,000 shares. Under Rule 144, the maximum number of shares your customer could sell over a 90-day period is

A)
350,000.
B)
1.75 million.
C)
1.5 million.
D)
300,000.

Answer 636

C)
1.5 million.

Sales by a control person come under Rule 144. The limit is the greater of 1% of the outstanding shares, or the average weekly trading in the stock over the preceding four weeks. One percent of the outstanding number of shares is 350,000. The average weekly trading is 1.5 million shares (did you notice the 300,000 was the daily average not the weekly?) The greater of the two is clearly the 1.5 million shares and at the current market price of $50 per share, that will buy a lot of luxury.

Question 637

A customer has a securities account with a member firm valued at $220,000 in cash. There is also a record at the firm of her purchasing shares in the AAJ Money Market Fund for $110,000. What is the customer’s coverage under SIPC should the brokerage firm become insolvent?

A)
$330,000
B)
$320,000
C)
$100,000
D)
$220,000

Answer 637

D)
$220,000

Explanation
Coverage under SIPC is up to $500,000 per separate customer. Of that total, SIPC covers up to $250,000 in cash. Outside, independent money market fund shares are investment company securities, and SIPC coverage does not apply nor is even necessary since the customer can contact the money fund manager directly to access shares.

Question 638

Which of the following factors is not considered when determining if a location should be designated as an OSJ?

A)
Distance from other OSJs of the firm
B)
Size of orders at a location
C)
Number of registered persons at a location
D)
Diversity and complexity of the securities being sold

Answer 638

B)
Size of orders at a location

In making this determination, members should consider the following: whether registered persons at a location have regular contact with the public, the number of registered persons at a location, whether the location is geographically distant from another OSJ of the firm, whether the securities activities are diverse and/or complex, and whether the member’s registered persons are geographically dispersed.

Question 639

Any location used primarily for nonsecurities business with fewer than 25 securities transactions effected annually is defined as

A)
a location of convenience.
B)
a nonsupervising branch office.
C)
a branch office.
D)
a nonbranch.

Answer 639

D)
a nonbranch.

Excluded from the definition of a branch office is any location used primarily for non-securities business (e.g., insurance sales) and from which fewer than 25 securities transactions are effected annually. A location of convenience is any location used occasionally and by appointment.

Question 640

A customer order ticket must be endorsed by a principal when

Answer 640

promptly after execution

All order tickets must be reviewed, individually or as part of a trade blotter, promptly after execution.

Question 641

An agent lives in Massachusetts and is registered in that state and New Hampshire. His broker-dealer is registered in every state east of the Mississippi River. The agent’s client, who lives in Massachusetts, decides to enroll in a one-year resident MBA program in Salt Lake City, Utah. During the one-year period when the client is in Utah, the agent may

A)
not conduct any business with the client.
B)
only accept unsolicited orders.
C)
conduct business with the client as usual.
D)
not deal with the client until the broker-dealer registers in Utah.

Answer 641

C)
conduct business with the client as usual.

Explanation
Even though the college program is called a resident program that does not mean that the client has changed his state of residence. Although neither the firm nor the agent is registered in Utah, the agent may continue to conduct business with the client. This is because both the agent and his firm are properly registered in the client’s state of permanent residence.

Question 642

Where a short sale is not attributed to bona fide market making, Rule 204 of Regulation SHO mandates that a buy-in be initiated upon a failure to deliver prior to

Answer 642

the beginning of regular trading hours on T+3.

The rule requires that a mandatory buy-in take place for those short sales that there is a fail to deliver. The buy-in must happen the first thing (prior to trading) on the day following settlement date S+1, or in other words T+3. Had there been a long sale fail or fail attributable to bona fide market making, the answer would be T+5. Bona fide market makers need not operate under the same locate requirement that other broker-dealers must abide because they provide liquidity. However, market makers are not excepted from the close out requirement. Market makers and those who made long sales must be able to demonstrate to FINRA that that is the case, otherwise selling stock short without having a good locate puts them in violation of Regulation SHO. Moreover, those who deceive about their intention or ability to deliver securities in time for settlement are committing fraud, in violation of SEC rules, when they fail to deliver by settlement date.

Question 643

Your branch has a customer who asks about purchasing speculative Pink Sheet stocks on margin in addition to selling them short from time to time. Which statement concerning margin on over-the-counter securities is true?

A)
Most Pink Sheet securities are approved for margin by the Federal Reserve Board.
B)
Over-the-counter securities are marginable.
C)
Only exchange-listed securities traded over-the-counter are marginable.
D)
Nasdaq Select Market securities are marginable.

Answer 643

D)
Nasdaq Select Market securities are marginable.

The Federal Reserve approves all Nasdaq Select Market securities for margin. Any other over-the-counter security must be on the over-the-counter margin list approved by the Fed to be marginable. Any exchange-listed security is marginable.

Question 644

Under FINRA Rule 5130, all of the following are restricted persons except

A)
any persons owning 5% or more of a member firm.
B)
employees of members.
C)
portfolio managers.
D)
finders and fiduciaries acting on behalf of the managing underwriter.

Answer 644

A)
any persons owning 5% or more of a member firm.

FINRA Rule 5130 prohibits member firms from selling initial equity public offering stock to any account in which restricted persons are beneficial owners. Restricted persons include FINRA members, employees of member firms, finders, and fiduciaries acting on behalf of the managing underwriter, portfolio managers, and any person owning 10% or more of a member firm. Also included are a restricted person’s immediate family members.

Question 645

Which of the following could be considered a good control location for the safekeeping of customer securities?

A)
Savings and loan associations
B)
Credit unions
C)
A foreign custodian bank
D)
A foreign broker-dealer

Answer 645

C)
A foreign custodian bank

Good control locations include other broker-dealers (in the United States), commercial banks, and depositories, such as Depository Trust Company (DTC). With SEC approval, foreign depositories, foreign clearing agencies, and foreign custodian banks such as the Royal Bank of Scotland or Deutsche Bank, are satisfactory control locations. Foreign broker-dealers are not. Furthermore, credit unions and S&Ls are not acceptable as control locations.

Question 646

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC no later than

Answer 646

15 days after the first sale.

Issuers wishing to avail themselves of the private placement exemption offered under Regulation D of the Securities Act of 1933 must file a Form D with the SEC no later than 15 days after the first sale.

Question 647

Which of the following has the power to close a stock exchange for up to 90 days?

A)
The president of that stock exchange
B)
The president of the United States
C)
The Administrator in the state where that stock exchange is located
D)
The SEC

Answer 647

D)
The SEC

The Securities Exchange Act of 1934 granted the SEC the power to close any registered stock exchange for up to 90 days. All that is required is notice to the president of the United States.

Question 648

A​ ​trader ​in the fixed income department of a TRACE reporting member firm received ​a request from a customer ​through his order management system to purchase 10, $1,000 par debentures with a stated rate of 5½% due in 2029 offered at a dollar price of 95½. The customer may expect a yield to maturity closest to

A)
5½%.
B)
5.96%.
C)
5%.
D)
par.

Answer 648

B)
5.96%.

An investor who purchases this type of dollar-priced fixed income security for less than par may expect a yield to maturity that is somewhat higher than the coupon​ or stated rate​.

Question 649

The ex-date for cash settlement transactions is one business day

A)
prior to the record date.
B)
after the record date.
C)
prior to the payable date.
D)
after the payable date.

Answer 649

For cash settlement trades (same day settlement), the ex-date is one business day after the record date.

Question 650

Short positions in Nasdaq securities must be reported to FINRA

Answer 650

twice a month.

Short positions in Nasdaq securities in both customer and proprietary accounts must be reported to FINRA twice a month. This is referred to as short interest reporting.

Question 651

Type of POA that remains in force if the client becomes incapacitated

Answer 651

Durable

Durable power of attorney remains in force if the client becomes incapacitated. Power of attorney, durable or nondurable, is revoked upon the death of the grantor.

Question 652

Repurchase agreements negotiated with customers who have purchased nonexempt securities are

Answer 652

Prohibited

FINRA prohibits the use of repurchase agreements in connection with nonexempt securities. They may be used, however, in connection with exempt securities such as U.S. governments and municipals.

Question 653

Under FINRA rules, the account name or number must be on an order ticket before

A)
the close of business on the day the order is executed.
B)
order execution.
C)
order entry.
D)
an execution report.

Answer 653

order execution.

All self-regulatory organization rules require that the account name or number be placed on an order ticket before order execution.

Question 654

A member firm must make an affirmative determination in which of the following customer transactions?

I. Short sales
II. Long sales where the securities are held by the customer
III. Long sales where the securities are held by the firm

Answer 654

I. Short sales
II. Long sales where the securities are held by the customer

Affirmative determination is required both for long sales where the customer is in possession of the securities and for short sales.

Question 655

Prior to submitting Form U4, a principal is required to contact all of the applicant’s previous employers for the past

Answer 655

3 years

Question 656

Sellouts vs. Buy-Ins prior written notice for each?

Answer 656

Sellouts - (no written notice) anytime after the settlement date

Buy-Ins - written notice NLT Noon 2 BDs before

Question 657

Allowable investments in an IRA would include

A)
rare stamps.
B)
cash value life insurance.
C)
fine art.
D)
U.S. government–issued silver dollars.

Answer 657

Coins minted for the U.S. Treasury, such as the Morgan of American Double Eagle, are eligible for inclusion in an IRA. No life insurance is allowed (though annuities, both fixed and variable, are allowed). Collectibles, such as art and stamps, may not be included.

Question 658

A broker-dealer is a market maker in ABCD stock. Transactions in ABCD stock for managed accounts held by the firm must be executed on what type of basis?

Answer 658

Agency

According to the Investment Company Act of 1940, transactions in managed accounts must be executed on an agency basis. If the adviser is acting in the capacity of a broker-dealer, he must disclose this information and receive the customer’s consent before completing any principal transactions.

Question 659

One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm’s margin agreement. This would be known as

A)
a house call.
B)
a margin call.
C)
a sellout.
D)
a Regulation T call.

Answer 659

A)
a house call.

Explanation
When additional funds are required, it is known as a house or maintenance call. If based on the firm’s stricter requirement, it is a house call; if based on the requirement of the SRO, it is a maintenance call. The initial or Regulation T call occurs at the time of the purchase. If any call for funds is not met, then there will be a sellout.

Question 660

Your branch has lately seen an uptick in municipal bond activity. You meet with your representatives to discuss opening a new account in which to trade municipal debt. All of the following information about a customer is required to be written on a new account form before opening an account except

A)
social security number.
B)
employer name.
C)
occupation.
D)
residence address.

Answer 660

A. Social Security Number

Explanation
If a social security or tax ID number is unavailable, you may open the account. The municipal securities professional must make a reasonable effort to obtain it and if unable to do so, the firm is required to keep a record of that fact. All other customer account information listed here must be obtained before the settlement of a transaction. It’s the MSRB’s sense that that is reasonable since the information is basic and important.

Question 661

If a customer wishes to open a cash account, who must sign the new account form?

A)
Only the customer
B)
A principal
C)
The customer, the registered representative, and the principal
D)
Only the registered representative

Answer 661

B) A Principal

Explanation
The customer’s signature is not required to open a cash account. For any account, the registered representative must sign the new account form indicating that the information therein is true and complete. A principal must review, and then accept, the new account by signing the form.

Question 662

Which of the following statements are true regarding retail not held orders?

I. They are considered day orders.
II. They are considered discretionary orders.
III. The exercise of time or price discretion must be noted on the order ticket.
IV. The exercise of time or price discretion is not noted on the order ticket.
A)
II and III
B)
I and IV
C)
I and III
D)
II and IV

Answer 662

I. They are considered day orders.

III. The exercise of time or price discretion must be noted on the order ticket.

Explanation
A not held order is one in which the customer gives a representative discretion over the price or timing of the order. It is not discretionary. In addition, retail not held orders must be executed on the day received unless the customer has provided written and signed instructions to the contrary. The exercise of time or price discretion must be noted on the order ticket.

Question 663

With regard to margin, which of the following may be held in a non-securities account?

A)
Gold and platinum
B)
Exchange traded notes (ETNs)
C)
Money market funds
D)
British pound options

Answer 663

A) Gold & Platinum

Explanation
The Federal Reserve Board permits in accounts it has regulatory authority over under Regulation T, such as special cash and margin accounts, to have only securities positions, not actual commodities such as precious metals. Non-securities accounts may on the other hand have actual commodities as well as forwards and futures contracts. These assets have entirely different margin rules.

Question 664

Which of the following statements regarding contribution limits to Section 529 plans are true?

I. There are contribution limits at the federal level.
II. There are no contribution limits at the federal level.
III. There are contribution limits at the state level.
IV. There are no contribution limits at the state level.

Answer 664

II. There are no contribution limits at the federal level.
III. There are contribution limits at the state level.

Federal tax law does not address contribution limits. However, each state sets a maximum contribution limit for its 529 plan.

LO 6.c

Question 665

A sales assistant to a municipal securities representative took and entered an order for over $100,000 of municipal private activity bonds from the authorized trader of a family limited liability company. Which statement is true?

A)
This is acceptable if the municipal principal approves the transactions promptly (by the end of the trading day).
B)
The sales assistant must be a fully qualified municipal securities representative.
C)
Taking and entering the order from an institutional account does not require registration.
D)
This activity is prohibited under MSRB rules.

Answer 665

B)
The sales assistant must be a fully qualified municipal securities representative.

An associated person of a broker-dealer who accepts orders from customers must be registered as a municipal securities representative.

Question 666

In determining the price at which to quote a security, a municipal securities dealer may take all of the following into consideration except

A)
the amount of the security in the dealer’s current inventory.
B)
the dealer’s prediction on the future price of the security.
C)
the dealer’s current return on equity.
D)
the dealer’s current overall inventory position.

Answer 666

C)
the dealer’s current return on equity.

A municipal securities firm is not required to quote only the security’s fair market value. As long as the quote has a reasonable relationship to the fair market value, the quote may take into account other factors, such as the firm’s current inventory position (both overall and in the security) and the firm’s estimate of the direction of the security’s price. A quote may not be based on the dealer’s profitability return or on equity.

Question 667

Your firm must provide FINRA an update to any change in emergency contact persons within how many days?

A)
3 business days
B)
30 days
C)
1 business day
D)
15 business days

Answer 667

B) 30 days

Explanation
Your firm is obligated to identify two emergency contact persons. This is done through the FINRA Contact System. In addition, you must update contact information promptly, but no later than 30 days following any change. Your firm is obligated to review the contact information within 17 business days after the end of each calendar year. Emergency contact persons must be an associated person (AP) of the firm, and at least one emergency contact person must be a member of senior management and a registered principal of the firm. If your firm designates a second emergency contact person who is not a principal, then that contact person must be a member of senior management who is knowledgeable of the firm’s operations. If your firm has only one AP, the second emergency contact must be an individual, either registered with another firm or nonregistered, who has knowledge of your firm’s operations, such as the firm’s attorney, accountant, or clearing firm contact person.

Question 668

A longtime representative at a broker-dealer found a lucrative market in holding seminars for groups of retirees in Arizona. The representative employed a ghostwriter to create a handbook titled Elder Investing—A Guide to Income Strategies for Retirees. The representative’s name is placed on the cover. Each person who attends a presentation receives a copy. Which statement is true?

A)
Distribution of the handbook is prohibited.
B)
The handbook is valued at less than $100. It may be “gifted” to each attendee.
C)
The handbook must be filed with FINRA’s Department of Advertising 10 business days prior to use.
D)
The handbook may be distributed to each attendee who signs a waiver.

Answer 668

A)
Distribution of the handbook is prohibited.

Explanation
Registered representatives may not suggest that they authored investment-related books, articles, et cetera, if they did not write them. A representative implying authorship of a book on senior investing, and by so doing causing people to believe he was an expert, could violate a number of rules.

Question 669

A member firm created, maintains, and promotes on its compliant website an investment blog. A relatively new registered representative at the firm uploaded some content obtained from the firm’s blog to a personally-maintained micro-blog, which is followed by more than 99 people. The micro-blog has static content alerting followers as to the representative’s contact information. This action is

A)
acceptable, provided the content was approved by an authorized principal of the firm and a record is maintained.
B)
acceptable, but only if the uploaded content and the micro-blog site static content is filed with FINRA’s Department of Advertising within 10 business days of first use.
C)
prohibited.
D)
acceptable, but only if the uploaded content and the micro-blog site static content are filed with FINRA’s Department of Advertising 10 business days prior first use.

Answer 669

A)
acceptable, provided the content was approved by an authorized principal of the firm and a record is maintained

Explanation
Although content on the member firm’s website is compliant, signifying that it was approved by an authorized principal and reviewed by FINRA examiners, and the fact that selections were lifted from the site to support another site operated by a registered person would require additional approvals and trip the recordkeeping requirement as well. Subject to approvals from the firm, this is an acceptable activity within FINRA rules. Individual member firms may take a stricter stance.

Question 670

Under the Investment Company Act of 1940, mutual funds must send financial statements to shareholders at least

A)
monthly.
B)
semiannually.
C)
annually.
D)
quarterly.

Answer 670

B) Semiannually

Explanation
Under the Investment Company Act of 1940, mutual funds must provide semiannual and annual reports to shareholders.

Question 671

In reviewing the hiring disclosures made by a person who worked as a representative at another member firm and who now wants to work at your firm in the same registration category, you see that the person was convicted of a felony charge of driving under the influence of alcohol and served 30 days in jail last year. Which of the following statements regarding this is true?

A)
This crime must be disclosed on Form U4 but is considered an other felony and not deemed a statutory disqualification, and the person can be re-admitted to the securities industry without application.
B)
The conviction is a statutory disqualification and seven years must elapse before the person may enter or re-enter the securities industry.
C)
The felony conviction is a statutory disqualification and 10 years must elapse before the person may re-enter the securities industry. However, due to the nature of the crime not appearing to pose a threat to the securities industry, an application may be made by a sponsoring firm to permit the person to register.
D)
People who have served more than 10 days of jail time are not permitted to work in the securities industry.

Answer 671

C)
The felony conviction is a statutory disqualification and 10 years must elapse before the person may re-enter the securities industry. However, due to the nature of the crime not appearing to pose a threat to the securities industry, an application may be made by a sponsoring firm to permit the person to register.

Explanation
The definition of statutory disqualification was amended many years ago to include nonsecurities-related felonies. As a result, the Commission permits persons who are living with that burden to find relief from the 10-year ban applicable to a statutory disqualification for committed offenses unrelated to the securities industry (e.g., driving under the influence) by applying with FINRA using a form called MC-400. The determination as to who is granted relief and permitted to enter or re-enter the securities business is made on a case-by-case basis. In the case of driving while intoxicated, and nothing else, history has shown that the SEC and FINRA would grant the petition to register.

LO 1.f

Question 672

Which of the following describes a broker-dealer that promotes a day-trading strategy?

A)
Hosts a website that provides general financial information or that allows the multiple entries of intra-day purchases
B)
Provides general advertising regarding the generally high quality of day trading
C)
Promotes the benefits of day trading and rapid-fire trades
D)
Advertising efficient and low-cost execution services based on multiple trades

Answer 672

C)
Promotes the benefits of day trading and rapid-fire trades

Explanation
A member is not deemed to be promoting a day-trading strategy by engaging solely in promoting efficient execution services or lower execution costs based on multiple trades; providing general investment research or advertising the high quality or prompt availability of such general research; and having a website that provides general financial information or news or that allows the multiple entry of intra-day purchases and sales of the same securities.

Question 673

An investment advisory firm has $85 million of assets under management (AUM). The firm has five institutional clients, one of which is a registered investment company. The firm has only 25 retail clients. Which of the following statements is true?

A)
No registration is required.
B)
The firm must register with the SEC only.
C)
The firm will register with the state in which their principal office is located.
D)
The firm will register with both the SEC and the state of domicile.

Answer 673

B)
The firm must register with the SEC only.

Explanation
If an advisory firm is an adviser to a registered investment company, it is required to register with the Commission, regardless of the amount of AUM.

Question 674

If an institutional sell-side trader who averages 20 trades per month for a mutual fund receives a $300 gift from the fund for excellent execution, which of the following statements is true?

A)
The gift is permissible with no notice needed.
B)
The gift is permissible with notice to the MSRB.
C)
The gift is permissible with written notice to the employing institution.
D)
The gift is not permissible.

Answer 674

D)
The gift is not permissible.
Explanation
The gift is limited to $100 per person, per year, and that gift cannot be structured on the basis of so much per trade. A log of gifts should be maintained by the firm’s compliance department.

Question 675

Under MSRB rules, discretionary accounts must be reviewed by which of the following?

I. A municipal principal (Series 53)
II. A municipal sales principal (Series 10)
III. A general securities principal (Series 24)
A)
II only
B)
I or II
C)
I, II, or III
D)
I only

Answer 675

I. A municipal principal (Series 53)
II. A municipal sales principal (Series 10)

Explanation
Discretionary accounts may be reviewed by either a municipal principal or municipal sales principal and must be reviewed frequently.

Question 676

A natural person who is deemed an associated person (AP) of a securities broker-dealer is employed in any one of the following capacities except

A)
placing trades in municipal securities or in nonexempt securities.
B)
soliciting customer orders.
C)
supervising those persons who solicit orders.
D)
acting in a clerical or ministerial role.

Answer 676

D)acting in a clerical or ministerial role.

Explanation
Those people filling solely clerical or ministerial jobs at a broker-dealer are not APs. They do not have to be registered. Note, however, that if a clerk is involved with handling the firm’s original books and records, it would be wise for the firm to submit fingerprint cards for that person. This is done by filing Form NRF (Nonregistered, fingerprinted) through the Web CRD and them submitting the actual prints.

Question 677

A dealer bank provides research and financial advice to a municipality concerning a new issue of 30-year, callable bonds. The commercial side of the bank may use the information obtained through this fiduciary capacity

A)
immediately—no approval is necessary.
B)
under no circumstances.
C)
if such use is approved by a municipal principal.
D)
once the information has become public.

Answer 677

D)
once the information has become public.

Explanation
Information obtained in a fiduciary capacity may only be used with the consent of the party for whom the broker-dealer was working as a fiduciary, and through which capacity the information was obtained. An information barrier must be in force. Analysts and underwriters work on opposite sides of the wall. Material, nonpublic information must not be used. Once the information is disclosed publicly, however, it may be used.

Question 678

A representative who has serviced a joint account for a married couple for many years receives a call from a spouse informing the representative of an impending divorce and asks to have measures taken to protect the assets in the account. The representative asks the branch office manager what to do. The best advice would be to

A)
contact the other spouse to confirm that both parties agree to the proposed changes.
B)
immediately freeze the account to prevent the other spouse from acting peremptorily.
C)
suggest that the concerned spouse request that no holdings be moved or transferred without the knowledge and written approval of both parties.
D)
request new trading authorizations.

Answer 678

C)
suggest that the concerned spouse request that no holdings be moved or transferred without the knowledge and written approval of both parties.

Explanation
To protect a joint investment account or other holdings where divorce proceedings are about to be undertaken, it would be prudent for one of the account holders to promptly contact the broker in writing of the impending divorce. Also, one of the account holders should request that no securities or funds be moved or transferred without the knowledge and written approval of both parties.

LO 5.e

Question 679

A customer, Alex Price, directed his account executive to liquidate all securities positions in his account and to send him a check right away. The member firm promptly followed the instructions, but the trade confirmation and check were mistakenly prepared. The amount sent exceeded the actual trade amount by exactly $5,000. The firm’s operations officer, Alice Luu, identified the error within hours after the check was mailed during her daily reconciliation. She called the customer and asked him to return the check when it arrives and provided an overnight service for Price’s convenience. However, he refused, claiming there was no mistake, citing that the check amount matched the confirmation exactly. What is the best way to handle this misunderstanding?

A)
The firm should file a simplified arbitration claim within 45 days of demanding repayment.
B)
The firm should file suit against the customer because the customer is not entitled to keep the overpayment.
C)
The firm made the error. The customer is entitled to keep the overpayment.
D)
A stop payment should be placed on the check and a new check should be issued to the customer in the proper amount.

Answer 679

D)
A stop payment should be placed on the check and a new check should be issued to the customer in the proper amount.

Explanation
The customer is not entitled to keep the overpayment. Price is obligated to return the extra $5,000. At this point, the best way to handle it is to stop payment on the check and issue the customer a replacement check for the proper amount. If the check had cleared, the customer should be asked to present a check to the member firm for the money owed. If the customer does not comply, the case would be elevated to the firm’s legal department. If there is no satisfaction, it could work its way to arbitration, which would be as far as it would go.Explanation
The customer is not entitled to keep the overpayment. Price is obligated to return the extra $5,000. At this point, the best way to handle it is to stop payment on the check and issue the customer a replacement check for the proper amount. If the check had cleared, the customer should be asked to present a check to the member firm for the money owed. If the customer does not comply, the case would be elevated to the firm’s legal department. If there is no satisfaction, it could work its way to arbitration, which would be as far as it would go.

Question 680

A registered representative participates on a panel hosted by her broker-dealer. While on the panel, she makes a recommendation to purchase a specific security. Which of the following should be disclosed?

A)
That her firm had been a market maker in the security being recommended
B)
That her firm member or its officers have a financial interest in any of the recommended issuer’s securities
C)
She has a conflict of interest with the security
D)
That her firm was a manager or co-manager of any offering of that issuer within the last 12 months

Answer 680

D)
That her firm was a manager or co-manager of any offering of that issuer within the last 12 months

Explanation
Retail communications that include a recommendation of securities must have a reasonable basis for the recommendation and must disclose, if applicable, that the member was manager or co-manager of a public offering of any securities of the issuer whose securities are recommended within the past 12 months. If at the time the communication was published or distributed the member makes a market in the security being recommended, that would also need to be disclosed. There is no need to disclose if the firm is no longer making a market in the security.

Question 681

Time extensions for a Regulation T margin calls are requested from

A)
the FRB.
B)
the SEC.
C)
the registered clearing broker-dealer.
D)
the SRO.

Answer 681

D) the SRO

Explanation
Time extensions may be permitted by the appropriate self-regulatory authority for good cause.

Question 682

The firm recently hired a new representative who is expected to be registered with FINRA as an investment adviser. Word came back from the registration department of the firm that a state’s securities administrator lawfully denied the investment adviser’s registration for

A)
being charged with for a securities-related felony eight years ago.
B)
a conviction for a non-securities-related misdemeanor five years ago.
C)
lack of experience as a broker-dealer.
D)
violation of another state’s securities law within the previous five years.

Answer 682

D)
violation of another state’s securities law within the previous five years.

Explanation
Statutory disqualification would be put into place if the representative was convicted of a securities-related misdemeanor or any felony within the past 10 years. If the representative was convicted over 10 years ago, there is no longer a statutory disqualification even though the state securities commissioner could still deny the registration. However, being charged with a felony means nothing unless the charge was followed by a conviction. A non-securities-related misdemeanor (e.g., a traffic ticket) will not create a statutory disqualification.

Question 683

If a member firm believes the client has an impairment that prevents the person from defending his interests, a temporary hold is permitted on disbursements for a maximum of how many days if the firm comes to reasonably believe that an attempt at exploiting the person has been made?

A)
5 business days
B)
55 business days
C)
30 calendar days
D)
3 business days

Answer 683

B) 55 business days

Explanation
Amended (March 17, 2022) FINRA Rule 2165 permits firms to place a temporary hold (55 business days) on disbursements from the accounts of individuals aged 65 or older; and individuals aged 18 or older whom firms reasonably believe have an impairment that prevents them from protecting their own interests (a specified adult). Firms are now permitted to place a temporary hold on funds if the firm has a reasonable belief that financial exploitation of the specified adult has or is occurring or was attempted. This gives the firm time to notify a trusted contact person and to begin an internal review.

Question 684

A registered representative is looking to form an LLC to invest in commercial properties with her spouse and adult child. Which of the following statements is the most correct in regard to this formation?

A)
The representative must notify the employing member firm prior to the LLC’s purchase or commitment to purchase of commercial real estate.
B)
The representative must notify the member firm once the LLC has been legally formed.
C)
The representative must notify the member firm prior to the formation of the LLC.
D)
Notification is unnecessary. The LLC is not investing in securities.

Answer 684

C) The rep must notify the member firm prior to forming the LLC

Explanation
No registered person may take on outside employment, including being a sole proprietor, or partner of another person, or being compensated, or having the reasonable expectation of compensation, as a result of any business activity outside the relationship with her member firm, unless she has provided prior written notice to the member.

Question 685

Which of the following best describes a PIPE transaction?

A)
An offering which complies with Rule 504 of Regulation D
B)
Restricted securities, once sold, are immediately registered for public resale
C)
A self-underwriting where issuer employees sell the issue
D)
An offering sold principally to non-U.S. residents

Answer 685

B)
Restricted securities, once sold, are immediately registered for public resale

Explanation
In a PIPE (Private Investment in Public Equity) transaction, investors purchase securities directly from a publicly traded issuer in a private placement. The securities are restricted and cannot be immediately resold. After the closing of this transaction, the issuer immediately prepares and files a registration statement with the SEC for the securities issued in the PIPE. Once effective, public resale of the PIPE securities may begin.

Question 686

The Securities and Exchange Commission (SEC) is authorized under federal law to suspend trading in any stock for a period of up to

Answer 686

10 business days

The SEC is authorized under federal law to suspend trading in any stock for a period of up to 10 business days. The Commission issues a suspension when the investing public may be at risk, such as when a company fails to keep up with filing its 10-Ks, 8-Ks, et cetera. Once the SEC decides to suspend trading, it will issue an order of suspension and announce the reasons and dates.

Question 687

A representative of a member firm sends a wedding gift to a good customer valued at $399. Which of the following statements is true?

A)
The gift must be recorded on the firm’s gift blotter.
B)
The gift is required to be booked to satisfy SEC recordkeeping requirements.
C)
The gift is not subject to the restrictions of the FINRA gifts rule or its recordkeeping requirements.
D)
The gift is in violation of the FINRA gift and gratuities rule.

Answer 687

C)
The gift is not subject to the restrictions of the FINRA gifts rule or its recordkeeping requirements.

Explanation
A wedding gift or congratulatory gift for the birth of a child or a gift for other infrequent life events is not subject to the restrictions of the gifts rule or its recordkeeping requirements so long as the gift is customary, reasonable, and personal.

Question 688

Ryan Jones walks into one of your firm’s branches wishing to open up a cash account. He was referred to your firm by one of its largest customers. He provides the representative with all of the information required to open the account but is unable to provide identification at that time. Under SEC rules, your firm may

A)
open the account but refrain from accepting a deposit until proper identification is received.
B)
open the account, accept a deposit, and invest per the customer’s instructions.
C)
not open the account until proper identification is received.
D)
open the account, accept a deposit, but refrain from investing until proper identification is received.

Answer 688

B)
open the account, accept a deposit, and invest per the customer’s instructions.

Explanation
SEC rules require that we verify a customer’s identity within a reasonable time period before or after account opening. Therefore, the account may be opened, and investments made.

Question 689

An associated person (AP) of a FINRA/NYSE member firm has reached an anniversary date that requires the AP to satisfy the Regulatory Element of the Continuation Program. Within how many days of the anniversary date must the AP satisfy the Regulatory Element?

A)
10 business days
B)
30 calendar days
C)
120 days
D)
60 calendar days

Answer 689

C)
120 days

Explanation
All registered persons must satisfy the Regulatory Element of the Continuing Education Program within 120 days of the person’s initial registration date (also known as the base date) following the second registration anniversary, and every three years after that. Failure to complete it within that 120-day window would put the AP’s license on inactive status—not suspension. While on inactive status, that person cannot perform any duties in any capacity requiring registration or receive any compensation for the purchase and sale of securities.