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Flashcards in Test 1 Review Deck (26)
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1

An analyst has a 58-cent EPS estimate for Hallmark for the quarter. If the estimate is communicated to the CFO and is affirmed, who has violated Regulation FD?

A) The analyst
B) The CFO
C) Both the analyst and the CFO
D) The issuer

D) The issuer;

Although the disclosure was made by the CFO, the best answer is the issuer who has violated Regulation FD. The following is an SEC commentary on this issue.

2

A U.S. firm creates a nonmember affiliate in Singapore that will employ two research analysts. One analyst will write on Asian companies and the other will prepare reports on U.S. companies. The research will be marketed under one name. Do the analysts need to be registered?

The analysts do not need to be registered. This is an example of globally branded research. There must be a disclosure that the analysts are not registered.

3

According to SRO rules, when and to whom must a letter of attestation concerning research reports be submitted?

It must be flied with the member firm's DEA by April 1

4

Whittman brokerage is managing the IPO of El Seguendo Mining. When can Whittman publish a research report on the subject company?

40 days after the effective date

5

Which disclosure is required for research reports, but is not required during personal appearances by an analyst?

The percentage of recommendations falling into the categories of buy, sell, and hold

6

Define Retail Communication

Any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30-calendar-day period.

7

Which of the following items is compulsory in a research report?

A)The analyst certification
B) A price chart
C) A rating for the issue
D) The analyst's name and contact information

A)The analyst certification

8

Scrimshaw Manufacturing is refusing to speak about its business to an analyst that covers its stock. What action should the research analyst should take?

The research analyst should comment through a note or report based on any publicly available information.

9

A registered representative has posted comments on an online interactive social media Web site. What form of communication would this be classified as?

This is considered a retail communication and would not require principal approval. This type of communication is not subject to principal preapproval and is not required to be filed with FINRA. However, a firm is required to monitor and supervise this type of activity in the same manner it handles correspondence.

10

An analyst for Albacore Securities is preparing a research report recommending ABC common stock. All the following situations must be disclosed in the report, EXCEPT:

A) ABC Corp is an investment banking client of Albacore
B) Albacore Securities owns a 1% or greater beneficial ownership in ABC common stock
C) Albacore Securities owns a 1% or greater beneficial ownership in ABC nonconvertible debt
D) Albacore Securities makes a market in ABC common stock

C) Albacore Securities owns a 1% or greater beneficial ownership in ABC nonconvertible debt

Since nonconvertible debt is not considered common equity, disclosure is not required.

11

Recommendations made by a member firm must disclose which of the following?
I: The price at the time the recommendation is made
II: Ownership by the firm of any options or warrants for the same stock
III: Any gains or losses from trading the security for its own account within the last year
IV: The size of any position it holds in the security

I & II

12

In which of the following meetings may a research analyst participate?

A) An internal meeting between the investment banking and legal departments of his member firm regarding fact checking of a new issue

B) A meeting between prospective high net worth clients and the issuer concerning a potential IPO

C) A meeting between the investment banking department and two current clients regarding a merger

D) A meeting with the head of research, the investment banking department, and prospective investment banking clients

A) An internal meeting between the investment banking and legal departments of his member firm regarding fact checking of a new issue

Research analysts may participate in due diligence meetings and the screening of potential investment banking clients; however, they may not participate or attend meetings for the purpose of soliciting investment banking business (pitches).

13

What qualifies a firm for the small firm exception?

The small firm exception permits the direct communication between investment banking personnel and research analysts. It is applied to firms that have received, on average, revenue from investment banking fees for common stock and corporate bond offerings of $5,000,000 or less over the previous three years.

14

Hodges Brokerage uses seven ratings categories in its research reports. In a ratings summary, it must show the percentage of securities:

In three categories

If a research report contains a rating or recommendation, the firm must show the percentage of all securities that the member recommends as "buy," "sell," or "hold." Within those three categories, the member must disclose the percentage of subject companies that are, or have been, investment banking services clients within the preceding 12-month period.

15

Bloom & Berger Investments has 17 research analysts who prepare 70 to 80 research reports each year. For how many years must the research reports be kept in the firm's records after being published?

The firm must keep copies of drafts and the final version of a research report for three years after publication.

16

According to FINRA rules, what is correspondence?

Correspondence is defined as a written or electronic message sent by a member firm to 25 or fewer retail investors within any 30-calendar-day period.

17

A broker-dealer is the managing underwriter of an IPO for a company whose annual revenue is $960 million. A research analyst at this broker-dealer may write a research report:

A) On the day of the IPO
B) 10 days after the IPO
C) 25 days after the IPO
D) 40 days after the IPO

A) On the day of the IPO

18

Ned, an analyst at Covershort Brokerage, has been asked to appear on MarketScope, a daily financial news program. If he discusses Gibraltar Shares, a company that he covers, which of the following disclosures is NOT required?

A) Ned's fixed-income holdings in Gibraltar
B) Ned's sister being a senior executive at a competitor of Gibraltar
C) Covershort Brokerage's earnings of $3MM as a distribution agent in a Gibraltar PIPE transaction
D) Ned receiving compensation from the subject company within the past 12 months

C) Covershort Brokerage's earnings of $3MM as a distribution agent in a Gibraltar PIPE transaction

19

Coppertop Securities may allow its investment banking personnel to supervise research department personnel if it has met which TWO of the following conditions?

I) Participated in 15 or fewer investment banking transactions or underwritings as underwriter or dealer
II) Generated $5 million or less in gross investment banking services revenues from its underwriting transactions
III) Participated in 10 or fewer investment banking transactions or underwritings as manager or comanager
IV) Generated $10 million or less in gross capital market revenues

II & III

20

May an analyst make remarks that an issuer does not cooperate with analysts?

A) No since the communications rules forbid this type of commentary, no matter how tactful
B) It is not relevant since information is publicly available anyway
C) Yes, but the information must be disclosed on the cover page
D) Yes since analysts have the leeway to address issuer cooperation with the analyst community

D) Yes since analysts have the leeway to address issuer cooperation with the analyst community

21

When a research analyst recommends securities in a print media interview, a record of the interview must be made within:

48 hours

22

Bob Analyst covers the technology sector for ABC Securities. Bob's wife purchases shares in X Corp, a technology company, prior to its initial public offering. Bob has not prepared a research report on X Corp nor is the company an investment banking client of ABC Securities. Does His wife's purchase of X Corp prior to its IPO violates SRO rules?

Yes,

No analyst, or member of an analyst's household, may purchase shares in a company within that analyst's sector prior to the company's initial public offering.

23

After Whiteside Brokerage recommends the shares of Carlton Corp, the Director of Research wants to buy Carlton bonds. Is this permissible?

A) Under no circumstances
B) The bond may be purchased without any approval, but 5 days must elapse
C) The bonds may be purchased with approval from the Legal and Compliance Departments
D) The Director may buy only equity securities of the company

C) The bonds may be purchased with approval from the Legal and Compliance Departments

24

A research analyst is preparing to discuss a company on her firms internal communication system (squawk) at 11:00 a.m. This is considered:

Internal communication and not a public appearance

25

During normal trading hours, an analyst wants to conduct a closed circuit broadcast and discuss a subject company. Which of the following statements are TRUE? The analyst:

I: May notify the sales and trading desk in advance
II: May not notify the sales and trading desk in advance
III: May not conduct the broadcast during normal trading hours
IV: May not inform sales and trading of the content in advance of the broadcast

I & IV

26

The firm must keep copies of drafts and the final version of a research report for __ years after publication.

3