Unit 1 Quiz Review Primary Markets And Secondary Markets

Question 1

The Federal law requiring companies offering public equity or debt securities to provide a prospectus to investors known as:
A. The Securities Investor Protection Act of 1970
B. The Securities Act of 1933
C. The trust Indenture Act of 1939
D. The Securities exchange act of 1934

Answer 1

B. The securities act of 1933 is also known as the prospectus act. with limited exceptions, companies looking to offer securities to the public, must provide a prospectus to those who are approached about purchasing those securities. A Prospectus is a disclosure document that provides key information about the company.

Question 2

What is the maximum number of non-accredited investors allowed in a regulation D exempt transaction under the rule 506b?
A. 50
B. None
C. 35
D. 25

Answer 2

C. The SEC does not require registration of an offering under Regulation D as long as there is no more than 35 non accredited investors. There is no limit to the number of accredited investors that may invest in a private investment.

Question 3

A broker - dealer designated as a carrying firm would be expected to do all the following except:
A. Maintain a lower net capital than non carrying broker dealers.
B. Perform back office functions, such as sending trade confirmations to customers
C. Take custody of customers funds and securities
D. Clear transactions for customer accounts

Answer 3

A. A firm carrying customer funds and securities assumes certain risks and is therefore required to maintain levels of net capital higher than that of firms that do not accept custody of funds or securities ( non carrying firms).

Question 4

Trading hours on the New York Stock Exchange are:
A. 9:30pm to 4:00pm Eastern Time
B. 9:30am to 4:00pm Eastern Time
C. 9:00am to 4:00pm Central time
D. 9:00am to 4:00pm Eastern Time

Answer 4

B. Trading hours on the NYSE are from 9:30am to 4:00pm Eastern time on business days.

Question 5

Sea coast securities, a broker - dealer, maintains an inventory in DEF INC. common stock. When transacting business in DEF stock, Seacoast is most likely acting in what capacity?
A. Broker
B. Market Maker
C. Agent
D.Underwriter

Answer 5

B. When a BD acts as a dealer( or market maker) , they are selling securities from the firms inventory to a customer or buying a security from a customer for the dealers inventory.

Question 6

An investor enters a sell stop limit order at 60. Following an order entry, trades occur at 62, 60, 59, 61, 63. The investor will most likely receive;
A. 60
B. 63
C. 59
D.61

Answer 6

D. This is really two orders. The first is to stop at 60. Once the trades at 60 or lower, the order is elected( triggered) and becomes a live working order. That order is to sell at 60 or better. Therefore the first time the stock hits 60 or less is the trade at 60. That triggers the sell limit order to sell at 60 or better. The next trade is 59 and that is not an acceptable price given the limit order is set to 60. The following order, however is 61, is the next acceptable price after the order is triggered and that’s when the order would most likely be executed.

Question 7

Regarding the purchase of a new equity issue, an account where a restricted person has a beneficial interest would be allowed to purchase the new shares at the public offering price.
A. Only if the interest exceeds 15%
B. Only if the interest does not exceed 10%
C. Without Restriction
D. Never

Answer 7

B. Restricted persons will be able to have an interest in an account ( one that is not wholly their own) that purchases new equity issues as long as it’s no more than 10% of the accounts beneficial owners are restricted persons.

Question 8

Your client , Jane Anderson, has owned QRS for a few years but has now turned bearish on QRS. What transaction would you recommend?
A. Buy QRS to close
B. Sell QRS to open
C. Buy QRS to open
D. Sell QRS to close

Answer 8

D.Because Anderson already owns the stock, this would be a closing transaction , and because she is bearish it would be a sell.

Question 9

A closing transaction can be?
A. A sell only
B. A short sale
C. A buy only
D. Either a buy or sell

Answer 9

D.A closing transaction can be either a buy or a sell depending on what the opening ( initial) transaction was. The closing transaction will always be the opposite of the opening one- buy to open, sell to close, buy to close.

Question 10

The statement “ These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information @ is?
A. The disclaimer placed by the underwriters in a tombstone advertisement
B. Mandated to be in the final prospectus Bu the Security and Exchange Commission ( SEC).
C. Mandated by the Financial Industry Regulatory ( FINRA) to be placed in both the preliminary and final prospectus
D. Placed by the issuer in the preliminary prospectus.

Answer 10

B.Commonly known as the securities and Exchange Commission’s disclaimer, the SEC mandates that it be found in the final prospectus.

Question 11

Your client is buying Municipal bonds and wants to know when payment is due. You should tell them:
A. Trade day plus 3 days
B. Trade date
C. Trade date plus 1 business day
D. Trade date plus 2 business days

Answer 11

D. Regular way settlement is T + 2 for everything except treasuries , money market securities, and options

Question 12

Selling Long is equivalent to which of the following?
A. Selling to open then buying to close
B. Selling to open
C. Selling short
D. Selling to close

Answer 12

D. When a customer owns a position and then sells that position, that is referred to as selling long or selling to close

Question 13

As participants in a firm commitment underwriting agreement , the underwriters know that:
A. They, the underwriters, will be acting as principals buying the securities from the issuer
B. They, the underwriters, will not be at risk for any securities left unsold
C. For. The issuer , there are only committing to making a best effort to selll securities for them.
D. If shares cannot be sold to the public, the issuer will not be able to raise capital needed as an agent.

Answer 13

A. In a firm commitment, the underwriters contract with the issuer to buy the securities from them and thus acting as principals rather than agents. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold and all capital needed will be raised.

Question 14

An investor with no other positions in LMN stock purchases 600 shares at the market. The investor is?
A. Short LMN stick and bullish
B.Long LMV stock and bearish
C. Short LMN Stock and bearish
D. Long LMN stock and bullish

Answer 14

D. With no other positions in LMN stock, the purchase was an opening transaction. Having purchased the stock in a opening transaction, the investor now has a long position in LMN stock and bullish- wanting to see the stock rise in value.

Question 15

Regarding the issuance of new securities to the public, which of the following is true?
A. Underwriters are permitted to accept orders for securities during the Securities and Exchange Commission ( SEC ) review period period
B. The Securities Act of 2933 criminal penalties for fraud.
C. Registrations become effective within 10 business days of Securities and Exchange commission filing
D. The Securities and Exchange commission ( SEC) review of a new issue filing must always be longer than 20 days.

Answer 15

B. The Securities Act of 1933 , which provides for criminal penalties for fraud in the issuance of new securities, ensures that investors are fully informed about a security and its issuer when the security is offered to the public. The SEC review or cooling off period must last a minimum of 30 days before the SEC releases the securities for sale to the public ( effective date). Solicitations and the acceptance of orders may never occur before the effective date.

Question 16

Great Plains investment is a member firm that maintains an inventory in BigBox Inc, common stock. When transacting business in Big Box stock, the firm is most likely acting in what capacity?
A. Agent
B. Broker
C. Underwriter
D. Market maker

Answer 16

D. When a BD acts as a dealer ( or market maker) , they are selling securities from the firm’s inventory to a customers or buying a security from a customer for the dealers inventory.

Question 17

For initial public offerings (IPOs) of common stock, all of the following would be considered a restricted persons except:
A. Employees of a member firms
B. A message firm
C a person owning at least 5% of the member firm
D.Fiduciaries acting on behalf of the underwriters

Answer 17

C. An individual person or entity would have to own 10% or more of a member firm before they would be considered a restricted person.

Question 18

Your customer, Ellesha , places a sell stop at 50 on DEZ stock while it is trading at $53 per share. After the order is elected, Ellesha may sell her shares at which of the following prices?
I. $48
II. $49
III.$50
I’V.$51
A. I,II, and III
B. iII and IV
C. III and IV
D. I, II, III, and IV

Answer 18

D. Once triggered ( I.e, elected) ,this becomes a market order to sell. Market orders may sell at any price.

Question 19

After the filing of a registration for a new issue with the Securities and Exchange Commission (SEC), and still in the registration’s cooling-off period, broker- dealers may:
A. Distribute sales literature with the preliminary prospectus.
B. Give a red herring to prospective investor
C. Take binding indicators of interest received from prospective investors
D. Never publish tombstone advertisements.

Answer 19

B. During the cooling - off period, red herring ( preliminary prospectus) may be distributed and tombstones advertisements may be published. Indications of interest can be taken but are non binding on all parties. Sales literature may not be distributed during the cooling off period.

Question 20

After the issuer files a registration statement with the Securities and Exchange commission (SEC) the time is known as the cooling off period begins. This allows a registration to be effective as early as;
A. 20 business days after the date the sec has received it.
B. 40 business days after the SEC had received it.
C. 20 calendar days after the date the SEC received it.
D. 40 calendar days after the date the SEC has received it

Answer 20

C. Once the registration statement has been received by the SEC, a cooling- off period begins and it must last at least 20 calendar days. This allows the registration to become effective as early as 20 calendar days after the date the SEC has received it.

Question 21

All of the following are exempt from the Securities ACT of 1933 except:
A. US Treasury Securities
B. Fixed annuity contracts
C. Debt securities issued by religious organization.
D Limited partnerships

Answer 21

D. Limited partnerships interests are not exempt securities. The exempt securities include US government securities, municipal bonds, commercial paper and bankers acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts ( but not variable annuities), charitable, religious, educational and nonprofit associations issues and more.

Question 22

An investor is viewing a company’s prospectus on the Securities Exchange Commission’s (SEC’S) website which of the following true:
A. This satisfies the access equals delivery rule for the preliminary prospectus
B. Access equals delivery can only mean physical delivery of the prospectus and not viewing one on a website
C. This does not satisfy the access equals delivery rule for an aftermarket prospectus
D. This satisfies the access equals delivery rule for a final prospectus

Answer 22

D. A prospectus will be deemed to precede or accompany a security for Sale if the final prospectus has been filed with the SEC and can be viewed on the SEC website. The access equals delivery model applies to the final prospectus and aftermarket prospectus delivery obligations but not to the preliminary prospectus delivery obligation.

Question 23

A person who looks to provide advise to advice to a city government concerning the issuance of municipal debt securities would best be described:
A. A municipal securities representative
B. A municipal
C. An investment adviser
D. A market maker

Answer 23

B. A municipal advisor is a person that provides advice to or on behalf of a municipal entity with respect to municipal entity with respect to municipal products or municipal products or the issuance of municipal securities.

Question 24

For nonexempt securities being offered to the public for the first time by a corporate issuer, which of the following would be applicable?
A. Securities ACT of 1933 regulating issues that must be offered by prospectus
B. Securities ACT of 1934 regulating securities that must be offered by prospectus
C. Securities ACT of 1933 regulating securities traded in the secondary market
D. Securities ACT of 1933 regulating securities traded in the secondary market

Answer 24

Non exempt securities are those that must be registered with the Securities and Exchange Commission ( SEC) under the Securities ACT of 1933. The 1933 mandates that offering of these securities must be by prospectus.

Question 25

Underwriters acting as principals and committing to purchase any unsold shares for the syndicate account would be best described as being engaged in A. A best efforts B. An initial public offering C. A firm commitment D. A primary

Answer 25

C. In a firm commitment underwriters contract with the isotope but it’s securities . Acting as principals rather than agents. They are committing to purchase any unsold shares for the syndicate account. In this type of underwriting it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the show I’ll be sold, and all capital needs will be raised.

Question 26

A new registered representative receives a memo discussing the distribution of a red herring. The registered two knows that the memo is referencing: A. A tombstone advertisement B. A preliminary prospectus C. A registration statement D. A final prospectus

Answer 26

The term red herring is derived from the disclaimer printed in red on the cover page of a preliminary prospectus. Some key information that would be found in a final prospectus such as price, is not found on the preliminary prospectus. The answer is B.

Question 27

A corporation sells shares to the investing public in order to raise caps. This is known as: A. An issuer transaction. B. A secondary market transaction C. A primary, or investor - to - investor, transaction D. An exchange market execution

Answer 27

A. The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.

Question 28

Which of the following would most likely indicate shares of stock were held in electronic form? A. Held in safe keeping B. In trust name C. Are custodial name D. Held in the street name

Answer 28

D. Shares held in street name are normally registered to the broker- dealer, who hold them on behalf of the client. As these shares are likely only in electronic form, no signature is required to transfer them.

Question 29

WRJ stock is quoted as 21 bid, 21.15 offer. For a customer order, which of the following is true? I. A purchase can be made at $21 per share if buying at the market II. A purchase can be made at $21.25 per share if buying at the market III.The spread is $.15 IV. A sales can be made at $21.25 per share if selling at the market A. III and IV B. I and IV C. II and III D. I and III

Answer 29

C.A quote always represents the bid and an ask ( offer) price. Investors pay the current price when purchasing (21.15) and receive the current bid price when selling (21) . The spread is the difference between the bid and the ask price which in this quote is .15.

Question 30

A cash trade settlement trade settles: A. The regular way, but no margin borrowing is permitted. B. The same day as the trade C. In two business days D. The next day

Answer 30

B.A cash settlement trade settles the same day as the trade. A cash trade is a trade that occurs in a cash account ( meaning to margin).

Question 31

Which of the following is not required to endorse a stock certificate for transfer? A. Proper endorsement by all owners B. The correct of shares are delivered C. Signatures of the receiving registered representative D. Certificate in good condition

Answer 31

C. The broker dealer does not sign the certificate. All the rest are requirements.

Question 32

Regarding primary and secondary offerings, which of the following are true? I.An offering can only be either An primary or secondary II. An offering can be a combination of primary and secondary III. An initial public offering( IPO) is a secondary offering IV. An additional primary offering (APO) is a primary offering A. II and IV B. I and III C. I and IV D. II and III

Answer 32

A. An offering can be a combination of primary and secondary. These are known as split offerings. Both IPOs and APOs are primary offering, where the issuer receives the sale proceeds.

Question 33

ABC currently has the following quotes. A. 10.00- 10.60 3 x 2 B. 10.25 - 10.50 3 x2 C. 10.20 - 10.45 3x 3 D.10.25 - 10.45 3x3

Answer 33

D. 10.25 - 10.45 3 x 3. The inside quote is the highest bid ( the highest price someone is willing to buy) paired with the lowest offer, or ask ( the lowest price someone is willing to sell. In this case, the most someone was willing to pay was 10.25, and the lowest someone was willing to sell was 10.45

Question 34

After the issuer files a registration statement with the securities and exchange commission (SEC) the time known as the cooling off period begins. This allows a registration to become effective as early as : A) 20 business days after the date the SEC has received it. B) 40 business days after the date the SEC has received it. C) 20 calendar days after the date the SEC has received it. D) 40 calendar days after the date the SEC has received it.

Answer 34

C. Once the registration statement has been received by the SEC, a cooling-off period begins and it must last at least 20 calendar days. This allows the registration to become effective as early as 20 calendar days after the date the SEC has received it. LO 1.b