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Flashcards in Unit 6 - Uniform Practice Rules Deck (70)
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1

Scope of the UPC
Question ID: 48562
If the mark to the market demand for a cash deposit is sent by one broker to another, the required amount of cash must be deposited:

A) within 24 hours.
B) within 5 business days.
C) as promptly as possible.
D) within 1 hour.

Answer: C

When a member firm sends a mark to the market to another member firm, the required amount of cash must be deposited as promptly as possible.

Reference: 6.1.2.3 in the License Exam Manual.

2

Scope of the UPC
Question ID: 48563
A mark to the market is based on:

A) the amount of time from the date on which the delivery is due.
B) the number of shares involved in a transaction.
C) contract price in relation to market price.
D) reclamation procedures.

Click for Answer and Explanation

Answer: C

A mark to the market is based on the difference between the contract price and the market price.

Reference: 6.1.2.4 in the License Exam Manual.

3

Scope of the UPC
Question ID: 48760
Under the Uniform Practice Code of FINRA, delivery may be made on a seller's option contract no sooner than:

A) T+5.
B) T+7.
C) T+4.
D) T+1.

Answer: C

Under Uniform Practice Code, the seller's option delivery may take place no sooner than the business day following regular way, which is trade date plus 4 business days.

Reference: 6.1.2 in the License Exam Manual.

4

Scope of the UPC
Question ID: 48806
A when-issued municipal confirmation would include:

I. trade date.
II. settlement date.
III. price.
IV. accrued interest.

A) I only.
B) I, II and III.
C) I, II, III and IV.
D) I and III.

Answer: D

A when-issued confirmation will include the trade date and the price of the bonds expressed in yield. It will not include the settlement date because it is not yet known. The settlement date is unknown, so accrued interest cannot be computed.

Reference: 6.1.2.3 in the License Exam Manual

5

Scope of the UPC
Question ID: 48964
Under MSRB Rule G-12, all of the following are true EXCEPT:

A) regular way transactions settle on the third business day.
B) when-issued trades settle on a date agreed to by both parties, which can be no earlier than two business days after notification of settlement is provided to the clearing agencies.
C) cash trades settle on the same business day.
D) cash trades settle on the next business day.

Answer: D

Under MSRB rules, cash trades settle on the trade date, not on the next business day. Regular way trades settle three business days after the trade date.

Reference: 6.1.2 in the License Exam Manual.

6

Scope of the UPC
Question ID: 48990
Confirmation of a cash trade between two member firms must be exchanged:

A) within five business days of the trade date.
B) on the trade date.
C) on the business day following the trade date.
D) within three business days of the trade date.

Answer: B

A cash trade must be confirmed on the day of the trade because it settles on the day of the transaction.

Reference: 6.1.2 in the License Exam Manual.

7

Scope of the UPC
Question ID: 48992
A don't know (DK) notice will be sent when:

A) a uniform reclamation form is not used.
B) bearer bonds are delivered with coupons detached.
C) written notice of the publication of a bond call is received after delivery of the bonds.
D) a contra-broker/dealer fails to confirm a transaction.

Answer: D

If a buyer or seller does not receive a return confirmation from the other party involved in the transaction by the end of the fourth business day, a don't know (DK) notice is sent promptly.

Reference: 6.1.2.2 in the License Exam Manual.

8

Scope of the UPC
Question ID: 48998
Under the Uniform Practice Code, a seller's option transaction settles:

A) within 90 calendar days of the transaction.
B) on or before the expiration date specified in the option.
C) at the discretion of the seller.
D) within 35 calendar days of the transaction.

Answer: B

In a seller's option transaction, the seller may deliver, at his discretion, between four business days after the trade date until expiration of the option.

Reference: 6.1.2 in the License Exam Manual.

9

Scope of the UPC
Question ID: 48999
Where there is an unsecured debit, a demand for the difference between the contract price and the market price is called a:

A) mark to the market.
B) settlement claim.
C) deposit demand.
D) clearance demand.

Answer: A

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

Reference: 6.1.2.3 in the License Exam Manual.

10

Scope of the UPC
Question ID: 49000
In a regular way transaction, if a seller delivers before the settlement date, the:

A) buyer may accept the stock or may refuse it without prejudice.
B) buyer must only accept delivery if the seller gave advance notice of his intention.
C) seller has violated the Uniform Practice Code.
D) buyer must accept delivery.

Answer: A

In a regular way trade, the purchaser does not have to accept securities delivered before settlement date (three business days after the trade date), but may do so if he wishes.

Reference: 6.1.2 in the License Exam Manual.

11

Scope of the UPC
Question ID: 49001
Settlement on when-, as-, and if-issued and when-, as-, and if-distributed transactions is usually determined by the:

A) board of governors.
B) FINRA Uniform Practice Committee.
C) buying broker.
D) selling broker.

Answer: B

Settlement on when-issued securities is on a date set by FINRA's Uniform Practice Committee unless such date is determined by an exchange (if the securities are listed) or by the manager of the underwriting syndicate (if new issue securities are involved).

Reference: 6.1.2.3 in the License Exam Manual.

12

Scope of the UPC
Question ID: 49002
Settlement of securities transactions is made:

A) when the selling broker/dealer delivers the securities to the buying broker/dealer's office.
B) at either the office of the buyer or the seller, as specified at the time the parties enter into contract.
C) when the buying broker/dealer delivers a check to the selling broker/dealer's office.
D) when the seller and the buyer come together at the office of the transfer agent

Answer: A

Settlement of securities transactions occurs when the selling broker/dealer delivers to the buying broker/dealer.

Reference: 6.1.2 in the License Exam Manual.

13

Scope of the UPC
Question ID: 49004
In a seller's option, securities may be delivered prior to the expiration date specified if the seller:

A) cannot deliver on the specified date.
B) wishes to be paid earlier.
C) gives one day's written notice to the buyer.
D) gives notice to the buyer on the day of delivery.

Answer: C

In a seller's option trade, the seller may deliver at his option by giving the buyer written notice one day before the delivery date.

Reference: 6.1.2 in the License Exam Manual.

14

Scope of the UPC
Question ID: 49005
When a broker receives confirmation of a transaction of which there is no record, the broker will send the confirming broker a:

A) don't know notice.
B) sell-out notice.
C) close-out notice.
D) fail notice.

Answer: A

A DK notice is sent when a confirmation or comparison is received that does not conform with the broker's record of the transaction.

Reference: 6.1.2.2 in the License Exam Manual.

15

Scope of the UPC
Question ID: 49032
Which of the following statements regarding the physical delivery of securities are TRUE?

I. Delivery is made at the office of the seller.
II. Delivery is made at the office of the buyer.
III. Delivery expenses are borne by the seller.
IV. Delivery expenses are borne by the buyer.

A) I and IV.
B) II and IV.
C) II and III.
D) I and III.

Answer: C

All physical deliveries are made by the seller at the office of the purchaser. Any expenses incurred in connection with the delivery are borne by the seller.

Reference: 6.1.2 in the License Exam Manual

16

Scope of the UPC
Question ID: 49034
A seller must provide written notice of intent to deliver at least how many business days before delivering under a seller's option contract?

A) Three days.
B) Four days.
C) One day.
D) Two days.

Answer: C

Before delivering securities to satisfy a seller's option contract, the seller must give the buyer a written notice of intent to deliver at least one business day before making delivery.

Reference: 6.1.2 in the License Exam Manual

17

Scope of the UPC
Question ID: 49037
When one party to a trade sends a paper confirmation but does not receive one (or a DK) in return, the confirming member must send a DK notice to the nonconfirming member:

A) immediately.
B) after three business days from trade date.
C) after five business days from trade date.
D) after four business days from trade date.

Answer: D

When one party to a trade sends a confirmation (the confirming member) but does not receive one in return, the confirming member must send a DK (don't know) notice to the nonconfirming member after four business days from trade date.

Reference: 6.1.2.2 in the License Exam Manual.

18

Scope of the UPC
Question ID: 49095
Under the Uniform Practice rules of FINRA, the failure of a buying dealer to comply with a demand for additional collateral by the seller of a when-issued contract enables the seller to close out the contract without notice as early as how many business days following the day notice demand was sent?

A) Two days.
B) Three days.
C) Five days.
D) One day.

Answer: D

Should the price of the contract decline in the when-issued trading market, the seller may demand additional collateral. Failure to comply with a demand entitles the seller to close the contract by making an offsetting purchase. Any offsetting purchase may be made as early as the business day following the day notice of demand was sent.

Reference: 6.1.2.3 in the License Exam Manual.

19

Scope of the UPC
Question ID: 49096
Under the Uniform Practice rules of FINRA, all of the following events will generally result in the cancellation of a when-issued contract EXCEPT a change in the:

A) type of securities to be issued.
B) redemption schedule of the securities to be issued.
C) interest rates of the securities to be issued.
D) dollar value of the securities to be issued.

Answer: D

Events which may result in cancellation by the Uniform Practice Committee include changes in redemption schedule, changes in dividend rates and interest rate, or a change in the type of security to be issued. Events which will may not result in cancellation include changes in the dollar value of the securities to be issued, restructuring of the financing arrangements previously announced by the issuer, and settlement of any legal action on the part of the issuer.

Reference: 6.1.2.3 in the License Exam Manual.

20

Scope of the UPC
Question ID: 49098
If no settlement date is set by the Uniform Practice Committee, delivery may be made by the seller provided written notice of intent to deliver is given to purchasers at least:

A) five business days before delivery.
B) one business day before delivery.
C) two business days before delivery.
D) three business days before delivery.

Answer: B

If no settlement date is set by the Committee, delivery may be made by the seller on the business day following the day the seller delivers written notice of intent to deliver to purchasers.

Reference: 6.1.2.3 in the License Exam Manual.

21

Scope of the UPC
Question ID: 49120
Which of the following statements regarding funds received as collateral by the seller of a when-issued contract are TRUE?

I. The funds must be segregated on its books and records.
II. The funds need not be segregated on its books and records.
III. The funds must be physically segregated from other funds of the firm.
IV. The funds need not be physically segregated from other funds of the firm.

A) II and IV.
B) I and IV.
C) I and III.
D) II and III.

Answer: B

Funds received by the selling member must be segregated on its books and records. However, Uniform Practice rules do not require that these funds be physically segregated from other funds of the firm. Firms can not permit any part of these deposits against when-issued contracts to be used for any purpose other than to secure these contracts.

Reference: 6.1.2.3 in the License Exam Manual.

22


Good Delivery Rules
Question ID: 48483
On February 13, your customer buys an 8% Treasury bond maturing in 2009 for settlement on February 14. If the bonds pay interest on January 1 and July 1, how many days of accrued interest are added to the buyer's price?

A) 44 days.
B) 14 days.
C) 43 days.
D) 45 days.

Answer: A

Accrued interest for government bonds is figured on an actual-days-elapsed basis. The number of days begins with the previous coupon date and continues up to, but not including, the settlement date. The bonds pay interest on January 1. There are 31 days of accrued interest for January. The bonds settle February 14. There are 13 days of accrued interest for February. Do not count the settlement date (31 + 13 = 44 days).

Reference: 6.2.2 in the License Exam Manual.

23

Good Delivery Rules
Question ID: 48484
One of your customers buys a new issue municipal revenue bond on March 19. The trade settles on March 24, and the bond pays interest on February 1 and August 1. If the dated date of the bond is March 1, how many days of accrued interest are due?

A) 23 days.
B) 19 days.
C) 24 days.
D) 55 days.

Answer: A

Interest started accruing from the dated date of the bond (March 1). Interest accrues up to, but not including, settlement. Therefore, 23 days of accrued interest are due. The customer's first interest payment, the following August, will represent interest that has accrued from the dated date.

Reference: 6.2.2 in the License Exam Manual.

24

ood Delivery Rules
Question ID: 48485
A May and November Treasury bond is traded the regular way on Wednesday, June 8. The number of days of accrued interest is:

A) 44 days.
B) 45 days.
C) 39 days.
D) 38 days.

Answer: C

Accrued interest on government bonds is based on actual days in a year. Settlement occurs on the next business day. This bond pays interest in May and November, with the most recent payment on May 1. Interest has accrued on this bond for 31 days in May and 8 days in June, for a total of 39 days. Settlement date is Thursday, June 9.

Reference: 6.2.2 in the License Exam Manual.

25

Good Delivery Rules
Question ID: 48537
Which of the following statements regarding accrued interest on bond transactions are TRUE?

I. When bonds are bought or sold, any accrued interest is deducted from the sale proceeds and added to the buyer's total purchase cost.
II. Accrued interest on corporate bonds is calculated based on a 360-day year.
III. Only registered bonds are subject to accrued interest calculations; bearer bonds do not carry accrued interest.
IV. In counting the number of accrued interest days, start with the last interest payment date, which is included in the count, and end with the transaction settlement date, which is not included in the count.

A) III and IV.
B) II and IV.
C) I and II.
D) I and III.

Answer: B

Accrued interest is added to both sides of a bond transaction − to the buyer's total cost and the seller's total proceeds.

Reference: 6.2.2 in the License Exam Manual.

26

Good Delivery Rules
Question ID: 48586
Accrued interest is:

I. added to the buyer's confirmation.
II. subtracted from the buyer's confirmation.
III. added to the seller's confirmation.
IV. subtracted from the seller's confirmation.
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.

Answer: A

Accrued interest is payable by the buyer to the seller. It is added to the buyer's purchase price. The seller receives the accrued interest, so it is added to the seller's proceeds.

Reference: 6.2.2 in the License Exam Manual.

27

Good Delivery Rules
Question ID: 48588
If securities delivered in an interdealer trade are refused by the transfer agent, the time frame for reclamation, under Uniform Practice rules, is:

A) 30 months from delivery date.
B) 15 days from delivery date.
C) 45 days from delivery date.
D) 90 days from delivery date.

Answer: A

If securities accepted by a member in an interdealer trade are subsequently rejected by the transfer agent (for whatever reason), the time frame for reclamation is 30 months from delivery date.

Reference: 6.2.4.2 in the License Exam Manual.

28

Good Delivery Rules
Question ID: 48589
All of the following deliveries are subject to reclamation EXCEPT a:

A) mutilated certificate.
B) bond certificate rejected by the transfer agent.
C) bond that defaults after trade date.
D) bearer bond delivered with missing coupons.

Answer: C

In this instance, the buying member assumes any loss on the defaulted bond. Reclamation was not designed to shield members from market risk. Bonds delivered with missing coupons, mutilated certificates, and bonds rejected by the transfer agent can all be reclaimed.

Reference: 6.2.4.2 in the License Exam Manual.

29

Good Delivery Rules
Question ID: 48611
On Thursday, March 17, a customer enters a regular way order to buy $20,000 of a 5-1/2% corporate bond maturing in 15 years. The bond pays interest on January 1 and July 1. How many days of accrued interest will the customer pay the seller?

A) 81 days.
B) 76 days.
C) 77 days.
D) 82 days.

Answer: A

Interest accrues up to but not including settlement date. For a trade done on Thursday, March 17, regular way settlement would be Tuesday, March 22. The computation is: January 30 days + February 30 days + March 21 days = Total of 81 days.

Reference: 6.2.2 in the License Exam Manual.

30


Good Delivery Rules
Question ID: 48629
The calculation of accrued interest:

I. includes the prior payment date.
II. does not include the prior payment date.
III. includes the settlement date.
IV. does not include the settlement date.

A) II and III.
B) II and IV.
C) I and IV.
D) I and III.

Answer: C

Interest begins to accrue on the prior interest payment date and accrues up to but not including settlement date.

Reference: 6.2.2 in the License Exam Manual.