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147 Cards in this Set
- Front
- Back
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Which of the following are allowable forms of compensation from a broker-dealer to an adviser?
I. Research II. Computers III. Clearing services IV. Office overhead |
I and III
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A firm is subject to a complaint issued by FINRA's Department of Enforcement. The firm answers the complaint. The Hearing Officer may schedule a prehearing conference within:
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21 Days
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Which of the following is true concerning the SIPC? A. it is not funded by the U.S. government B. None of these answers C. it is a for-profit institution D. it is an agency of the U.S. government |
A. It is not funded by the U.S. Government
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Which of the following is not true regarding a firm's supervisory procedures? A. They must be kept on file at every office of supervisory jurisdiction B. Firms that get penalized for rule violations often get simultaneously penalized for not keeping accurate written supervisory procedures C. They must be in writing D. Principals must be tested annually on their firm's supervisory practices |
D. Principals must be tested annuall on their firm's supervisory practices
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Which of the following persons are considered to be associated with a broker-dealer?
I. Annie, a part-time branch manager of the member firm II. Tom, an officer of the member firm III. Joyce, a new director of the member firm whose duties began less than 30 days ago IV. Linda, whose full-time duties include answering the telephone and scheduling client meetings for the member firm |
I, II, and III
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Agent Jack Slack has been slacking on the job. He has failed to attend his firm's continuing education program. FINRA begins proceedings against Jack, and he responds by submitting a minor rule violation plan letter. Assuming FINRA does not reject the letter, Jack could be looking at a fine of up to:
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$2,500
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According to the Securities Exchange Act of 1934, the term "free credit balance" means:
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D. A liability of a broker or dealer to customers which are subject to immediate cash payment to customers
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Which of the following must be reported to FINRA within 30 calendar days of its occurrence? A. Discovery that a firm is subject to the taping rule B. Change in ownership or control of a member C. First use of a piece of retail communication regarding registered CMOs D. Suspension of an agent's registration |
D. Suspension of an agent's registration
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A member may pay continuing commissions to a representative after he or she ends his or her employment with a member under what conditions?
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A bona fide contract calls for such payment
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An individual with which license is responsible for completing the FOCUS report, assuming the individual works at a broker-dealer that sells municipal securities?
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The FINOP
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A firm changes its fiscal year. The firm must notify:
I. SEC regional office II. SEC principal office III. FINRA regional office IV. FINRA principal office |
I, II, and IV
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Aggregate indebtedness includes:
I. Secured debt II. Unsecured debt III. Subordinated debt IV. Accounts receivable |
II and III
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A former customer of ABC Securities sues the broker-dealer alleging misappropriation of funds. FINRA must be notified:
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Within 30 days
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Which of the following statements regarding securities records is false? A. They include a detailed record of all credits and debits made on each account B. They include the position (long or short) that each customer and the firm holds in a security C. They must be retained for 6 years D. They give information on the owner and physical location of every stock held by the firm |
A. They include a detailed record of all credits and debits made on each account
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Under Rule 15c3-3, money owed to customers must be deposited in a bank account for the exclusive benefit of the customers. This bank account is known as:
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Special Reserve Account
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A FINRA member fails to update its Form BD in a timely manner. FINRA may request that the member submit:
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A minor rules violation plan letter
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After receiving the information necessary to prepare a complete and correct application package for a deferred variable annuity, when does the person who recommended the annuity need to transmit the information to the OSJ?
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Promptly
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What is the difference in the length of time trade blotters must be preserved and the length of time securities records must be preserved (in years)?
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0 years
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Edwina hates the sort of representative she used to be - constantly forgetting rules and paying the price in fines. She has resolved that once her latest violation has been fully addressed - a technical violation that caused no direct harm to a customer - she will turn over a new leaf. That is, assuming she's still able to keep working in the securities world. Given that she's submitted a letter to FINRA accepting the allegation against her, which of the following penalties would FINRA most likely impose?
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Up to a $2,500 fine
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Which of the following is true regarding the activities of broker-dealers? A. Broker-dealers who effect securities transactions outside the United States only are not required to register with the SEC B. Broker-dealers are not required to supervise the securities activities of independent contractors C. Broker-dealers that sell private placements only are not required to register with the SEC D. Broker-dealers that conduct business in one state only are not required to register with the SEC |
D. Broker-dealers that conduct business in one state only are not required to register with the SEC
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Under which of the following circumstances would a firm be required to check if a security has been reported as stolen, missing, lost, or counterfeit? A. The security certificate is received from another firm. B. The security certificate is received as part of a transaction with an aggregate face or market value of $100,000 or less. C. The security certificate is received directly from the issuer. D. The security certificate is received from a customer and it was previously sold to the customer by the firm. |
B. The security certificate is received as part of a transaction with an aggregate face or market value of $100,000 or less
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To calculate net capital, starting with tentative net capital, subtract:
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Haircuts
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Which of the following is true about a broker-dealer’s responsibilities to provide financial information to its customers? A. A broker-dealer must provide audited financial statements at least annually to its customers B. A broker-dealer must provide unaudited financial statements at least annually to its customers C. A broker-dealer must provide both audited and an unaudited financial statements at least annually to its customers D. A broker-dealer is not required to provide financial statements to its customers unless requested by them |
C. A broker-dealer must provide both audited and an unaudited financial statements at least annual to its customers
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The Bank Secrecy Act requires that money services businesses keep a record for five years of money transfers of:
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$3,000 or more
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Regarding FINRA investigations, FINRA staff have the authority to do which of the following?
I. Require a member to provide information orally, written, or in electronic format II. Require member to testify under oath III. Inspect all books and records of the member IV. Inspect all books and records of the member that pertain to the investigation, complaint, examination or proceeding |
I, II, and IV
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All arbitration awards and their contents are:
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Made publicly available
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The maximum civil penalty that can be imposed on a firm when an employee engages in insider trading is the greater of ___________ or three times the amount of the profit gained or loss avoided as a result of the violation.
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A. $1,000,000
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Under FINRA rules, which of the following is not true of subordinated loan agreements? A. The loan agreements must state that the lender’s claims are subordinate to only secured claims B. The loan agreements must have a term of at least 1 year C. Signed copies must be submitted to FINRA D. They must be approved by FINRA in order to receive beneficial regulatory treatment when calculating net capital |
A. The loan agreements must state that the lender's claims are subordinate to only secured claims
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Issuers (companies) are generally prohibited from making certain loans to executives or directors. There are limitations to the prohibitions. Under Sarbanes-Oxley, Section 402, loans for which of the following purposes would be permitted? 1. to buy company stock |
Home Improvement
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Lisa, an associated person, would like to participate in a private securities transaction in which she will not receive compensation. Regarding her participation, which of the following is (are) true?
I. Since Lisa will not receive compensation for the transaction, she is not required to give prior written notice to her member firm. II. Lisa is required to give prior written notice to her member firm regarding the details of the proposed transaction. III. The member firm is required to provide Lisa with prompt and written acknowledgement that they have received her notice. IV. The member firm may require Lisa to adhere to specific conditions related to the transaction. |
II, III, and IV
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Criminal penalties for violating laws pertaining to the Securities Exchange Act of 1934 may include all of the following EXCEPT A. a maximum prison sentence of 10 years B. a maximum prison sentence of 20 years C. termination of employment with a securities firm D. a maximum fine of $5 million |
A. A maximum prison sentence of 10 years |
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Psychic Investments is under investigation by FINRA. As a FINRA member, the company must allow FINRA staff to
I. inspect the company's books II. access customer accounts III. question the firm's staff about transactions and activity IV. copy firm records |
D. I, II, III, and IV
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According to insider trading laws, which of the following does not constitute an illegal act? A. A customer service representative convinces his wife to buy a security based on inside information he was told at the office B. A secretary buys a security based on insider information overheard by her boss prior to a meeting C. A broker communicates insider information to his brother who works at another brokerage D. A broker who has acquired inside information on a stock sells his shares three days later |
C. A broker communicates insider information to his brother who works at another brokerage
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MMM Co. is a market maker in 40 securities. What is MMM Co.'s net capital requirement?
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$100,000 A market maker has a minimum net capital requirement based on the securities for which it makes a market. The requirement is $1,000 for each security with a market value of $5 or less, and $2,500 for each security with a market value of over $5. The highest this requirement can go is $1,000,000. The lowest possible net capital requirement for a market maker is $100,000, since all market makers are dealers. Thus, since the minimum net capital requirement would be $100,000 even if each of the securities had market values more than $5 ($2,500 * 40 = $100,000), the minimum net capital requirement must be $100,000. |
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If the SIPC must step in and bail out a bankrupt brokerage firm, the valuation date for a customer's account holdings is:
I. the date the brokerage firm declared bankruptcy II. the date a legal proceeding commenced in which a receiver, trustee, or liquidator was appointed III. the date notice of a direct payment procedure was published IV. the date that an application for a protective decree is filed |
D. I, II, III, and IV
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If an established firm has an aggregate indebtedness of $450 million, how much net capital would it need to maintain the minimum AI to net capital ratio?
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$30 million
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XYZ Brokerage Firm holds large positions in the following common equity securities:
A Corporation $200,000 B Corporation $50,000 C Corporation $100,000 XYZ Brokerage has a tentative net capital of $1.5 million. XYZ's holdings in which corporation, if any, are subject to the undue concentration rule when calculating XYZ's net capital? |
A Corporation
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A member can pay a commission for finding investors in which of the following situations? A. The finder is a German Citizen living in Germany and the customer is a U.S. Corporation B. The finder is a German citizen living in Germany and the customer is German C. The finder is a U.S. citizen living in the U.S. and the customer is German D. The finder is U.S. citizen living in Germany and the customer is German |
B. The finder is a German citizen living in Germany and the customer is German Foreign finders who are not registered can be paid a portion of the commission on a transaction, but both the finder and the customer have to be foreign nationals (Non-U.S. citizens) or foreign entities. |
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Willie Wilson is a registered investment adviser representative who manages bond portfolios for institutional clients. In return for his bond trading business, one of the brokerages that Willie uses for his clients provides him with a quarterly digest of its best microcap stock ideas free of charge (its normal subscription price is $8,000). The report is used by Willie's investment club, which donates all of its profits to charity. Which of the following is true? A. Willie is committing a violation. B. Willie is not committing a violation by using the report. C. Willie is not committing a violation by using the report in his investing club since any resulting profits go to charity. D. No disclosures are required since Willie's clients are all institutional investors. |
A. Willie is committing a violation
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When calculating net capital, common stocks take a haircut of ____ of their current market value. Nonmarketable securities take a haircut of ____ of their current market value.
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D. 15%, 100%
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Which of the following political contributions to an elected official of an issuer in Municipality B would NOT prohibit a dealer from conducting any securities business with the issuer for two years under the “pay to play” rule? A. A $100 contribution from the dealer’s political action committee located in Municipality B B. A $250 contribution from a clerical employee of the dealer who is entitled to vote in Municipality B C. A $100 contribution from a municipal finance professional who is entitled to vote in Municipality A D. A $250 contribution from a municipal finance professional who is entitled to vote in Municipality B |
D. A $250 contribution from a municipal finance professional who is entitled to vote in Municipality B
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AJ Brokers recently acquired RD Co. AJ Brokers is looking to calculate its net capital to make sure it is in compliance with the SEC's net capital requirements. Which of the following would not be considered a nonallowable asset? A. AJ Brokers' real estate holdings B. AJ Brokers' customer debit balances C. AJ Brokers' patent for a new trading technology D. The excess value paid for the acquisition of RD Co. over the fair market value of its assets |
B. AJ Brokers' customer debit balances
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Which of the following is true of temporary subordinated agreements? A. A firm may engage in up to one temporary subordinated agreements within a 12 month period. B. A firm may not engage in temporary subordination agreements if its aggregate indebtedness exceeds 8:1 C. Temporary subordination agreements cannot last for more than 45 days D. A firm may not engage in temporary subordination agreements if it has less than 150% |
C. Temporary subordination agreements cannot last for more than 45 days
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What is a "Chinese Wall"?
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An information barrier
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Susan, a registered representative, has had her registration suspended by a state securities administrator. Her firm must inform FINRA of the suspension within:
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30 calendar days
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Mr. Hawkins, a registered representative, has filed an application for exemption under FINRA Rules, and has not been granted an exemption. If Mr. Hawkins would like to appeal the FINRA staff's decision, he may file a written notice of appeal within 15 calendar days with which of the following departments?
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The Office of General Counsel of FINRA
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Under the Securities Exchange Act of 1934, all of the following are defined as "securities" except: A. a bond B. an option C. banker's acceptance with a maturity at issuance not exceeding nine months D. oil royalty |
C. Banker's Acceptance with a maturity at issuance not exceeding nine months
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A broker-dealer executes a sell order for a customer. Ten business days after the settlement date, the customer has not made delivery of the securities to the broker-dealer. What actions must the broker-dealer take?
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Buy-in the customer's short position
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Broker-dealers must calculate monies due them from customers (debit balances) and money due customers(credit balances). If credit balances exceed debit balances, the excess credit must be deposited in a Special Reserve Bank account. How often must this calculation take place if the credit balances are less than $1m and the broker-dealers aggregate indebtedness to net capital is less than 8:1:
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Monthly
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If a firm discovers that its aggregate indebtedness to net capital ratio is in excess of 10:1, it must notify FINRA ____. If a firm discovers that its aggregate indebtedness to net capital ratio is in excess of 12:1, it must notify FINRA and the SEC ____. If a firm discovers that its aggregate indebtedness to net capital ratio is in excess of 15:1, it must notify FINRA and the SEC ____.
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within 24 hours; within 24 hours; on the day of discovery
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A broker/dealer must report a standard written customer complaint to FINRA
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Quarterly after the receipt of the complaint (on the 15th day of the month following the calendar quarter)
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SEC Rule 17a-3 - Records to be Made by Certain Exchange Members, Brokers and Dealers - lists items to be included in a customer's file, including investment objectives. What does Rule 17a-3 say about investment objectives on joint accounts?
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The investment objectives should be that of the account, not those of the owners individually
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What is the lowest possible net capital requirement for a fully disclosed firm?
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$5,000
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Jenny and Sam each have an individual account, and they have a joint account, and an UGMA account for their daughter Sarah. What is the combined maximum amount that is covered by the SIPC for the four accounts?
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$2,000,000
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Which of the following statements is true regarding the annual compliance meeting required under FINRA Rule 3110: A. the meeting can take place at the registered representatives' place of business B. the meeting must be at an office of supervisory jurisdiction C. the meeting must be at least one hour long D. the meeting must be about compliance and no other matter |
A. the meeting cant take place at the registered representatives' place of business
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The following statements about NASD Rule 3010 - Supervision are true EXCEPT A. A qualified supervisor must be designated for the main business activity of the member firm. B. Each registered representative of the firm must be assigned to a qualified supervisor. C. Each registered representative must participate in an annual compliance meeting. D. The member firm must make reasonable efforts to determine that the supervisors are qualified. |
A. A qualified supervisor must be designated for the main business activity of the member firm
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All of the following are considered institutional investors EXCEPT? A. a registered investment company B. an investment adviser registered with the SEC C. a bank D. an entity with $25 million or more in assets |
D. An entity with $25 million or more in assets
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Broker/dealers must provide prospectuses to investors that buy a new issue in the secondary market that will be listed on a stock exchange or NASDAQ for how many days after the issuance date?
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25
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Jose is a registered person with United Brokerage Firm. Jose is opening a rollover IRA at his local bank. Which of the following best describes Jose's responsibilities to his member firm? A. Jose must receive prior approval from United Brokerage for all transactions in his rollover IRA B. Jose is not permitted to open an account with a registered member other than his employer firm, United Brokerage C. Jose must provide United Brokerage with all duplicate statements of his rollover IRA D. Jose must notify United Brokerage in writing prior to any initial transaction in his rollover IRA |
D. Jose must notify United Brokerage in writing prior to any initial transaction in his rollover IRA
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Jason Rhodes was involved in illegally pegging the price of Wayne's Wheelbarrows during the company's IPO. Which of the following is true regarding his liability under the law? A. Action to enforce liability must be brought within two years after discovery and within two years after the violation. B. Action to enforce liability must be brought within one year after discovery and within two years after the violation. C. Action to enforce liability must be brought within one year after discovery and within three years after the violation. D. Action to enforce liability must be brought within one year after discovery and within four years after the violation. |
C. Action to enforce liability must be brought within one year after discovery and within three years after the violation.
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West Memphis Investments is using a temporary subordination agreement. The firm must
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File two copies with the SEC and one copy with FINRA
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A FOCUS report provides which information:
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Net capital amounts and related operational information
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Which of the following statements is correct? A. All firms must file quarterly FOCUS reports by 17 business days after the end of the quarter B. Only carrying firms must file quarterly FOCUS reports by 17 business days after the end of the quarter C. All firms must file quarterly FOCUS reports by 10 business days after the end of the quarter D. Only carrying firms must file quarterly FOCUS reports by 10 business days after the end of the quarter |
A. All firms must file quarterly FOCUS reports by 17 business days after the end of the quarter
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After an OSJ receives a complete and correct application package for a deferred variable annuity, when does the principal have to review the application and if approved send it to the insurance company?
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Within 7 business days
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A broker-dealer firm employs five individuals in charge of soliciting municipal securities business. John is a highly paid supervisor in charge of this group but has not engaged in soliciting municipal securities business for six months. John becomes passionate about the next mayoral election in the city where he lives (Stock City) and decides to become active in one of the candidate's campaigns. Which of the activities may John participate in without subjecting his firm to a two-year moratorium in doing business with Stock City? A. John may encourage his brother to make a $300 donation to the campaign B. John may take a paid sick day and volunteer his time to cleaning up the main campaign office as a favor to the candidate C. John and his wife may co-sign a check for $400 to be paid to the candidate's campaign out of their joint account D. John may participate in any activity supporting his candidate's campaign, even if it involves contributing money, because John does not engage in any solicitation of municipal securities business |
C. John and his wife may co-sign a check for $400 to be paid to the candidate's campaign out of their joint account
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Carol has two separate individual accounts, and one UGMA account that she has opened up for her niece. Both accounts are at the same brokerage account. What is the combined maximum amount covered by SIPC?
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$1,000,000
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Assuming you have a Series 6 or Series 7 license, without approval from your BD, each of the following is considered activity conducted away from your broker-dealer EXCEPT: A. Variable annuity transactions B. Outside business activities C. Private securities transactions D. Term life insurance transactions |
A. Variable Annuity transactions
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Ellen Juno is a registered broker-dealer agent who specializes in constructing mutual fund portfolios for clients. The wholesale representative for one of her favorite fund families has offered to support a new marketing campaign she is working on, an invitation-only event with several well-known speakers from the industry. Specifically, he offers the following:
I. An upgrade of the public address system in her firm's auditorium II. A multi-day training session on his firm's products for Ellen's new assistant III. A new software package that helps professionals design optimal mutual fund portfolios IV. A year long subscription to a mutual fund trade magazine. Which of these are prohibited, if any? |
I and II
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MVP Associates is a small b-d with one registered principal and two registered reps. In the BCP, the registered principal is listed as an emergency contact. After reviewing the BCP, FINRA tells MVP:
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It must add a second emergency contact to the BCP and this person should be the senior of the two registered reps.
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Which of the following is required of broker-dealers under the SEC Rule 17a-3 on records? A. You only verify records with customers if the customer changed investment objectives B. You verify suitability information periodically with customers C. Customer verification is not required D. Your verification with customers must include a date of birth |
B. You verify suitability information periodically with customers
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Which of the following is true regarding lost and stolen security reporting requirements?
I. All reports of securities that have been lost for one business day should be reported to the Commission II. All reports of lost securities in which there is a substantial belief that theft was involved should be reported to the Commission III. All reports of lost or stolen securities should be reported promptly to the FBI IV. All reports of lost securities in which there is a substantial belief that theft was involved should be reported to the FBI |
D. II and IV
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A member may pay continuing commissions to a suspended representative under what conditions?
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There are no circumstances under which a member may pay continuing commissions to a suspended representative
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Which of the following is not part of the process of a quarterly security count? A. Account for securities that are controlled but not within the firm's physical possession B. Verify all securities that have been under control but not in possession for more than 30 days C. Compare the results of the count and verification with firm records D. Close-out any securities contracts that have been fail to deliver for over 60 days |
D. Close-out any securities contracts that have been fail to deliver for over 60 days
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Firms subject to the Currency and Foreign Transaction Reporting Act must file reports within ____ and keep records for ____.
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15 days, 5 years
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A __________________ may not make a financial contribution of over ______ to an election in which they are entitled to vote without enabling the two-year moratorium against the firm for soliciting municipal securities business within that particular government or agency.
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municipal finance professional; $250
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John Smith sells investment company securities and is an associated person. Which of the following types of compensation is allowable from an offeror if and only if it is described in a current prospectus of the investment company? A. Gifts of more than $100 B. Compensation that is based on achieving a specific sales target C. Discounts and concessions D. Securities |
C. Discounts and concessions
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ABC Broker-Dealer offers its services on-location at XYZ Bank. Jane opens an account with ABC Broker-Dealer at their location in XYZ Bank. ABC Broker-Dealer must disclose that the broker-dealer services are provided by the member and not the financial institution. They must also disclose that securities bought and sold are not FDIC-insured, not deposits or other obligations of the financial institution, not guaranteed by the institution, and are subject to investment risk, including loss of principal. ABC Broker-Dealer must make this disclosure:
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Both orally and in writing
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A registered rep convicted of a felony and terminated by his broker-dealer can expect to see his conviction in BrokerCheck for how long?
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Permanently
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A fair price when buying or selling securities takes into consideration each of the following except: A. That the dealer is entitled to a profit B. The expense involved C. Market conditions with respect to the security D. A rule that forbids mark-ups and mark-downs of greater than 5% |
D. A rule that forbids mark-ups and mark-downs of greater than 5%
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Which of the following is true related to the use of information obtained in a fiduciary capacity? A. There are no limitations on use of information obtained in a fiduciary capacity. B. A transfer agent is prohibited from using ownership information for solicitation of securities unless given permission by the issuer. C. A trustee may use ownership information for the solicitation of securities. D. A transfer agent may use ownership information for the solicitation of securities under any circumstances. |
B. A transfer agent is prohibited from using ownership information for solicitation of securities unless given permission by the issuer.
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On what financial reporting document must a broker-dealer indicate that it is not a member of SIPC?
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Trade confirmation
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A B-D lends out securities for a short sale that are owned by a pension fund.Which of the following is not true? A. The pension fund has the right to vote the shares they lent out B. The pension fund is entitled to the dividend on the shares they lent out C. The pension fund is entitled to recall the shares D. The pension fund has the right to any stock splits |
A. The pension fund has the right to vote the shares they lent out
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A record providing information on the owner of every municipal security held by the firm and its physical location is called…
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A securities record
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All of the following are true about a carrying firm's securities counts except: A. A person must physically count and examine the securities B. They must be conducted by a person who does not have direct responsibility for the proper care and protection of the securities or the preservation of records related to securities C. A person must account for all securities in transfer, transit, pledged, loaned, borrowed, deposited, failed to receive or deliver, subject to repurchase or otherwise subject to the firm's control but not in its physical possession D. They must be conducted monthly |
D. They must be conducted monthly
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A securities record includes which of the following pieces of information?
I. The long and short positions held by the broker-dealer and its customers in each security II. Securities failed to receive and failed to deliver III. Securities in transfer IV. The owner and physical location of each security held by the broker-dealer |
I and IV
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FOCUS reports: all firms must file ________.
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Part II and Part IIA quarterly
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The maximum civil penalty that can be imposed on a firm when an employee engages in insider trading is the greater of ___________ or three times the amount of the profit gained or loss avoided as a result of the violation.
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$1,000,000
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When an OSJ receives a complete and correct application package for a deferred variable annuity, the principal must review the application, and if he or she approves it, send it to the insurance company within _____________.
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7 business days
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A registered representative wishes to participate in a securities transaction outside of the jurisdiction of his firm. He does not receive compensation for the transaction. Which of the following is true? A. The registered representative needs to inform his firm prior to participating and adhere to any conditions that the firm puts on the rep in connection with the rep's participation B. The registered representative needs to inform his firm and await permission before participating in the securities transaction C. The registered representative does not need to inform his firm because he is not receiving compensation D. The registered representative cannot participate in any outside securities transactions because it is considered selling away and it is prohibited |
A. The registered representative needs to inform his firm prior to participating and adhere to any conditions that the firm puts on the rep in connection with the rep's participation
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A firm loses a customers security by accident on a non-business day. The loss is discovered on the next business day. When should the firm report the loss?
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Two days after the day of discovery
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Which of the following is true about a broker-dealer’s responsibilities to provide financial information to its customers? A. A broker-dealer must provide both audited and an unaudited financial statements at least annually to its customers B. A broker-dealer must provide unaudited financial statements at least annually to its customers C. A broker-dealer must provide audited financial statements at least annually to its customers D. A broker-dealer is not required to provide financial statements to its customers unless requested by them |
A. A broker-dealer must provide both audited and an unaudited financial statements at least annually to its customers
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A representative received a check from a customer made out to the insurance company for a deferred variable annuity. She would like to forward the check to the insurance company. What response would you, as principal, have to this request? Choose the best answer.
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She must wait for prior principal approval
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Which of the following are correct dollar minimums for the Bank Secrecy Act's requirements for broker-dealers?
I. $3,000 or more received or transmitted must be recorded in a monetary instrument log (MIL) II. $5,000 or more received or transmitted must be recorded in a monetary instrument log (MIL) III. Cash transaction of $5,000 or more must be reported to FinCEN IV. Cash transaction of $10,000 or more must be reported to FinCEN |
A. I and IV
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The FINRA Conduct Rules consider an email to be correspondence if it meets all of the following conditions EXCEPT: A. All of these conditions would be considered correspondence. B. The email was sent to a single customer C. It was sent to less than 25 prospective retail customers D. The email was sent to all customers within a 30-day period |
D. The email was sent to all customers within a 30-day period
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What is the maximum amount of cash a broker-dealer may borrow from a bank using a customer's margin account as collateral?
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100% of the debit balance
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A representative is placed on inactive status. This means that the representative:
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May receive compensation, but may not perform the duties of a representative
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Which of the following statements BEST describes an aspect of information barriers? A. Information barriers are a mechanism to prevent insider trading. B. Information barriers permit sharing of information between the investment banking and trading departments of a firm. C. Information barriers must be established and reviewed on a semi-annual basis. D. Information barriers facilitate sharing of information between the investment banking department and portfolio managers of a firm. |
A. Information barriers are a mechanism to prevent insider trading.
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A FINRA member shall deal with any non-member broker or dealer:
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on the same terms and conditions as the general public
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A General Securities Principal is qualified to supervise transactions in which of the following activities? A. Options B. Direct participation programs C. 529 college savings plans D. Municipal securities |
B. Direct Participation Programs
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A registered representative wishes to participate in a securities transaction outside of the jurisdiction of his firm. He does not receive compensation for the transaction. Which of the following is true? A. The registered representative needs to inform his firm prior to participating and adhere to any conditions that the firm puts on the rep in connection with the rep's participation B. The registered representative needs to inform his firm and await permission before participating in the securities transaction C. The registered representative does not need to inform his firm because he is not receiving compensation D. The registered representative cannot participate in any outside securities transactions because it is considered selling away and it is prohibited |
A. The registered representative needs to inform his firm prior to participating and adhere to any conditions that the firm puts on the rep in connection with the rep's participation
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A firm loses a customers security by accident on a non-business day. The loss is discovered on the next business day. When should the firm report the loss?
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Two days after the day of discovery
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Which of the following is true about a broker-dealer’s responsibilities to provide financial information to its customers? A. A broker-dealer must provide both audited and an unaudited financial statements at least annually to its customers B. A broker-dealer must provide unaudited financial statements at least annually to its customers C. A broker-dealer must provide audited financial statements at least annually to its customers D. A broker-dealer is not required to provide financial statements to its customers unless requested by them |
A. A broker-dealer must provide both audited and an unaudited financial statements at least annually to its customers
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A representative received a check from a customer made out to the insurance company for a deferred variable annuity. She would like to forward the check to the insurance company. What response would you, as principal, have to this request? Choose the best answer. A. She should send it back to the customer and ask the customer to make the check out the broker-dealer B. She should forward it promptly (within the next 24 hours) C. She must wait for prior principal approval D. She should send it back to the customer and ask the customer to send it directly to the insurance company |
C. She must wait for prior principal approval
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Which of the following are correct dollar minimums for the Bank Secrecy Act's requirements for broker-dealers?
I. $3,000 or more received or transmitted must be recorded in a monetary instrument log (MIL) II. $5,000 or more received or transmitted must be recorded in a monetary instrument log (MIL) III. Cash transaction of $5,000 or more must be reported to FinCEN IV. Cash transaction of $10,000 or more must be reported to FinCEN |
A. I and IV
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In response to a formal complaint under the code of procedure, a defendant associate has to respond within
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25 days
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Jenn Jennings is a new general securities representative. She is spreading the word about her new job, but is having difficulty breaking into the securities market. In which of the following activities can Jenn engage to increase her client base?
I. Purchase an ad that has been approved by her broker-dealer in the local yellow pages II. Split a commission with a client for a referral III. Mail a prospecting letter to 20 potential clients without getting it approved by her broker-dealer ahead of time IV. Split a commission with a non-client for a referral |
I and III
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When executing a transaction for a customer as its agent, broker-dealers must make _____ efforts to obtain a fair price in relation to prevailing market conditions.
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Reasonable
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Which of the following must be filed with the Regional Office of the SEC for the region in which the broker or dealer maintains its principal place of business:
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Subordination Agreements A subordination agreement is a written agreement between a broker or dealer and a lender which has a minimum term of one year (unless it is a temporary subordination agreement) and serves as a binding obligation enforceable against the broker or dealer. Two copies of any proposed subordination agreement (including nonconforming subordination agreements) shall be filed at least 10 days prior to the proposed execution date of the agreement with the SEC's Regional Office for the region in which the broker or dealer maintains its principal place of business or at such other time as the Regional Office for good cause shall accept such filing. |
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When examining a company's annual reports, you find off-balance sheet arrangements. Which of the following conclusions could you make from this?
I. The company may have future financial risks that they have disclosed to investors. II. The company is complying with the SEC disclosure of off-balance sheet arrangements. III. The company is in financial trouble. |
I and II Under rule 401(a) of the Sarbanes-Oxley Act of 2002, companies are required to disclose off-balance sheet arrangements, such as obligations under guaranteed contracts or obligations under certain derivative instruments. Off-balance sheet disclosure is intended to help investors understand the short- and long-term financial stability of a company. There is not enough information available to conclude that the company is in financial trouble. |
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Mark works as a principal for Big Time Investments. Mark is responsible for
I. approving customer accounts II. reviewing all correspondence III. reviewing all transactions IV. reviewing customer positions |
I, II, III, and IV
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Wayne's Wheelbarrows decides to issue stockholders a cash dividend. Before declaring the dividend to shareholders the company must alert FINRA or the exchange the stock is listed on at least
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ten days prior to the record date
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A firm's CEO must annually certify that the firm has processes for establishing, maintaining, reviewing, testing, and modifying written supervisory procedures and compliance policies, such that they are in line with FINRA rules, MSRB rules, and federal law. The CEO must discuss these processes with the firm's chief compliance officer(s) within the preceding _____ before making the certification.
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12 Months
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A broker must provide all of the following information on an order ticket for a trade EXCEPT |
B.the registered representative's manager's identification number
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An appeal by a member or an associated person of a decision by FINRA on a disciplinary proceeding may be filed with:
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National Adjudicatory Council A respondent or the Department of Enforcement or the Department of Market Regulation may file a written notice of appeal within 25 days after service of a decision issued pursuant to Rule 9268 or Rule 9269 to the National Adjudicatory Council. |
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If the SIPC must step in and bail out a bankrupt brokerage firm, the valuation date for a customer's account holdings is:
I. the date the brokerage firm declared bankruptcy II. the date a legal proceeding commenced in which a receiver, trustee, or liquidator was appointed III. the date notice of a direct payment procedure was published IV. the date that an application for a protective decree is filed |
I, II, III, or IV
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Which of the following types of broker-dealers has a net capital requirement of $1,000,000? |
A. Executing brokers Executing brokers have a minimum net capital requirement of $1,000,000. The net capital requirements for the others are as follows: |
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The term net capital is deemed to mean the net worth of a broker or dealer with certain adjustments made for assets held by the broker-dealer. Which of the following statements about adjustments to assets is accurate: |
C. all long and all short securities positions shall be marked to their market value Rule 15c3-1 states that in determining net worth, all long and all short positions in listed options shall be marked to their market value and all long and all short securities and commodities positions shall be marked to their market value. |
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An historical record of a dealer’s securities transactions for each of its customer accounts is called…
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A customer ledger
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The following statements are accurate EXCEPT: A.Both carrying and introducing firms must file quarterly reports by the 17th business day after the quarter's endB.Both carrying and introducing firms must file an annual Schedule I form by January 17C.Both carrying firms and introducing firms must file FOCUS Part I monthly reports by the 10th business day after the month's endD.All the choices listed are accurate statements |
C.
Both carrying firms and introducing firms must file FOCUS Part I monthly reports by the 10th business day after the month's end Depending on the type of firm, there are different FOCUS reports that the firm must submit. All firms must file quarterly reports, either Part II or Part IIA, by the 17th business day after the quarter's end. Additionally, carrying firms must file Part I monthly reports by the 10th business day after the month's end. Furthermore, all firms must file an annual Schedule I form, which describes operational details about the firm. A Schedule I must be filed within 17 days of the last day of the calendar year (December 31). |
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According to the SEC, which of the following would not be enough to constitute a completed purchase? A.Fifty percent of payment was made on the settlement date for a security bought on marginB.Securities were delivered to the purchaser and 100% of payment was paid both before the settlement dateC.100 percent of payment was made on the settlement date for a securityD.The securities were delivered on the settlement date |
D. The securities were delivered on the settlement date A purchase is judged to be complete when the securities are paid for on the settlement date. Payment may occur by cash payment, debiting the customer's account, or by reducing the customer's SMA. Thus, if payment is made through a bookkeeping entry made by the broker-dealer in the customer's account, the purchase is judged to be complete at the time that the bookkeeping entry is made. Payment may be paid in full or 50% if the security was bought on margin. The purchase will be judged to be complete before the settlement date if the securities were delivered and paid for before the settlement date. |
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Which of the following is true regarding lost and stolen security reporting requirements?
I. All reports of securities that have been lost for one business day should be reported to the Commission II. All reports of lost securities in which there is a substantial belief that theft was involved should be reported to the Commission III. All reports of lost or stolen securities should be reported promptly to the FBI IV. All reports of lost securities in which there is a substantial belief that theft was involved should be reported to the FBI |
II and IV
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ABC Broker-Dealer offers its services on-location at XYZ Bank. Jane opens an account with ABC Broker-Dealer at their main office, which is not located in a bank. ABC Broker-Dealer must disclose that the broker-dealer services are provided by the member and not the financial institution. They must also disclose that securities bought and sold are not FDIC-insured, not deposits or other obligations of the financial institution, not guaranteed by the institution, and are subject to investment risk, including loss of principal. ABC Broker-Dealer must make this disclosure:
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In Writing
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Rule 15c3-3 regulates that fully paid securities must be segregated by broker-dealers. Which of the following best describes a fully paid security? |
A. A security carried for the account of a customer in a special cash account as defined in Regulation T
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Thomas Sonoqui owns a significant number of shares in Toddler Tamers common stock. Thomas would be considered a control person according to the NYSE if any of the following applied to Thomas EXCEPT |
B.
he has the right to vote 10% of voting securities The NYSE defines a person as being a control person, or having the ability to control another person, through the ownership of securities. Such a person is presumed to control another person if any of the following are true: the person has the right to vote 25% or more of the voting securities; is entitled to receive 25% or more of the other person's net profits; or is a general partner, director, or principal of the other person. Under NYSE rules, a "person" may refer to any of the following: "a natural person, corporation, limited liability company, partnership, association, joint stock company, trust, fund or any organized group of persons whether incorporated or not." |
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XYZ Brokerage Firm holds large positions in the following common equity securities:
A Corporation $200,000 B Corporation $50,000 C Corporation $100,000 XYZ Brokerage has a tentative net capital of $1.5 million. XYZ's holdings in which corporation, if any, are subject to the undue concentration rule when calculating XYZ's net capital? |
A Corporation The Undue Concentration Rule states that if a company has more than 10% of its tentative net capital in one security there is an additional deduction on the amount over 10%. For common stock, the additional deduction is 15%, while for other securities the additional deduction is generally half of the standard haircut. Ten percent of $1.5 million is $150,000 so XYZ's Corporation A stock is subject to the undue concentration rule, so XYZ Brokerage would take a 15% haircut on the $50,000 that exceeds the $150,000. In other words they would take a $7,500 haircut on the Corporation A securities from the Undue Concentration Rule (this would be applied in addition to any other haircuts). |
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Megan is an associated person with 1st Brokerage. She knows her client, Al, is an associated person with another firm. Al has a discretionary account with Megan's firm. Which of the following best describes Megan's responsibilities regarding a trade she would like to make? |
C.
Megan should determine whether there is an adverse interest for Al's firm When an executing member knowingly transacts in a discretionary account of a person employed by another member firm, the executing member must use reasonable diligence to determine that the execution does not have an adverse effect on the employer member. Thus, Megan may complete the transaction but must make reasonable effort to determine that there is no adverse effect for the firm that Al is employed at. |
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Which of the following fails to meet the definition of an institutional investor? A.The attorney representing Warren BuffettB.The trustee of a bank trust with assets worth $45 millionC.Warren BuffettD.A registered investment adviser |
B.
The trustee of a bank trust with assets worth $45 million The definition of institutional investor includes registered investment advisers; individuals with total assets of at least $50 million; persons acting solely on behalf of an institutional investor, and trusts with assets in excess of $50 million. |
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The FINRA Conduct Rules consider an email to be correspondence if it meets all of the following conditions EXCEPT: A.It was sent to less than 25 prospective retail customersB.All of these conditions would be considered correspondence.C.The email was sent to a single customerD.The email was sent to all customers within a 30-day period |
D.
The email was sent to all customers within a 30-day period FINRA Conduct Rules state that electronic communications will be considered "correspondence" with customers in the event that the email message is sent to fewer than 25 retail customers within a 30-day period. |
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Broker-dealers must calculate monies due them from customers (debit balances) and money due customers (credit balances). If credit balances exceed debit balances, the excess credit must be deposited in a Special Reserve Bank account. How often must this calculation take place if the credit balances are greater than $1m: |
Weekly
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Jose is a registered person with United Brokerage Firm. Jose is opening a rollover IRA at his local bank. Which of the following best describes Jose's responsibilities to his member firm? |
D.Jose must notify United Brokerage in writing prior to any initial transaction in his rollover IRA
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Mr. Smith, the CEO of Emptor Corporation, has started to make very negative comments about his company's future prospects. As a result of his comments, Emptor's stock price has fallen. It is discovered that Mr. Smith has been quietly buying shares in Emptor and taking advantage of the falling price. What rule is Mr. Smith in violation of?
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Securities Exchange Act of 1934, Rule 10b
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What is the maximum amount of cash a broker-dealer may borrow from a bank using a customer's margin account as collateral?
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100% of the debit balance While the broker-dealer may use 140% of the debit balance as collateral, they may only borrow 100% of the debit balance. Excess margin securities may not be used as collateral by the broker-dealer without the customer's written permission. |
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An illustration of assumed rates of return for a variable life insurance contracts may use any combination of assumed investment returns up to and including a gross rate of 12% provided one of the gross rates of return illustrated is:
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0% An illustration may use any combination of assumed investment returns up to and including a gross rate of 12%, provided that one of the returns is a 0% gross rate. Although the maximum assumed rate of 12% may be acceptable, members are urged to assure that the maximum rate illustrated is reasonable considering market conditions and the available investment options. The purpose of the required 0% rate of return is to demonstrate how a lack of growth in the underlying investment accounts may affect policy values and to reinforce the hypothetical nature of the illustration. |
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Lisa, an associated person, would like to participate in a private securities transaction in which she will not receive compensation. Regarding her participation, which of the following is (are) true?
I. Since Lisa will not receive compensation for the transaction, she is not required to give prior written notice to her member firm. II. Lisa is required to give prior written notice to her member firm regarding the details of the proposed transaction. III. The member firm is required to provide Lisa with prompt and written acknowledgement that they have received her notice. IV. The member firm may require Lisa to adhere to specific conditions related to the transaction. |
II, III, and IV
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Which of the following is not a requirement for member firms that allow customers to write uncovered options contracts? A.Provide a special written statement approved by FINRA describing the risks of writing naked options before the options may be writtenB.Require the customers to sign an uncovered options liability agreementC.Maintain specific criteria for evaluating whether short options are suitable for a customerD.Have specific minimum net equity requirements for customer accounts that write naked options |
B.
Require the customers to sign an uncovered options liability agreement Member firms that allow customers to write uncovered option contracts (e.g., naked calls) must develop and maintain written procedures specific to that product. These procedures should include specific criteria for evaluating whether short options are suitable for a customer. They must also include specific minimum net equity requirements for customer accounts that write naked options. All naked short options must be approved in writing by an options principal. Customers approved for short options trading must be provided a special written statement approved by FINRA describing the risks of writing naked options before the option may be written. There is no such thing as a "uncovered options liability agreement". |
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What is the aggregate indebtedness standard for broker-dealers?
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Its aggregate indebtedness may not exceed 1500% of its net capital.
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Under the Securities Exchange Act of 1934 Section 15(g), a registered broker or dealer must have written policies and procedures in order to prevent the:
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misuse of material, nonpublic information
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Which of the following are the maximum criminal penalties associated with insider trading? A.maximum personal fine of $5 millionB.maximum institutional fine of $10 millionC.all of these choicesD.maximum of 10 years in prison |
A.maximum personal fine of $5 million
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Mark, a customer, knows that his case is solid, and that anyone in their right mind would side with him when he brings his claim to arbitration. Still, he can't help but feel some apprehension at the possibility that a single person could hold ultimate authority over whether his claim is valid. You point out to him that because his claim is large enough, there will be three arbitrators on his case, unless he and the opposing party agree otherwise in writing. Mark looks relieved to hear this, and returns to making sure that he is prepared for the hearings. Mark's claim is for over _____.
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$100,000 For claims involving a customer, the majority of arbitrators must be public arbitrators. A panel will consist of one arbitrator for claims of $50,000 or less. Claims in excess of $50,000, but no more than $100,000, have one arbitrator unless the parties agree in writing to three. Claims in excess of $100,000 have three arbitrators unless the parties agree in writing to one. If the customer is the claimant, the customer may demand that a panel of three arbitrators be comprised entirely of public arbitrators, instead of just a simple majority. |
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A broker or dealer with respect to the purchase, sale and redemption of redeemable shares of registered investment companies or of interests or participations in an insurance company separate account directly from or to the issuer on other than a subscription way basis must maintain net capital of:
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$25,000
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What is the submission agreement as defined by FINRA 14000 - Code of Mediation Procedure?
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The statement signed by the two parties agreeing to mediation.
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The alternative net capital requirement is:
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The greater of $250,000 or 2% of the debit items included in the Customer Reserve Formula
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Which of the following is true related to the use of information obtained in a fiduciary capacity? A.There are no limitations on use of information obtained in a fiduciary capacity.B.A transfer agent is prohibited from using ownership information for solicitation of securities unless given permission by the issuer.C.A trustee may use ownership information for the solicitation of securities.D.A transfer agent may use ownership information for the solicitation of securities under any circumstances. |
B.A transfer agent is prohibited from using ownership information for solicitation of securities unless given permission by the issuer.
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When issuing dividends, corporations with listed securities must do which of the following?
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Notify the exchange 10 days prior to the record date of the record date
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A firm has a tentative net capital of $1,000,000, and holds $200,000 worth of XYZ Co. common stock. The firm's XYZ holdings count as what value of net capital?
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$155,000 The security is subject to a haircut of 15% due to being common stock (15% of $200,000 is $30,000). Then, because over 10% of the firm's tentative net capital is in one stock, the excess beyond 10% of the tentative net capital is subject to an additional haircut of 15%. 10% of the firm's net capital is $100,000, so the excess amount is [$200,000 - $100,000] = $100,000. 15% of $100,000 is $15,000. So the valuation of the firm's XYZ holdings after removing haircuts is [$200,000 - $30,000 - $15,000] = $155,000. |
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A member broker-dealer must notify FINRA in writing within 48 hours if its tentative net capital has declined how much from the amount reported on its most recent FOCUS Report:
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20%
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A customer purchases $100,000 of securities on a 50% margin. The broker loans the customer $50,000 which is the margin's debit balance. The broker pledges 140% of the $50,000 debit balance or $70,000 to a bank as collateral for money borrowed for the debit balance. What is the amount of excess margin securities which must be segregated and in control of the broker for the customer:
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$30,000 The term excess margin securities are those securities carried for the account of a customer having a market value in excess of 140 percent of the total of the debit balances in the customer's account or accounts which the broker or dealer identifies as not constituting margin securities. Thus, the excess margin securities would be $30,000 ($100,000 - $70,000). |
