Series 6 Chapter 4

Front 1

1. If it were not for the stock market crash in 1929, there would be no ______. These acts created the regulatory structure founded in the years 1933-1934, enlarged in 1940, amended in the 1970's and again in 2002-2003.

2. It's happening again with the financial reform under ______.

3. The 1933 Securities Registration Act, or the _______ Act, requires prospectus and full disclosure filings for all new issues of securities considered nonexempt, such as corporate stock and bond offerings.

Back 1

1. Federal Securities Acts

2. Dodd-Frank

3. Paper Act

Front 2

1. The _________, or the "People Act" created the SEC for the purpose of establishing a fair and orderly market.

2. The _______ Act provided for OTC self-regulation by the National Association of Securities Dealers (NASD), which has been recently combined with the NYSE department of regulations to form the FINRA. Additional legislation in 1940 provided rules for investment companies and investment advisors.

Back 2

1. 1934 Securities Exchange Act

2. Maloney Act of 1938

Front 3

1. In the mid-1970's, following the market crash of 1969 to 1974, new legislation was passed which created the ________, provided for industry nonprofit insurance for customer accounts (the Securities Investor Protection Corporation, SIPC), and mandated a national market system of consolidated quotations.

2. Both NASDAQ and the CBOE emerged in 1971 to revolutionize the trading of _____ equities and standardized equity options. Commissions became negotiable.

Back 3

1. Municipal Securities Rulemaking Board (MSRB)

2. OTC equities

Front 4

1. In the 1990s another wave of reform legislation was passed following the bankruptcy of Enron and MCI WorldCom and the accounting scandals of the market crash of 2000 to 2002. This legislation fine-tuned and provided for more stringent enforcement of the ________ and _______ of earlier periods.

2. Analysts must now state whether they or affiliated persons have any conflict of interest in _______ that they publish or state in public media.

3. Any losses or potential losses of public corporations must be fully ________ along with securities holding they acquire.

Back 4

1. full disclosure and insider trading rules

2. recommendations

3. disclosed

Front 5

1. The ________ is known as the People Act because it governs the individuals and firms doing business in the financial services industry.

2. It created the ______, which actually writes the laws that govern our industry, while the SRO or the FINRA Designated Examining Authority (DEA) write rules and regulations used to enforce the securities laws imposed by the SEC.

Back 5

1. Securities and Exchange Act of 1934

2. SEC

Front 6

1. The Securities Exchange Act of 1934 was established to ______ the trading of securities after they have been issued (secondary market) and to regulate ______ and brokers/dealers.

2. The Act delegated authority to ______ to enforce standards and requirements related to securities trading and brokerage business. The _______ was formed for this purpose, and is the regulator of brokerage firms and exchange markets.

3. The SEC maintains final authority over _______ disciplinary actions, and suspend or revoke registrations of firms and representatives for failure to comply with its rules.

Back 6

1. regulate, exchanges

2. SRO's, FINRA

3. FINRA

Front 7

The rules and regulations of FINRA are referred to as by-laws. These fall into 4 main categories:

Back 7

1. Uniform Practice Code

2. Conduct Rules

Front 8

The ________ relates to dealings between member firms, covering all transactions in non-exempt securities and requiring orderly completion of dealer to dealer transactions.

Back 8

Uniform practice code

Front 9

The _______ address a member firms dealing with public.

Back 9

Conduct rules

Front 10

The ______ outlines the procedural process in the event of violations and complaints

Back 10

Code of procedure

Front 11

The ________ is concerned with settling disputes between dealers or brokers and the public

Back 11

Code of arbitration

Front 12

1. A ______ is defined as any individual, corporation or other legal city engaged in transacting securities business for the account of others

2. When acting in the capacity of a broker, the firm is acting as a ______ and will charge a ________

Back 12

1. Broker

2. middle man, Commission

Front 13

1. A _______ is defined as any individual, corporation or other legal entity that performs securities transactions for its own account as a part of regular business

2. When acting in the capacity of a dealer, the firm is acting on behalf and selling out of ________

Back 13

1. dealer

2. inventory

Front 14

1. A ______ is any investment in another company that can be exchanged for value and involves risk. In order to be considered a security, it must be easily ________ between parties and its owner must be subject to the risk of loss of a portion of or the entire principal (money invested).

2. A ______ security is subject to federal securities laws, whereas exempt securities are not subject to any of the federal securities laws, except: (5)

Back 14

1. security, transferable

2. nonexempt

--fraud provisions

--restrictions that apply to credit extension

--restrictions that apply to proxy solicitation

--insider reporting requirements

--prohibitions against price manipulations

Front 15

A federal court case known as ______ clarifies the definition of an investment contract, stating that a security or an investment contract exists when a person invests in a common _______ and expects a ______ for the efforts of a third party.

Back 15

Howie Case

enterprise

return

Front 16

_________ means any office of a member at which any one or more of the following functions must take place: (7)

Back 16

Office of Supervisory Jurisdiction (OSJ)

--order execution and/or market making

--structuring of public offerings or private placements

--maintaining custody of customers' funds and/or securities

--final acceptance (approval) of new accounts on behalf of the member

--review and endorsement of customer orders, pursuant to paragraph above

--final approval of retail communication for use by persons associated with the member

--responsibility for supervising the activities of persons associated with the member at one or more other branch offices of the member

Front 17

_________ means any location identified by any means to the public or customers as a location at which the member conducts an investment banking or securities business, excluding any of the following: (2)

Back 17

branch office

--any location identified in a telephone directory line listing or on a business card or letterhead, which listing, card, or letterhead also sets forth the address and telephone number of the branch office or OSJ of the firm from which the person(s) conducting business at the non branch locations are directly supervised

--any location referred to in a member's retail communication, by its local telephone number and/or local post office box provided that such reference may not contain the address of the non branch location and, further, that such reference also sets forth the address and telephone number of the branch office or OSJ of the firm from which the person(s) conducting business at the non branch location are directly supervised

Front 18

Members must keep and maintain a current copy of the _______ in a readily accessible place at each branch location and must make it available for examination by customers upon request.

Back 18

FINRA Manual

Front 19

For the purpose of an investigation, complaint, examination or proceeding authorized by the Financial Industry Regulatory Authority Bylaws or Rules, an Adjudicator or Authority staff has the right to do the following: (2)

Back 19

1. Require a member, a person associated with a member, or a person subject to the Association's jurisdiction, to provide information (orally, in writing or electronically) and to testify under oath or affirmation administered by a court reporter or a notary public (if requested)

2. inspect and copy books, records and amounts of such member or person with respect to any matter involved in the investigation or complaint

Front 20

1. The _______ is the section of FINRA By-laws that concerns the handling of securities violations and complaints.

2. A customer with a complaint against a member firm or its personnel may submit a written complaint to any _________.

3. The ________ may also file a complaint with the Department of Enforcement. The Department of Enforcement has the initial jurisdiction for the handling of complaints.

4. The _________ has appellate and review jurisdiction.

Back 20

1. code of procedure

2. Department of Enforcement (DOE)

3. Board of Governors

4. National Adjudicatory Council (NAC)

Front 21

Both the DOE and the NAC have the authorization to impose the following penalties: (5)

Back 21

1. censure

2. fine

3. suspension of FINRA membership or registration

4. suspension or barring of an individual from association with a member firm

5. expulsion from FINRA membership or revocation of FINRA registration

Front 22

It is each member's responsibility to keep in each Office of Supervisory Jurisdiction (OSJ) one of the following: (2)

Back 22

1. a record of all written complaints of customers and any action taken by the member concerning those complaints

2. a separate file of all written complaints and a clear reference to the files containing the correspondence related to them (as maintained in the office)

Front 23

1. The DOE hears complaints. All complaints must be in _____, signed by the ______ and must identify the nature and _______ of the violation.

2. The respondent will receive a written notice of the complaint from the _______.

3. After providing the opportunity of a hearing, the DOE will make a ________. If they decide that a violation has occurred, any of the above penalties may be imposed.

4. Dismissals of complaints will also be provided in _______.

Back 23

1. writing, complainant, specific rule

2. DOE

3. decision

4. writing

Front 24

1. If the respondent does not dispute the allegations in the complaint, he may be given the opportunity to sign an ______ letter in which he ______ a finding of violation, _______ to the imposition of sanctions and ________ his right to a hearing and his right to an appeal.

2. What happens if the AWC letter is not accepted?

Back 24

1. AWC (Letter of Acceptance, Waiver and Consent), accepts, consents and waives

2. the matter will be pursued normally under the code

Front 25

1. If a complaint is deemed to be of a minor nature by the District Business Conduct Committee, it may offer the respondent a _______.

2. This procedure is available to respondents who do not dispute the charges and ________ their right to a hearing.

3. The maximum penalty under this procedure is a fine of $________

4. If the summary complaint procedure is offered, the respondent has _____ days to accept it

5. By signing the ______, the respondent gives up their right to appeal the decision.

6. Should the summary complaint procedure not be accepted, the DOE will process with a formal hearing under the _________.

Back 25

1. summary complaint procedure

2. waive

3. $2,500

4. 10 business days

5. minor rule violation letter (MRV)

6. code of procedure

Front 26

1. The ______ also deals with rules that cover actions by FINRA against member firms and their associated persons.

2. If the authority believes that a member firm or associated person is in violation of any rule or law under their jurisdiction, the department of enforcement requests from the _______ authorization to issue a complaint.

3. The person named in the complaint is the _______

Back 26

1. code of procedure

2. Office of disciplinary affairs

3. respondent

Front 27

1. The respondent is required to file a response to the complaint within ____ days after receipt of the complaint

2. Failure to issue a response will cause the department to issue a _________

3. If the respondent does not answer the second notice within ____ days, the department assumes admission by the respondent to the allegations of the complaint.

Back 27

1. 25 days

2. second notice

3. 14 days

Front 28

1. The respondent may request a ______ in his hearing to a complaint.

2. If a hearing is not requested, the right to one in the future is _______.

3. Who will the hearing be held in front of?

4. The hearing officer is a ______ of FINRA

5. The panelists are associated persons, or retired firm members, with extensive expertise in the area of the dispute and have served on _______

Back 28

1. hearing

2. waived

3. A hearing officer and two panelists of the hearing panel

4. attorney

5. FINRA committees

Front 29

1. A _____ may be called to prepare the parties for the hearing and to collect documents and evidence.

2. Witnesses may provide testimony at the hearing, and any witness who was under the jurisdiction of FINRA must do what?

3. The hearing panel must render a written decision within _____ days after accepting evidence

Back 29

1. pre-hearing conference

2. testify under oath

3. 60

Front 30

1. The respondent may propose a _____ to the hearing panel at any time prior to the hearing.

2. iIf the panel accepts a ______, the respondent waives his right to an appeal.

Back 30

1. settlement offering

2. settlement offer

Front 31

Once every ______, member firms must provide their customers, in writing (can be electronic), with the FINRA BrokerCheck hotline number and the FINRA website address, and inform them that an investor brochure with information on BrokerCheck is also available.

Back 31

Calendar year

Front 32

The section addressing sanctions is divided into 3 sections:

Back 32

1. santions for violations of the rules

2. monetary sanctions

3. costs of proceedings

Front 33

After compliance with FINRA rules, the Association may impose one or more of the following sanctions on a member of anyone associated with a member for each violation of the laws and may impose one or more of the following sanctions on a member or person associated with a member for any neglect or refusal to comply with an order, direction or decision issued under the Rules of the Association: (6)

Back 33

1. censure member or person associated with a member

2. impose a fine upon a member or person associated with a member

3. suspend the membership of a member or suspend the registration of a person associated with a member for a definite period or a period contingent on the performance of a particular act

4. expel a member, cancel the membership of a member, or revoke or cancel the registration of a person associated with a member

5. suspend or bar a member or person associated with a member from association with all members

6. impose any other fitting sanction

Front 34

1. If an order of suspension, revocation, or cancellation of the registration of a person associated with a member bars a person from further association with any member, can the firm allow the person to remain associated in any capacity, including a clerical work ministerial capacity?

2. Additionally, the member may not pay any _____, or any commission or other remuneration that results directly or indirectly from any securities transaction, that the person might have earned during the period of suspension

Back 34

1. no

2. salary

Front 35

1. ________ is a free resource provided through FINRA's Public Disclosure Program that allows public persons to research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers.

2. Accessible by _____ or _______, it provides information that has been stored in the ____ as part of the registration process.

3. Available information includes the following: (4)

Back 35

1. BrokerCheck

2. phone or online, Central Registration Depository (CRD)

3. --the persons employment history and other business experience required to be reported on form U4

--currently approved registrations for the member or associated person

--the main office, legal status and type of business engaged in by the member

--any event or proceeding required to be reported under the rule

Front 36

________ is all fines and other monetary sanctions must be paid to the Treasurer of the Association and must be used for the general corporate purposes

Back 36

Payment to treasurer

Front 37

_____ means the association may summarily suspend or expel from membership a member firm that fails to do any of the following: (2)

Back 37

Summary suspension or expulsion

--Pay promptly a fine or other monetary sanction imposed or costs imposed when such fine, monetary sanction or cost becomes finally due and payable

--terminate immediately the association of a person who fails to pay promptly a fine or other monetary sanctions imposed or a cost imposed when such fine, monetary sanctions or cost becomes finally due and payable

Front 38

________ means the association may summarily revoke the registration of a person associated with a member if such person fails to pay promptly a fine or other monetary sanctions imposed or a cost imposed when such fine, monetary sanction or cost becomes finally due and payable

Back 38

Summary revocation of registration

Front 39

1. The FINRA ______ is the bylaw that is concerned with settling disputes between who?

2. It provides a ______ method through which disputes are typically _____ much sooner than they would be if pursued through the courts.

Back 39

1. Code of Arbitration

2. cost-effective, settled

Front 40

The Code of Arbitration instructs that the following disputes be submitted to arbitration if they are between or among: (3)

Back 40

1. members

2. members and associated persons

3. members, associated persons and public customers

Front 41

1. If a Code of Arbitration dispute involves a member against a ______, the member cannot bring the customer to arbitration without the ________.

2. Broker/dealers will usually have the customer sign a ______ or new account form that contains an agreement to settle any dispute through _______.

3. Arbitration rules also apply to disputes between a _______ and a ________

Back 41

1. public customer, customer's approval

2. customer agreement, arbitration

3. member firm and a bank or clearing corporation

Front 42

The statute of limitations for a submission to arbitration is ____ years after the event giving rise to the claim.

Back 42

6 years

Front 43

1. Form ____ and ____ amendments contain a predispute arbitration clause. Consequently, whenever an associated person signs this form or amendment, he or she is also giving up the right to sue and agreeing to use arbitration to settle disputes with customers, member firm and others who are subject to arbitration by SROs.

2. Therefore, FINRA requires members to make associated persons aware of the predispute arbitration clause contained in the form, with a written statement. The statement then informs the associated person that except in the case of _______, ______ or claims arising under the ______ stature, the person is giving up the right to sue, and that claims or disputes with the member firm, customers or other person subject to arbitration by the SRO will be settled by arbitration.

Back 43

1. U4 and U4

2. sexual harassment, discrimination or claims arising under the whistleblower statute

Front 44

The U4 statement also lists some of the characteristics and limitations of the arbitration process, such as the following: (5)

Back 44

1. arbitration awards are almost always final and binding, and that it is difficult to get a court reversal

2. discovery is more limited than in court

3. arbitrators do not have the obligation to explain the reasons for their decision unless both parties file a joint request for an explanation at least 20 days before the first hearing

4. the arbitration panel may be made up of persons from the securities industry or public administrators

5. there may be time limits for bringing a claim to arbitration

Front 45

1. Following the annual election of its members by the FINRA Dispute Resolution Board, the FINRA Dispute Resolution Board of Directors appoints a _________ that is in the public interest, and includes representation from the public.

2. The chairman of the committee is named by the _________.

3. The committee is required to establish and maintain ______ of neutrals composed of persons from within and outside of the securities industry.

4. Note that _______ is not binding, but ______ is.

Back 45

1. National Arbitration and Mediation Committee

2. Chairman of the Dispute Resolution Board

3. rosters

4. mediation, arbitration

Front 46

1. FINRA's National Arbitration Committee appoints a panel of ______ to hear a dispute.

2. The panel includes arbitrators from both the public and investment industry sectors and consists of a _____ number of ___ or possibly ____ members.

3. The arbitrators hear the evidence of the dispute and make their determination for awards and settlements as deemed appropriate. Unless the law instructs differently, the decision of the arbitrators is ____ and _____ on both members and customers.

Back 46

1. arbitrators

2. odd, 3 or 5

3.final and binding

Front 47

1. For disputes involving amounts of $_____ or less, simplified arbitration is available.

2. Under this proceeding, there is no opportunity for a hearing. ______ arbitrator renders a decision on the case based upon a review of ______ submissions by both parties.

Back 47

1. $50,000

2. One, written

Front 48

1. Awards under arbitration are final and binding without the opportunity for _____.

2. Any resulting monetary award is required to be paid within ___ days.

3. If a member firm or registered rep fails to pay an award under arbitration, they are subject to _________.

Back 48

1. appeal

2. 30 days

3. suspension

Front 49

1. No person associated can accept compensation from any other entity for any business activity, other than a ______ investment unless the associated person has provided prior ________ notice to the member firm.

2. Such notice must be in the form required by the _______.

Back 49

1. passive, written

2. member

Front 50

1. _______ securities transactions are defined as transactions effected outside the normal business of an associated person's employment with a member firm and that are not recorded on the firm's books and records.

2. This is known as "_______" and is a violation of FINRA Conduct Rules.

3. These transactions may include (but are not limited to) new offering of securities that are not registered with the _______.

4. However, transactions among immediate family members for which an associated person receives no ______, or personal transactions in investment company and variable annuity securities, will be excluded from private securities.

5. Can persons associated with a member participate in any manner in a private securities transaction?

Back 50

1. private

2. "selling away"

3. Commission

4. compensation

5. no, except in accordance with the requirements of the member firm

Front 51

1. Associated persons of member firms are prohibited from entering into private transactions without ______ to the member firm.

2. The written notice must describe in detail the following: (3)

3. In the case where a series of related transactions without selling compensation are involved, an associated person needs to provide only a single _______.

Back 51

1. prior written notice

2. the proposed transaction, the person's proposed role, and compensation conditions

3. single written notice

Front 52

______________ refers to any compensation paid directly or indirectly as a result of the purchase or sale of a security, including commissions, finder's fees, rights of participation in profits, tax benefits, expense reimbursement, etc.

Back 52

selling compensation

Front 53

1. If the associated person will be compensated for the transaction, the member firm must approve the transaction and ________.

2. Once the transaction is recorded, it is the member's responsibility to supervise the person's participation in the transaction, as it is executed on behalf of the _______.

3. If the member disapproves a person's participation in a private transaction, the person may not participate in the transaction in any _____, directly or indirectly.

Back 53

1. record it on their books

2. member

3. manner

Front 54

Do transactions for variable contracts and open-end investment company shares fall under the definition of private securities transactions?

Back 54

no

Front 55

1. Any broker/dealer who is authorized to transact securities business in the U.S. is eligible for ______ membership, except those who have been suspended or barred from membership due to securities violations.

2. Member firms and their representatives are subject to registration and _______ requirements.

Back 55

1. FINRA

2. qualification

Front 56

Failure of any member to register an employee who should be registered as a registered rep or principal may be deemed to be inconsistent with just and equitable principles of ______, and when discovered, may be sufficient cause for ______ action.

Back 56

trade, disciplinary

Front 57

1. Persons associated with a member, who are actively engaged in the management of the member's securities business, including supervision, solicitation, or the training of persons associated with a member must be registered as ______.

2. The following persons are included in the definition: (5)

Back 57

1. principals

2. sole proprietors

officers

partner

managers of offices of supervisory jurisdiction

directors of corporations

Front 58

1. A principal may register as a _____ Principal - Investment Company and Variable Contracts if the principal's activities are expressly limited to dealings of shares of open-end investment companies, closed-end investment companies during the period of original issuance only, and variable contracts and insurance premium funding programs.

2. Persons falling under this definition must pass the Limited Principal - Investment Company and Variable Products Qualification _________ (Series 26)

Back 58

1. Limited

2. examination

Front 59

1. Any person associated with a member firm that is engaged in the investment banking or securities business must be _______.

2. Persons whose activities are limited solely to investment company shares and variable contracts may seek a limited registration by passing a Investment Company Product/Variable Contract Limited Representative examination (_______) or the General Securities Representative examination (_________)

3. Please note that registered reps with Series 6 limited registrations they can only sell ______ investment companies during the initial offering. A Series 7 is required to sell closed-end companies shares in the secondary market.

Back 59

1. registered

2. Series 6, Series 7, closed-end

Front 60

1. FINRA considers its qualification examinations highly confidential. Exam questions are based on topics covered in study outlines provided by _______.

2. The time, place, conditions, as well as the grading procedure and passing scores for exams, are determined by FINRA's _________.

3. Associated persons who fail the exam may retake it in ____ calendar days from their previous exam date. Candidates who fail the exam 3 times are not allowed to retake it again for ____ calendar days.

4. In exceptional cases and where good cause is shown, FINRA may choose to ____ the Qualification Exam Requirement and accept other proof of an associated person's qualifications for registration. Related experience in the securities industry and/or investment banking may be considered as evidence to waive the requirement.

Back 60

1. FINRA

2. FINRA's Board of Governors

3. 30, 180

4. waive

Front 61

The 1934 Act mandates the filing of annual reports with the SEC by all of the following: (4)

Back 61

1. publicly held companies

2. broker/dealers engaging in interstate business

3. national securities exchanges

4. FINRA

Front 62

1. A broker/dealer must promptly forward to the beneficial owner of an account or to the designated investment adviser the _______, ______, _______ and other material provided by the issuer of a security held in the beneficial owner's account.

2. Broker/dealers may be compensated by the issuer for the costs associated with sending those materials. However, the broker/dealer cannot charge the customer a ______ for this service even when the costs are not fully paid for by the issuer.

Back 62

1. annual reports, proxies, information statements

2. fee

Front 63

1. The FINRA By-Laws define a ______ as a firm who is registered with the Commission under the Act of 1934.

2. It further defines an associated person as the following: (2)

Back 63

1. registered broker/dealer

2. an individual who is directly or indirectly controlled by a member firm, regardless of whether the person is registered

Front 64

1. Personnel of FINRA members are required to be qualified with respect to both training and experience, and must pass qualifying examinations. The registration process for personnel requires that applicants complete a _______ that is submitted to FINRA electronically.

2. Information required on a Form U4 includes the following: (6)

Back 64

1. Form U4

2. name

SSN
physical characteristics

5 years of residential address history

10 years of employment experience

education

Front 65

1. Form U4 data is stored in FINRA's Central Depository (CRD) database. Any changes to Form U4 information must be updated within ____ days.

2. All candidates for registration must submit _____ as part of the registration process. This requirement is also extended to persons that have access to processing transactions and handling of securities, money or firm financial records, whether or not they are registered.

Back 65

1. 30 days

2. fingerprints

Front 66

1. According to FINRA Rule ____ - Filing of Misleading Information as to Membership or Registration, members or associated persons cannot file membership and registration information that is misleading, or fail to correct misleading information once informed of it.

2. According to FINRA, misleading information is information that is ____ or ____ to the point of being misleading or intending to mislead.

Back 66

1. 1122

2. incomplete or inaccurate

Front 67

Filing false, inaccurate, and/or misleading information may result in _______, which, in turn, may prevent a person from becoming registered, or can result in a revocation of registered status.

Back 67

statutory disqualification

Front 68

1. It is possible for members or associated persons to have customer dispute information that appears on their Form U4 and amendments removed from the ______.

2. Expungement requires a ______, from a competent jurisdiction that orders either the information to be expunged or affirms an arbitration panel's order to have the information expunged.

3. When petitioning a court for an order of expungement, the member or associated person must name ______ as an additional party and serve them with the appropriate case documents.

4. FINRA may waive the obligation to be named as an additional party if they determine that the allegation against the registered member or associated person is ______, factually _______ or clearly ________, or the registered person was not involved in the violation.

Back 68

1. CRD

2. court order

3. FINRA

4. false, impossible, erroneous

Front 69

1. A member firm has the responsibility to determine the good character, business repute, qualifications and experience of any person that the firm is planning to register prior to making an application for the associated person. If an applicant has been previously registered, the member firm is required to obtain a copy of the Uniform Termination Notice of Securities Industry Registration (________) filed with FINRA.

2. The member firm must obtain this form no later than ____ days following the filing of the application for registration. Once received, the member firm must review the form and any amendments, and take any actions deemed appropriate.

Back 69

1. Form U5

2. 60 days

Front 70

1. Members must appoint a registered principal or corporate officer who is responsible for the review, approval and electronic filing of the membership applications (Form ____) and amendments of associated persons with the CRD.

2. Forms filed by the _____ must indicate (electronically) that they are being filed on behalf of the member and the member's associated person.

Back 70

1. Form U4

2. principal

Front 71

The requirements for electronic filing of Form U4 are as follows:

1. Initial Form U4 applications and its amendments must be based on a _____ that was filled out and manually signed by the applicant.

2. Member firms must keep the manually signed U4 and amendments in their records for at least ____ years (for the first ___ years the records must be easily accessible and readily available to regulators upon request.)

3. The applicant must also keep the manually signed form and make them available to _____ if requested.

4. Form U4 amendments may be filed without the associated person's _____ as long as the member uses reasonable efforts to provide the associated person with a copy of the amendment before filing, and obtains the person's written acknowledgement that he/she has received and reviewed the amendment prior to filing. The written acknowledge can be electronic.

5. Amendments may be filed without a registered person's signature when the member firm is required to file disclosure information to comply with _________. The firm must still use reasonable efforts to provide a copy of the amended information to the registered person.

6. Members may ________ file amendments to administrative data without the registered person's signature. The firm must use reasonable efforts to provide a copy of the amended admin information to the registered person.

Back 71

1. written form

2. 3 years (2 years)

3. regulators

4. manual signature

5. FINRA By-Laws

6. electronically

Front 72

According to the FINRA Membership and Registration rules, continuing education is required for registered persons, and consists of two elements: _______ and _______

Back 72

regulatory and firm

Front 73

1. ________ must be completed by each registered person on the second anniversary date of their registration and every 3 years thereafter.

2. They have ____ days from registration date to complete.

Back 73

1. Regulatory element

2. 120 days

Front 74

1. Any registered persons who have not completed the Regulatory Element within the prescribed time frames will have their registration deemed _______ until the requirements have been met.

2. If this should happen, they must cease all activities as a registered person and is prohibited from performing any duties and functioning in any capacity requiring _______

Back 74

1. inactive

2. registration

Front 75

1. ________ applies to a continuing and current education program maintained by members for their covered persons to enhance their securities knowledge, skills and professionalism.

2. At a minimum, each member must evaluate and prioritize its training needs and develop a _____ training plan at least annually.

3. Firms may use a variety of educational programs to satisfy firm element training, including ______ and _____training events offered by outside vendors.

Back 75

1. Firm element

2. written

3. in person and online

Front 76

1. Registered representatives may voluntarily terminate FINRA registration at any time by written notice (Form _____)

2. The broker/dealer has ____ days to file this form with FINRA as long as there are no investigations or pending regulatory actions against the rep.

3. A copy of the form must also be sent to the terminated representative. If the rep goes to a new broker/dealer, the new firm may get a copy of the form from either ______ or the _____, who must provide it within ____ business days of request.

4. How long are persons terminating registration still subject to complaint filings following termination?

5. Any member who has passed a qualifying exam and later terminates registration is required to pass the examination again if the termination is for a period of ____ years or longer.

Back 76

1. U5

2. 30 days

3. FINRA or the rep, 2 business days

4. 2 years

5. 2 years

Front 77

1. FINRA makes certain accommodations for registered persons serving on active duty for the U.S. military. Registered persons who are serving on active military duty, upon proper notification to FINRA are put on _______ and don't have to re-register when they return to work with their member firm or another firm.

2. While on active duty can they still earn commissions?

3. Their member firm may assign another registered person to handle their customer accounts and arrange for commission sharing. In addition, while placed on inactive status, the registered person is not required to complete _____ requirements and is not considered personnel for the purpose of dues and assessments.

4. When the registered person return from the active military duty, they have ____ days to re-associate with the member firm. If they have not re-associated with a member firm within this time period, their 2-year clock will start ticking.

Back 77

1. inactive status

2. yes

3. continuing education

4. 90 days

Front 78

Persons not requiring FINRA registration include the following: (4)

Back 78

1. persons whose sole functions are limited to clerical or ministerial duty

2. persons not actively engaged in the investment banking or securities business

3. associated persons of member firms whose only participation within the firm is the need for a nominal corporate office or for capital participation

4. persons who effect securities transactions only on the floor of an exchange, only transact exempt securities, or only transact commodity futures transactions

Front 79

Violations of not obtaining FINRA registration are deemed to be conduct inconsistent with just and equitable trade principles. All registration applications require the applicant's ______, and must contain and agreement by the applicant to abide by FINRA ________.

Back 79

signature, rules and by-laws

Front 80

1. ______ can prevent a person or firm from becoming registered, or can result in a revocation of registered status. This occurs if an applicant has been convicted within ____ years of application for membership of a felony or misdemeanor or of a substantially equivalent crime.

2. Persons or firms can also be subject to statutory disqualification if they have been ______, _____ or _____ registration or membership with an industry SRO or member firm, or have willfully violated securities industry regulations.

Back 80

1. Statutory Disqualification, 10 years

2. expelled, barred or denied

Front 81

Broker/dealers will be subject to FINRA disqualification if they have a record of any of the following: (3)

Back 81

1. having been suspended or expelled from a registered national securities association or national securities exchange

2. having been barred or suspended for conduct inconsistent with just and equitable trade practices

3. having been enjoined by a court from engaging as investment advisers, underwriters, brokers, dealers or in any other capacity in connection with the securities business

Front 82

1. FINRA is empowered to refuse or discontinue membership to any broker/dealer who makes a false or misleading statement of a material fact on their ______, or omits to state any required material fact.

2. Any individual membership may be refused or revoked if the applicant has been convicted of any misdemeanor involving a securities _______,________, fraudulent conversion and/or misappropriation of funds.

Back 82

1. application

2. transaction, embezzlement

Front 83

1. There are special procedures for applicants who are statutorily disqualified. Member firms are required to report to FINRA within ____ days of the date the firm knew or should have known of any violations of securities, insurance, commodities, or any financial or investment laws, rules, regulations or standards of conduct committed by the firm or associated persons.

2. Violations that qualify for statutory disqualification must be reported within ____ days.

Back 83

1. 30 days

2. 10 days

Front 84

Member firms cannot represent FINRA membership in any way that would suggest that they are ______ by FINRA.

Back 84

endorsed

Front 85

1. If a member firm employs registered persons who have an employment history that includes working in a registered position at a disciplined firm, under certain circumstances, the member firm will be required to _____ the telemarketing activities of its registered persons.

2. The term disciplined firm would apply if the member firm has a record of any of the following: (3)

Back 85

1. tape record

2. --has been expelled from membership in a securities industry SRO

--the firm's broker/dealer registration is revoked by the SEC for securities sales violations

--the firm has been charged by the Commodities Futures Trading Commission with deceptive telemarketing or engaging in other deceptive marketing activities

Front 86

FINRA rules that outline the circumstances that require firms to tape record the telemarketing conversations of registered persons apply to the following firms:

1. that employ more than ____ but fewer than ____ registered persons, where ___% or more of the registered persons have worked as a registered person for a disciplined firm within the last ___ years

2. that employ more than ___ but no more than ____ registered persons, where at least ___ registered persons have worked as a registered person for a disciplined firm within the last ___ years

3. that employ more than ____ registered persons, of which ___% have worked as a registered person for a disciplined firm within the last ___ years

Back 86

1. 5, 10, 40%, 3 years

2. 10, 20, 4, 3 years

3. 20, 20%, 3 years

Front 87

1. Firms are not required to include registered persons who have worked in a registered position for no more than ___ days at a disciplined firm within the past 3 years if the registered person does not have a disciplinary history.

2. Additionally, if the firm triggers the tape recording rule, they cannot hire additional personnel to avoid being subject to the rule. However, they are allowed to fire personnel as long as they do it within ____ days. Then the tape recording rule will not apply to the firm.

3. if the member firm is required to start tape recording, the firm must implement the recordings within ____ days and file reports with FINRA quarterly. Once the recording rule is triggered, the firm must continue recording for ____ years.

Back 87

1. 90 days

2. 30 days

3. 60 days, 3 years

Front 88

1. Members or associated persons cannot accept any compensation in the form of cash, noncash, securities, payments or gifts from anyone other than the ______ with which the person is associated unless special arrangements are in place.

2. Name these 4 special arrangements.

Back 88

1. member

2. --a nonmember company pays compensation directly to associated persons of the member

--the member relies on an appropriate regulation or interpretive release issued by the Commission

--the receipt of such compensation is for the purposes of and in compliance with the Rules of the Association

--the record keeping requirements are satisfied

Front 89

1. Members or persons associated with a member cannot directly or indirectly accept or make payments or offers of payments of any _____ compensation, except as provided in this provision.

2. Notwithstanding the provisions of this rule, the following noncash compensation arrangements are permitted: (3)

Back 89

1. noncash

2. -- gifts that do not exceed an annual amount of $100 per person and are not preconditioned on achievement of a sales target

--an occasional meal, a ticket to a sporting event or the theater, or comparable entertainment, which is not frequent enough or contingent upon a preconditioned sales target

--payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member

Front 90

1. Each member must establish and maintain a system to ________ the activities of each registered rep and associate person designed to comply with applicable securities laws, regulations and rules.

2. Final responsibility for proper supervision rests with the _______.

3. A member's supervisory system must provide, at a minimum, for the following: (8)

Back 90

1. supervise

2. member

3. --the establishment and maintenance of written procedures

--the designation of an appropriately-registered principal with authority to carry out the supervisory responsibilities of the member for each type of business in which it engages for which registration as a broker/dealer is required

--the designation as an office of supervisory jurisdiction OSJ of each location

--the designation of one or more appropriately registered principals in each OSJ, including the main office, and one or more appropriately registered representatives or principals in each non-OSJ branch office with authority to carry out the supervisory responsibilities assigned to that office by the member

--the assignment of each registered person to an appropriately-registered rep and/or principal for his/her supervision

--reasonable efforts to determine that all supervisory personnel are qualified by virtue of experience or training to carry out their assigned responsibilities

--the participation of each registered rep, or at least annually, in an interview or meeting conducted by persons designated by the member at which compliance matters relevant to the activities of the reps are discussed (this meeting can be held live or delivered electronically as long as attendance can be verified)

--Each member must designate and specifically identify to FINRA one or more principals who will review the supervisory system, procedures and inspections implemented by the member

Front 91

Each member must establish, maintain and enforce ______ procedures to supervise the types of business in which the member engages and to supervise the activities of registered reps and associated persons that are reasonably designed to achieve compliance with securities laws and regulations, and with FINRA rules.

Back 91

written procedures

Front 92

1. Each member must conduct a _____, at least annually, of the business in which it engages. The review must be reasonably designed to assist in detecting and preventing _______ of and achieving compliance with applicable securities laws and regulations, and with the rules of FINRA.

2. Each member must conduct periodic _____ of each office and customer accounts to detect and prevent irregularities or abuses including an annual inspection of each OSJ.

3. Each branch office should be inspected according to a cycle set forth in the firm's written supervisory procedures. The established cycles should give consideration to the nature and complexity of the securities activities performed at the location, including the _____ of business done and the number of associated persons assigned to the location.

4. Each member must retain a ______ of the dates upon which each review and inspection is conducted.

Back 92

1. review, violations

2. reviews

3. volume

4. written record

Front 93

1. The member firm must establish procedures for the review and approval by a principal of all transactions and for the review of ______ and _______ written and electronic correspondence of its registered reps.

2. Such procedures should be in writing and designed to supervise each registered rep. Evidence that these supervisory procedures have been _______ and maintained must be made available to FINRA upon request.

Back 93

1. incoming and outgoing

2. implemented

Front 94

1. ___________: It is a violation under the conduct rules for a member firm to offer a quotation that is not qualified, and then fail to transact an order based on such a quote. This practice is known as _______.

2. Failure to qualify a quote binds the dealer to buy or sell ______ shares of stock.

Back 94

1. nonqualified quotes, backing away

2. 100 shares

Front 95

_________ are qualified and justified. This quote is one that is subject to confirmation. These are only for information, and are _________ firm, therefore, the dealer is not bound by them.

Back 95

subject quotes, not considered

Front 96

A member firm or associated person's use of manipulative, deceptive or other fraudulent tactics or methods to induce the sale or purchase of securities is strictly prohibited. The Securities Exchange Act of 1934 sets the statute of limitations for such offenses at ____ years from the alleged violation, or within ____ years of discovery, whichever comes first.

Back 96

5 years

2 years

Front 97

1. Broker/dealers must provide ________ confirmations at or before the completion of a transaction.

2. These must disclose the following: (3)

Back 97

1. trade

2. -- the date and time of the transaction and the identity, price, and number of shares or units (or principal amount) of such security purchased or sold by such customer

--whether the broker/dealer is acting as agent for the customer, as agent for some other person, or as principal for its own account

--the nature and amount of any compensation, fee or commission received by the member as a result of the transaction

Front 98

1. A broker/dealer must give or send to a customer information requested pursuant to this rule within _____ days of receipt of the request, provided that in the case of information pertaining to a transaction effected more than ____ days prior to receipt of the request, the information must be given or sent to the customer within ____ business days.

2. Member firms are required to send customer statements at a minimum on a _____ basis. Actively traded accounts must receive statements on a ______ basis. Statements must show account positions and balances as well as all activity since the last statement.

Back 98

1. 5 business days, 30 days, 15 business days

2. quarterly, monthly

Front 99

1. _______ are orders to buy or sell securities.

2. These must contain the following information: (8)

Back 99

1. trade tickets

2. --account number

--ID number of the registered person entering the order

--order type or action: buy or sell. All sell orders must be marked long or short. A long sale means the customer is selling the stock they own. A short sale is borrowing stock in order to sell it and profit from a decline in the price of the stock. The stock will be purchased back at a later date.

--Account type - cash or margin

--symbol that identifies the security (for example, T is the symbol for AT&T)

--quantity

--price and/or conditions of the order

--market solicited or unsolicited

Front 100

1. Members that form ______ arrangements with financial institutions (bank, savings and loan, etc.) to offer broker/dealer services must have a written contract that includes the responsibilities of each party and how each will be compensated.

2. The contract must stipulate that SEC and FINRA representatives have access to the financial institution's premises for the purpose of ______ the books and records related to the broker/dealer services.

3. Members must promptly inform the financial institution if any associated person or member employed by the financial institution is _____ for cause by the member.

Back 100

1. networking

2. inspecting

3. terminated

Front 101

When a member conducts business at the same location as a financial institution, the member must be clearly identified as a provider of broker/dealer services. Those services must also be distinct from the financial institution's services. Broker/dealer business must be conducted in an area that display's the _______, and is as separate and as far removed as possible from the _______ taking areas of the financial institution.

Back 101

member's name

deposit

Front 102

1. To ensure that customers understand that they are opening an account with a broker/dealer and not a bank or other financial institution, they must be informed in _______, before or at the time they open an account, that the broker/dealer services are being offered by the member and not the financial institution.

2. All statements and trade confirmations must clearly show that it is the broker/dealer who is providing the financial services, and not the _______.

Back 102

1. writing

2. financial institution

Front 103

1. In addition, before or at the time a customer opens an account, the customer must be informed in writing that the securities being transacted: (3)

2. Besides providing these disclosures in writing, the member must state the disclosures ______ to the customer at the time they are opening the account. In addition, all retail communication that that promotes broker/dealer services at the financial institution's location(s) and/or in conjunction with the financial institution must contain the above mentioned disclosures or the following abbreviated form, as long as it is displayed in a prominent manner: (3)

3. Exceptions to these disclosures are ______ of 30 seconds or less, electronic signs and ______, time and temperature signs, ticker tape banners, and posters that are only used to show locations, as long as leaving the disclosure out would not be misleading.

Back 103

1. --are not FDIC insured

--are not deposits or guaranteed by the financial institution

--carry investment risk, including loss of principal

2. out loud

--not FDIC insured

--no bank guarantee

--may lose value

3. radio broadcasts, billboards

Front 104

1. Violations of the Securities Exchange Act of 1934 or SEC rules and regulations, including the use of false or misleading statements, are subject to criminal penalties. The maximum fine for any person is $________, imprisonment for _____ years, or both.

2. A maximum fine of $_____ can be imposed on a business entity. If the violator can prove that he or she was unaware of the rule or regulations, the find can be imposed, but the violator cannot be imprisoned.

Back 104

1. $1 million, 10 years

2. $2.5 million

Front 105

1. It is a violation of the SEC rules for a registered rep, broker/dealer or investment adviser to make _____ of any kind.

2. Under no circumstances may representations be made that ______ a profit or ______ against loss.

Back 105

1. guarantees

2. promise, guarantee

Front 106

1. _________ -- no member or person associated with a member can make improper use of a customer's securities or funds.

2. Members or persons associated with a member cannot ______ directly or indirectly in the profits or losses in any account of a customer unless their associated person obtains prior _______ from the customer and the member carrying the account, and the sharing of profits or losses in any account of the customer is in direct _______ for the financial contribution made to the account.

Back 106

1. improper use

2. share, written authorization, proportion

Front 107

1. Exempt from the direct proportionate share limitation set forth under this rule are accounts of the ______ of the person associated with a member.

2. For purposes of this Rule, this includes parents, mother-in-law, father-in-law, spouses, children or any relative who is _____ by the person associated.

Back 107

1. immediate family

2. supported

Front 108

Fiduciaries such as transfer agents and trustees who have account ownership information are ________ from using that information to solicit the purchase, sale or exchange of securities unless it is requested by the issuer.

Back 108

forbidden

Front 109

Members or associated persons with a member cannot accept a customer's _______ for any security unless it has first ascertained that the customer placing the order agrees to receive securities.

Back 109

purchase order

Front 110

The term manipulative, deceptive, or other fraudulent advice or contrivance, as used in the Act, is defined to include the following: (2)

Back 110

1. Any act that operates or would operate as fraud or deceit upon any person

2. Any untrue statement of a material fact and any omission of a material fact necessary for the investor to have known in order for them to make a reasonable decision

Front 111

1. The Securities Exchange Act of 1934 defines a _______ as a director, office or owner of ____% or more of the stock of a corporation.

2. Persons who become insiders are required to notify the SEC within ___ days of becoming an insider. Insiders are also required to report changes in their positions within ___ days of the change.

Back 111

1. insider, 10%

2. 10 days, 2 days

Front 112

1. Insiders are prohibited from acting on _______ information for their own profit. This rule also applies to any employees or personnel that may have access to insider information.

2. Any information must be public via a ______ and disseminated through a wide medium and the appropriate document must be on file with the SEC before anyone can act on the info.

3. The 1934 Act requires broker/dealers to establish, maintain and enforce procedures for the ________ of misuse of inside info by any person associated with the firm.

Back 112

1. nonpublic material

2. press release

3. prevention

Front 113

1. The ________ was established to regulate investment advisory activities and define requirements for registration.

2. Investment advisors for an investment company registered under this act are considered ________ covered advisors required to register with the SEC.

Back 113

1. Investment Advisers Act of 1940

2. federal

Front 114

1. An _________ is a firm that is paid a fee to advise others, either directly or indirectly, as to the advisability and merit of purchasing or selling securities.

2. Also included in this definition is any firm who, in the regular course of business, issues reports or analyses concerning ________.

3. Financial planners and those providing financially related services are defined as investment advisors if they do any of the following: (3)

Back 114

1. investment advisor

2. securities

3. --provide advice, analysis or reports concerning securities

--provide these services as a regular course of their business

--receive compensation for those services

Front 115

1. Investment companies and the sale of their securities are subject to the ____ Act of _______.

2. Registered investment companies are required to send a current _______ and _______ to their shareholders on a ______ basis, and also send an audited balance sheet and income statement on a ______ basis.

Back 115

1. Investment Company Act of 1940

2. balance sheet and income statement, semi-annual, annual

Front 116

1. Members cannot offer or sell the shares of any open-end investment company or unit investment trust registered under the 1940 Act if the sales charges described in the prospectus are ________.

2. If they do not allow for clients to receive discounts for large volume purchases (breakpoints), charges cannot be more than ____%.

Back 116

1. excessive

2. 8.5%

Front 117

1. In recommending the purchase of investment company securities, a member must not state or imply that the purchase of such securities shortly before an ex-dividend date is advantageous to the purchaser, unless there are specific, clearly described _____ or other _____ to the purchaser.

2. Members may not state or imply that distributions of long-term capital gains by an investment company are or should be viewed as part of the ______ from an investment in such a company's securities.

Back 117

1. tax, advantages

2. income yield

Front 118

Members cannot withhold placing customers' _______ for any investment company security so as to profit themselves as a result of such withholding.

Back 118

orders

Front 119

1. If any shares issued by an open-end management company are repurchased by the issuer, or by the underwriter for the account of the issuer, or are tendered for redemption within _______ business days after the date of the transaction.

2. The broker/dealer and the underwriter have the following responsibilities: (2)

Back 119

1. 7 business days

2. --the broker/dealer must refund to the underwriter the full concession allowed to the B/D on the original sale

--the underwriter must pay to the issuer the underwriter's share of the sales charge on the original sale by the underwriter, as well as to pay to the issuer the refund received when it is received. The underwriter must also notify the broker/dealer of such repurchase or redemption within 10 days of the date on which the certificate or written request for redemption is delivered to the underwriter or issuer. If the original sale was made directly to the investor by the principal underwriter, the entire sales charge must be paid to the issuer by the principal underwriter.

Front 120

1. A member who is underwriter of the securities of an investment company cannot sell any securities to any B/D at a price different from a _____, unless a special agreement for dealer concessions is in effect.

2. These B/Ds have a written selling agreement and are considered part of the ______ of the sponsor.

Back 120

1. POP

2. selling group

Front 121

An associated person of a member cannot accept compensation from anyone other than the member with which the person is associated. The only exception is payment by a ______ to a member, where the member agrees to the compensation arrangement.

Back 121

nonmember

Front 122

1. Continuing commissions from securities sales are permissible as long as the person who receives them continues to be a registered rep of a FINRA member. Continuing commissions paid to a registered rep who leaves the employment of a member, the rep's widow or widower, and beneficiaries will continue only if stipulated in a _______.

2. Arrangements for continuing commissions cannot include new business or accounts opened by a person who is not ______ at the time the account was opened.

3. In addition, payment cannot be made to anyone who is not eligible to be a member of FINRA or another SRO because of ________, revocation, expulsion or suspension that is still in effect.

Back 122

1. bona fide (written) contract

2. registered

3. disqualification

Front 123

It may be deemed a violation for a member to do the following: (7)

Back 123

1. favor or disfavor the sale or distribution of shares of any particular investment company on the basis of brokerage commissions

2. sell shares or act as underwriter for an investment company with the knowledge of the company's agreement to direct portfolio securities transactions to the member in consideration for the promotion of shares

3. demand commissions or solicit a promise of commissions as a condition to the sale

4. offer or promise brokerage commissions to another member as a condition to the sale or distribution of shares

5. circulate information regarding the amount of brokerage commissions received by the member from any investment company

6. encourage or sponsor any incentive campaign or special sales efforts of another member with the purpose of arranging brokerage commission

7. with respect to sales personnel, provide additional compensation for the sale of share of specific investment companies, recommend or establish "preferred" lists of investment companies, grant participation in brokerage commissions, or use sales of share of an investment company as a factor in negotiation in the price of or the amount of brokerage commission on a portfolio transaction

Front 124

Members who sell shares of an investment company are also allowed to execute its portfolio transactions and _____ its salesmen based on total sales of investment company shares.

Back 124

compensate

Front 125

1. The Act defines retail communication as ______ is it has omitted a material fact necessary to make a statement not materially misleading.

2. This rule specifies the following: (2)

Back 125

1. misleading

2. --retail communication for a MMF must contain all required info

--any retail communication that contains performance data for an investment company must include the required disclosure

Front 126

Any retail communication for an investment company other than a MMF that contains performance data must: (2)

Back 126

1. include the total return information

2. accompany any quotation of yield or similar quotation purporting to demonstrate the income earned or distributions made by the company with a quotation of current yield. This also applies to quotations of tax equivalent yields.

Front 127

1. Any _____ must meet the current requirements of the rule.

2. Any changes to information contained in the prospectus should be included in a __________. This statement is attached to and becomes part of the prospectus and must be made available to all current and potential investors upon request.

Back 127

1. performance data

2. statement of additional information

Front 128

It is unlawful for any registered investment company to adopt (as a part of the company name or title) any words that the ______ finds materially deceptive or misleading.

Back 128

Commission

Front 129

1. The Investment Company Names rule states that if a company has a name suggesting its focus on a particular type of _______, it should invest at least ____% of its assets in that type of investment.

2. This rule also addresses the names that suggest a company's focus on a particular country or geographic region, indicate that a company's distributions are exempt from income tax, or imply that a company and its shares are _____ or approved by the US Government.

Back 129

1. investment, 80%

2. guaranteed

Front 130

1. Dealers can communicate on a new issue only by means of a prospectus and ________. This is not a standard advertisement (which contains editorial content). It is simply a factual announcement that is made during the _______ period, and names the issuer, the underwriter and other basic information.

2. This is published conjointly with a ________.

3. Are any other forms of retail communication concerning the offering allowed?

Back 130

1. tombstone ad, cooling-off period

2. offering

3. no

Front 131

1. ________ are usually published in newspapers and are surrounded by a black border.

2. They may include the following information: (7)

Back 131

1. Tombstone ads

2. --the name of the issuer

--the title of the security

--the number of shares being offered

--a brief description of the issuer's business

--the price of the offering

--the date of the sale

--the names of the underwriters

Front 132

If the offering is for investment company shares, the tombstone announcements may also include: (4)

Back 132

1. the classification of the investment company and its type (i.e. growth, balanced, specialized)

2. a description of the fund's objectives, policies, services and methods of operation

3. period of existence of the fund or its investment advisor

4. the fund's most current NAV

Front 133

1. If an investment company includes any of the preceding items, the ad must also contain a legend similar to the following:

"For more complete information about [name of fund], including ______ and _______, send for a prospectus from [name and address]. Read the prospectus carefully before you invest or send money."

2. The same type of legend must be a part of any ____ or _____ communication published under this rule.

3. Tombstone announcements are prohibited from containing information about what?

Back 133

1. charges and expenses

2. radio or television

3. fund performance

Front 134

1. If retail communication does not mention a _________, it is not deemed an offer to sell a security and doesn't require a prospectus. The Act of 1933 states that retail communication which does not specifically refer by name to the securities of a particular investment company, to the investment itself, or to any other nonexempt security, will not be deemed to offer a security for sale.

2. Such communication is called _______, and is limited to any one of the following: (4)

Back 134

1. specific security

2. generic

--explanatory information relating to securities of investment companies generally or to the nature of investment companies or to services offered in connection with the ownership of such securities

--the explanation or mention of investment companies of different generic types or having various investment objectives, such as balanced funds, growth funds, income funds, variable annuities or no-load funds

--offers of various products or services provided that such offers or descriptions do not relate directly to the desirability of owning or purchasing a security issued by a registered investment company

--an invitation to inquire for further information

Front 135

1. Generic retail communication must contain the _______ and ______ of a registered broker/dealer or other person sponsoring the communication.

2. The only type of communication that doesn't require disclosure of the identity of the member firm is a personnel recruitment ad. Known as _______ ads, they must not, however, misrepresent opportunities in the industry or contain misleading information.

Back 135

1. name and address

2. blind recruiting ads

Front 136

The term _______ includes any communication used by any person to offer to sell or to induce the sale of securities of any investment company

Back 136

mutual fund retail communication

Front 137

1. Retail communication is deemed ______ if it contains any untrue statements of material fact, or omits to state a material fact. The use of materially misleading communication is prohibited.

2. The following factors need to be considered to determine whether a particular statement containing a material fact is or might be misleading: (9)

Back 137

1. materially misleading

2. --context in which certain statements are made

--absence of explanations, qualifications, or limitations on statements

--general economic or financial conditions or circumstances

--representations about past or future investment performance

--portrayals of past income, gain or growth of assets

--statements about possible benefits connected with or resulting from services to be provided

--exaggerated or unsubstantiated claims about management skill or techniques

--unwarranted comparisons to other investment vehicles or to indexes or incompletely explained

--statements involving the characteristics or attributes of an investment company

Front 138

If investment company prospectuses are distributed through an electronic medium, issuers may satisfy ________ requirements applicable to printed documents, such as paper size, type size and font, bold-face type, italics and red ink, by presenting all required information in a format readily communicated to investors, or where indicated, in a manner reasonably calculated to draw attention to specific information.

Back 138

legibility

Front 139

The following rules apply to companies yield quotes and the calculations for money market funds: (3)

Back 139

1. the yieldof a money market fund must be calculated covering a seven day period

2. the length an the date of the last day in the base period must be disclosed

3. both current yield and compounded yield may be displayed as long as the base period for each is identical and prominently displayed

Front 140

Yield calculations for funds other than money market funds must be based on a ________ with a prominent disclosure. Tax equivalent yields must be accomplished by a disclosure of the tax rate included in the calculations.

Back 140

30- day period

Front 141

1. Calculations for ______ must be for 1, 5 and 10 year periods, or such shorter time as to the fund's effective registration.

2. The calculations must assume reinvestment of _______ and ________ distributions during the period and include all sales charges and fees.

3. Any other historical measure of company performance used must reflect all elements of the return, must be accompanied by total return quotations as previously prescribed, is set in no greater prominence than the required total return calculations and the identity of the length of, and the last day of, the period for which the performance is measured. A description of the _______ must be provided.

Back 141

1. total return

2. dividends and capital gains

3. method of calculation

Front 142

1. FINRA prohibits members from using mutual fund rankings in retail communications unless the rankings are created and published by a _______, or based on performance ratings created by a ranking entity.

2. FINRA defines a ________ as an "entity that provides general information about investment companies to the public, that is independent from the reinvestment company and its affiliates, and whose services are not procured by the investment company or any of its affiliates to assign the investment company as a ranking."

Back 142

1. ranking entity

2. ranking entity

Front 143

1. In other words, the ________ is an investment information service that is completely independent from the investment company (mutual fund) or its affiliates, and is ________ being paid for a ranking by the investment company.

2. An example of a ranking entity is __________.

Back 143

1. ranking entity

2. Morningstar

Front 144

1. To use investment company rankings in retail communications, members must adhere to FINRA rules listed next. First and foremost, FINRA prohibits the display of a _______ or prominent statement that says a fund is a top performing fund in an investment category, unless the statement is ________.

2. In addition, retail communications containing investment company rankings must prominently display the following disclosures (6):

Back 144

1. headline, true

2. --the fund's investment category (income, growth, balanced)

--the # of investment companies, or, if applicable, investment company families in the category

--if the investment company itself created the category or subcategory

--the name of the ranking entity

--the length of the period being ranked, including the first and last day of the period

--ranking criteria (total return, yield, etc.)

Front 145

Other required disclosures that must be prominently displayed in retail communications are: (5)

Back 145

1. a statement of past performance is no guarantee of future results

2. whether or not the ranking has taken loads and sales fees into account

3. the publisher of the ranking (such as a magazine)

4. if the ranking is a symbol system (like the star system) and the meaning of the symbol

5. if the ranking is based on total returns or yield during the ranking period, then there must be a statement to that effect

Front 146

1. In addition, rankings must be current, or at least to the end of the most recent calendar quarter. If the ranking entity doesn't have a ranking of the most recent quarter, the most current ranking available may be ______ as long as it is not misleading.

2. With the exception of MMFs, the following rules apply to time periods for investment company rankings in retail communications: (2)

Back 146

1. used

2. --rankings cannot show a time period less than one year (unless it is based on yield)

--investment companies that have been in existence for one year may show a total return ranking for a 1 year period. Companies in existence for 5 years that show one year of total returns must also show 5 years of total returns. Companies in existence for 10 years that show one year of total returns must also show 5 year and 10 year returns

Front 147

1. FINRA defines a __________ rating as a report issued by an independent third party that describes the way the price of a bond fund (NAV) changes in reaction to market conditions and the economy.

2. FINRA further states that a _______ rating contains an objective analysis of a bond fund's performance and other considerations like the credit quality of individual bond holdings, interest rate risk, currency risk, prepayment risk, and currency risk, that can affect the value of the portfolio.

Back 147

1. bond mutual fund volatility

2. bond fund volatility rating

Front 148

1. When used in retail communications, bond mutual fund volatility ratings must be accompanied or preceded by a _______ (supplemental sales literature). There must be a disclosure statement that includes all the recent bond mutual fund volatility ratings issued on the fund, the names of the ratings' issuers, the most current rating, and the _______ of the rating.

2. If the most current rating has changed, then _______ must be included. In addition, there must be a description of the rating written in narrative form that includes the following disclosures (6):

Back 148

1. prospectus, date of the rating

2. a reason for the change

--a statement that no standard method exists for assigning ratings

--a description of risk that the rating measures (such as long-term volatility or short-term volatility)

--a statement that not all bond funds have volatility ratings, and that the portfolio may have changed since the rating was issued

--a statement that there is no guarantee that the fund will continue to have the same rating or to performance that it has in the past

--any fee or compensation that was paid for the rating

Front 149

In addition, the bond volatility rating must meet the following criteria: (4)

Back 149

1. the rating must not refer to volatility as a "risk rating"

2. the supplemental sales literature uses the most up to date ratings available, and the information is current to at least the end of the recent calendar quarter

3. the rating and disclosure statement must be clear, concise and understandable, and based only on factors that are objective and quantifiable

4. the issuer of the rating must provide detailed disclosure of its methodology and make it available to investors through a website, a toll-free number or both

Front 150

1. In recent years, technology and the Internet have made it possible for member firms to offer a multitude of interactive investment analysis tools to investors. FINRA considers these tools _______ and regulates their use by members.

2. FINRA describes an ________ as an interactive technology that creates simulations that allow investors to see the possible outcomes of various investments, investment styles, and investment strategies and provides an analysis of potential risks and rewards.

Back 150

1. retail communications

2. investment analysis tool

Front 151

1. A member that offers an investment analysis tool to retail customers must make the tool and any templates for reports produced by the tool available to FINRA's _________ within ____ business days of its first use.

2. In addition, any retail communications regarding the investment tool must also be submitted within ____ business days of their first use.

Back 151

1. Advertising Regulation Department, 10 business days

2. 10 business days

Front 152

According to FINRA rules, members are allowed to provide an investment analysis tool, reports generated by the tool, and retail communications related to the tool only if it contains the following disclosures written in a narrative form displayed in a clear and prominent manner: (4)

Back 152

1. a description of the criteria and methodology including its limitations and underlying assumptions

2. a statement that results can vary with each use and over time

3. when applicable, a description of the universe of investments, that the tool analyses and how the tool selects an investment. In addition, if the tool favors certain types of investments, there must be an explanation as to why, and a statement that other investments outside the universe may have similar or superior investment characteristics

4. a disclosure stating the following: "Important: The projections or other information generated by (name of investment analysis tool) regarding the likelihood of various investment outcomes, are hypothetical in nature, do not reflect actual investment results, and are not guaranteed of future results."

Front 153

1. _______ can also be any written or electronic communication distributed or made generally available to customers or the public. The term includes (but is not limited to) circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, seminar texts, public appearances, and reprints or excerpts of any other advertisement, sales literature, or published article.

2. Note that the key is if the communication goes out to more than ___ investors, it is considered retail communication. If, however, the communication goes to ____ or fewer investors, then it is considered _________.

Back 153

1. retail communication

2. 25 investors, 25, correspondence

Front 154

1. _______ refers to participation in seminars, radio or television interviews, or other public speaking activities.

2. Public appearances are included in the definition of ________ since they are directed or made available to the public.

Back 154

1. public appearance

2. retail communication

Front 155

1. _______ means any reprint of an article or its excerpt issued by a publisher not affiliated with the member using the reprint, or to any report concerning a registered investment company prepared by an independent entity.

2. Independently prepared reprints are considered ________ and must be approved by a principal before use.

Back 155

1. independently prepared reprint

2. retail communication

Front 156

1. The term ________ refers to any written or electronic communication distributed to ____ or fewer retail customers within any ____-day calendar period.

2. The term _______ includes both existing and prospective customers.

Back 156

1. correspondence, 25, 30 day

2. retail customers

Front 157

__________ is defined as any written or electronic communication that is directed only toward institutional investors, such as banks, thrifts, savings and loans, insurance companies, mutual funds, and other broker/dealers.

Back 157

Institutional sales material

Front 158

1. Any ______ or endorsement of a security by a third party that is misleading is unlawful.

2. Any representation of such testimonial must state all of the following: (3)

3. Also, any offer of ______ must indeed be furnished entirely free and without conditions or obligations on the part of the respondent. Such offers are prohibited if the respondent must assume any sort of obligation as a result.

Back 158

1. testimonial

2. --if any fee or other compensation was paid for the testimonial or endorsement

--if the statement implies that the person is qualified by a special experience or knowledge, such qualifications must be listed

--include the statement "past performance does not indicate future results"

3. free services

Front 159

1. Institutional communication must be approved by ________. This approval may be executed after the _____ use of the material.

2. All institutional communication, including the name of the person who prepared each item, must be maintained for a period of _____ years from the date last issued.

3. Included with this filing requirement is information about the ______ of any statistical tables, charts, graphs, or illustrations used in communication with the public.

4. All institutional communication, as well as correspondence and retail communications is subject to spot-check by FINRA for at least ____ years from last use.

Back 159

1. a registered principal, first

2. 3 years

3. sources

4. 3 years

Front 160

Most firms today screen all incoming and outgoing _______, whether electronic or print, to comply with FINRA rules.

Back 160

correspondence

Front 161

1. When a customer is away from his or her regular address, a member may hold the customer's mail for up to ____ months as long as the customer requests the hold in writing.

2. If the customer is going abroad, the firm may hold the mail up to ____ months. The mail held by the member firm would include both customer's account statements and the trade confirmation.

Back 161

1. 2 months

3. 3 months

Front 162

Member firms that have not previously filed ______ must file their initial retail communication with FINRA at least ____ business days prior to use, and must continue to file at least ____ business days prior to use for a period of _______.

Back 162

retail communication, 10 business days, 10 business days, 1 year

Front 163

1. As defined by the Telephone Consumer Protection Act (TCPA) of 1991, _______ is a telephone call or message directed toward an individual with whom the marketing organization has no relationship, for the purpose of encouraging the purchase or rental of, or investment in property, goods or services.

2. Telemarketing calls may be initiated when a telemarketer has established a _______ or ______ relationship with another person, or received an expressed written consent from the caller's party.

Back 163

1. telemarketing (telephone solicitation)

2. personal or business relationship

Front 164

The following 4 restrictions apply to telemarketing:

1. ________ restriction: no private residence can be contacted before 8 am or after 9 pm (the called party's time) unless specific arrangements were made with the called party

2. _________: the names of any persons who have stated that they do not wish to receive outbound telephone calls made by or on behalf of the member must be added to the firm's in-house Do Not Call list

3. _________: additionally, the firm must update its list at least once every 31 days from the Federal Trade Commission's national Do-Not-Call registery

4. Once a person's name has been added to the list, no one from the broker/dealer may contact that person for _____ years

Back 164

1. Time of day

2. firm-specific do-not-call list

3. National Do-Not-Call list

4. 5 years

Front 165

1. Broker/dealers who are cold calling must provide the contacted party with the name of the ______, the person or organization on whose behalf the call is being made, the purpose of the call, and a telephone number and address at which the caller may be contacted.

2. All representatives must be ______ on cold calling rules and do-not-call lists. Failure to comply with TCPA may result in fines.

3. The CPA applies only to telemarketing calls directed toward prospective customers. Excluded from the law are calls directed toward existing clients. Also, _______ organizations, technical support services, and information services are excluded from the law.

Back 165

1. caller

2. trained

3. not-for-profit

Front 166

1. According to FINRA rules, members are forbidden to offer, to give or permit to be given, directly or indirectly, anything of value in order to _____ or reward a person for the publication or circulation in any electronic media including the Internet, TV, radio and similar modes of communication that is intended to influence to _____ of a security.

2. This rule does not apply to ________ paid for communications that are clearly distinguishable as advertising, legitimate research reports and communications that disclose that compensation was paid and the amount.

Back 166

1. influence, price

2. compensation

Front 167

1. Like other investments, variable annuities and life insurance products are subject to _______ rules regulating communications with the public. Furthermore, FINRA has created additional guidelines for retail communication for these investment products.

2. The following guidelines apply to both printed and online communications:

Back 167

1. FINRA

2. --the product must be clearly identified as a variable annuity or a variable life insurance policy unless the proprietary name of the product includes the words "variable annuity" or "variable life insurance"

--it must not be implied that the product is a mutual fund

--because many variable annuities and variable life insurance products carry substantial charges, deferred sales loads and potential tax penalties for early withdrawals, those must not be described or represented as short-term investments. References to liquidity ad easy access to the investment values must also include, in clear language, an explanation about the negative effects of early withdrawals an, in the case of variable life products, the adverse effects of loans and withdrawals on the cash value and death benefit

Front 168

1. Insurance companies typically guarantee a minimum _____ benefit in the case of variable life insurance or a stream of payments in the case of a variable annuity.

2. These types of guarantees are only as good as the company's ______ to pay them and cannot be over-emphasized in sales literature or presentations.

3. In addition, it cannot be implied that the guarantees apply to investment returns, or that an insurance company's rating applies to investments in the ________.

4. In addition, FINRA provides guidelines for the use of _______ involving fund performance and fund comparisons for variable annuities and variable insurance products.

Back 168

1. death

2. ability

3. separate account

4. communications

Front 169

1. The _______ of a fund that existed before it was included in a variable annuity or variable life insurance investment option may only be used if there has been no significant change to the fund at the time, or since it was included as an investment option.

2. Historical performance of an existing fund cannot be used to _______ a comparable new fund, even if it is a very similar fund, a model portfolio based on the fund, or clone. Historical performance must reflect the impact of charges and expenses and conform to SEC and FINRA guidelines.

Back 169

1. historical performance

2. promote

Front 170

_______ comparisons are allowed if they comply with FINRA standards.

Back 170

product

Front 171

______ rankings of the performance of the separate account or investment options may be used if they conform to FINRA standards.

Back 171

product

Front 172

Communications emphasizing ______ aspect of a single premium variable life insurance product must be balanced by and include an explanation of the life insurance feature.

Back 172

investment

Front 173

________ of rates of returns in variable life insurance sales literature and personalized illustrations may be used to show how the return of the underlying investment could affect the policy's cash value and death benefit. Hypothetical illustrations must use the same methods and formats as the required hypothetical illustrations in the prospectus. Illustrations cannot be used to project investment results.

Back 173

hypothetical illustrations

Front 174

A hypothetical illustration can show any number of hypothetical gross returns as high as ____%. However, it must also include a gross return of ___%, allowing the customer to understand the potential effects on the policy's cash value and death benefit under less favorable circumstances. In addition, illustrations must show the maximum guaranteed mortality charge and expenses for the policy with each rate of return that is illustrated. Current mortality and expense charges may also be illustrated.

Back 174

12%, 0%

Front 175

1. Any illustration must be preceded by a prominently displayed _______ that the purpose of the illustration is to show how investment returns might affect cash value and death benefits. It must be stated that the illustration is hypothetical and may not be used to project investment results.

2. It is inappropriate to use hypothetical illustrations to compare the _________ of variable life insurance products to one another. These types of illustrations go beyond the scope of showing how investment returns affect cash values and death benefits. It is permissible to compare a variable life policy to a term life policy combined with a side investment as a way to highlight the impact of the tax-deferred growth of the variable life policy.

Back 175

1. explanation

2. performance

Front 176

1. _________ restrictions --- in connection with the sale and distribution of variable contracts, except as described below, an associated person of a member cannot accept any compensation from anyone other than the member with which the person is associated.

2. A nonmember can make direct payment to those who distribute contract only when: (2)

Back 176

1. compensation

2. -- the arrangement is agreed to by the member

--the member relies on an appropriate rule, regulation, interpretive release, interpretive letter, or "no-action" letter issued by the SEC that applies to the specific fact situation of the arrangement

Front 177

An associated person of a member cannot accept compensation from anyone other than

A. the member with which the person is associated OR any registered nonmember. No compensation agreement is necessary

B. the member with which the person is associated OR a nonmember that acts in accordance with the Maloney Act

C. the member with which the person is associated only

D. the member with which the person is associated OR a nonmember, assuming that a compensation agreement has been reached

Back 177

D. the member with which the person is associated OR a nonmember, assuming that a compensation agreement has been reached

Front 178

Violation of SEC rules or the Act of 1934 are subject to criminal penalties. The maximum penalty for an individual is

A. $500,000

B. $100,000

C. $1,000,000 imprisonment for 10 years, or both

D. $100,000 or imprisonment for 5 years, or both

Back 178

C. $1,000,000, imprisonment for 10 years, or both

Front 179

Which of the following is NOT true of Section 1035 Policy Exchanges?

A. It is an IRS Code that permits like kind exchanges of property

B. it is typically used when exchanging or replacing a less competitive life policy with a more competitive life policy

C. any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days

D. It requires an absolute assignment of the existing policy to the replacing company who surrenders the contract and kisses a replacement policy

Back 179

C. any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days

Front 180

1. Members cannot participate in the _____ or in the sale of a variable contract on any basis other than at a value to be determined following receipt of payment and in accordance with the provisions of the contract, and if applicable, the prospectus, which falls under the rules of the Investment Company Act of 1940.

2. ______ are not considered received until the contract application has been accepted by the insurance company, except when a mutual agreement has been reached with the purchaser.

Back 180

1. offering

2. payments

Front 181

Every member who receives applications and/or purchase payments for variable contracts must transmit properly to the issuer all such _______ and at least that portion of the purchase payment required to be credited to the contract.

Back 181

applications

Front 182

1. No member who is a ______ as defined in the Investment Company Act of 1940 may sell variable contracts through another broker/dealer.

2. The only exceptions to this rule are (2):

Back 182

1. principal underwriter

2. --such broker/dealer is a member and

--there is a sales agreement in effect between the parties. The sales agreement must provide that the sales commission to be returned to the issuing insurance company if the variable contract is tendered for redemption within 7 business days after acceptance of the contract application1

Front 183

No member can participate in the _____ or in the sale of a variable contract unless the insurance company, upon receipt of a request in proper form for partial or total redemption in accordance with the provisions of the contract, undertakes to make prompt payment of the amounts requested and payable under the contract in accordance with the terms of the contract and prospectus.

Back 183

offering

Front 184

The ________ rules stipulates that in the conduct of the business a member must observe high standards of commercial honor and just and equitable principles of trade.

Back 184

Standards of Commercial Honor and Principles of Trade

Front 185

1. The ______ Act of _____ established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent.

2. This act created the ______. They are empowered to collect assessments from broker/dealers in order to protect customers from loss due to a failed broker/dealer.

Back 185

1. Securities Investor Protection Act of 1970

2. Securities Investor Protection Corporation (SIPC)

Front 186

SIPC membership by most broker/dealers is mandated. SIPC insures customer accounts for up to $______ including up to $______ in cash.

Back 186

$500,000 and $250,000

Front 187

1. SIPC coverage is provided for each separate customer up to $______ with a maximum of $______ in cash.

2. An individual owning a cash account and margin account is considered to be ________ customer(s).

3. Note, however, if the same individual has a joint account with his or her spouse, or a Rollover IRA account, these are each treated as separate customers with respect to SIPC coverage rules. Each account is eligible for $______ of protection.

4. Are commodities covered by SIPC?

5. This coverage only applies to ________

Back 187

1. $500,000 and $250,000

2. one

3. $500,000

4. no

5. customers

Front 188

1. Broker/dealers typically hold customer securities in "______" (or the name of the broker/dealer). This means that securities are registered to the broker "for benefit of" the customer.

2. In other words, the customer is the beneficial owner. Only securities held in street name are covered by SIPC. The $500,000 limit does not necessarily mean that holdings in excess of $500,000 will be ______. Most brokers carry additional insurance in excess of SIPC limits.

3. For example, if a customer's securities were worth $1 million and the customer could only recover $300,000 in the brokerage firm's normal liquidation process, then SIPC would take over and indemnify the $500,000 limit, leaving the balance of $200,000 to be addressed by the broker's excess insurance coverage, if any. For any assets not covered, a customer becomes a _______of the brokerage firm.

4. Since any assets held in a ________ are not covered by SIPC, there is no limit to the customer's recovery as an unsecured creditor of the firm.

Back 188

1. "street name"

2. lost

3. general creditor

4. customer's name

Front 189

1. Members must purchase a ______ to protect against employee theft or loss of customer securities.

2. The amount of coverage is based on the firm's scope of operations and the sufficiency of the coverage must be reviewed every ______.

3. The coverage is based on ____% of the firm's highest net capital requirement over the last 12 months.

4. The minimum coverage requirement is $________.

Back 189

1. fidelity bond

2. year

3. 120%

4. $100,000

Front 190

Under the Investment Company Act of 1940, anyone who steals, embezzles, converts to his or her own use or the use of another the money, funds, securities, property or assets of a registered investment company is guilty of a ______, and is subject to penalties listed in the Act.

Back 190

crime

Front 191

1. ________, which is the use of information that is unavailable to the general public for the purposes of manipulating or exploiting a market opportunity, is prohibited by law.

2. Investment advisers must not participate in any form of insider trading. Any person who purchases or sells securities while in the possession of nonpublic material information, or communicates such information to another person, is in violation of the _______ Act of ____.

3. The SEC can bring civil action against any such person in a ______. Charges can also be brought against any person who directly or indirectly controls such a person.

4. The _____ Act of ____ requires that broker/dealers establish, maintain, and enforce procedures to prevent the misuse of public information by any person associated with the firm. Insiders must report their trades to the SEC within ___ business days.

Back 191

1. insider trading

2. Insider Trading and Securities Fraud Enforcement Act of 1988

3. federal court

4. 2 business days

Front 192

1. The civil penalties for insider trading violations are determined by the court, and vary according to the circumstances. The maximum civil penalty is ____ times the profit gained or the loss avoided from the use of information.

2. This is also known as ______ damages.

Back 192

1. three, treble

Front 193

1. Criminal penalties for insider trading violations are more severe. The court will determine the penalty that will be imposed on any person who, at the time of the violation, directly or indirectly controlled the person who committed the violation. The monetary penalty may be up to $____ for individuals, and up to $___ for corporations.

2. The prison sentence for individuals may be up to ____ years.

Back 193

1. $5 million

2. $25 million

3. 20 years

Front 194

1. Insiders are also subject to _______ by other investors who believe they were harmed by insider trading violations. For example, if the contemporaneous trader was trading without the same information as the investor with the inside information, the trader was at a disadvantage and can file a lawsuit for damages against the person who is in violation of insider trading rules.

2. This is known as a ____ right of action, also known as _______ traders.

Back 194

1. lawsuits

2. private, contemporaneous

Front 195

1. Broker/dealers must implement privacy policies with respect to consumer nonpublic information. Consumers must be provided with an initial privacy notice, and those who become customers must receive ____ privacy notices.

2. Broker/dealers must establish safeguards to ensure that customer records and information are secure and confidential. A broker/dealer cannot share a customer's nonpublic personal information with nonaffiliated parties, unless: (2)

Back 195

1. annual

2. -- the institution (such as joint marketer or service provider) provides certain information to the customer

--the customer has not elected to opt out of the information sharing program

Front 196

1. Customers must be given a reasonable means and a reasonable way and amount of time to _____ of sharing with nonaffiliated third parties.

2. A _______ may include a response link in an email, a prepaid postcard addressed to the broker/dealer, or a toll-free phone number. For example, it would not be reasonable to make the customer write a letter to opt out.

Back 196

1. sharing

2. reasonable means

Front 197

After the Terrorist Attacks on 9/11, Congress passed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (________), legislation that enabled a sweeping review of homeland security; addressing several social, economic, and global initiatives to fight and prevent terrorist activities.

Back 197

USA PATRIOT ACT

Front 198

1. Since its enactment on October 26, 2011, the Financial Crime Enforcement Network (_____) has required banks, broker/dealers and several other financial institutions to establish new anti-money laundering (AML) standards.

2. To secure the goals of the Act, FinCEN has implemented an AML Program that requires the _______ of all financial transactions and reporting of any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks. A comprehensive customer ID and verification procedure is also set in place.

3. The AML program consists of the following minimum requirements: (4)

Back 198

1. FinCEN

2. monitoring

3. -- assimilate policies, procedures and internal controls based on an in-house risk assessment which includes (instituting AML programs similar to banks and securities lenders, and file suspicious activity reports with federal authorities)

--appointing a qualified compliance officer responsible for administering the AML program

--continual training for applicable employees, producers and others

--allow for independent testing of the program on a regular basis

Front 199

1. Each member must develop and implement a written anti-money laundering (AML) program designed to achieve and monitor the member's compliance with the requirements of the _______.

2. Each member's organization's AML program must be approved, in writing, by a member of senior management. Note that the firm must appoint a ______ principal who is ultimately responsible for this program within the firm.

3. Name the 3 steps in the money laundering process.

Back 199

1. Bank Secrecy Act

2. AML

3. --placement - inserting the illicit funds into the monetary system

--layering - moving the funds to obscure an audit trail

--integration - making the laundered funds available to the criminal party

Front 200

1. If a member firm receives currency of $____ or more within a 24-hour period, the firm would be required to keep a record of the receipt of the currency on file.

2. If the firm receives $_____ or more within a 24-hour period, they must file a Suspicious Activity Report (SAR) within ___ days.

3. Finally, if the firm receives more than $______ from a customer within a 24-hour period, the firm must file a Currency Transaction Report (CTR) within ___ days. All reports associated with these types of activities must be kept on file at the brokerage firm for a period of ___ years.

Back 200

1. $3,000

2. $5,000, 30 days

3. $10,000, 15 days, 5 years

Front 201

1. Under the ______, certain standards exist for customer identification in the account opening process. The regulations require firms, at a minimum, to implement reasonable procedures to verify the identity of the customer opening an account, maintain records used to identify the customer, and consult government provided lists of known or suspected terrorists, such as the Office of Foreign Asset Control (OFAC).

2. Successful customer identification is obtained through complete and truthful information to authenticate, within all means available, all customer identities. Minimum requirements include (5):

3. A _____ or _____ can be used for verification.

Back 201

1. customer identification program

2. --name

--address

--date of birth

--location of birth

--SSN

3. drivers license or government-issued ID (like a passport)

Front 202

1. Audits to assess the effectiveness of the AML program must be done annually or biannually depending on the firm's risk factors. The audit must be prepared by __________.

2. Audits should be executed in a fair and impartial manner and reported through a written assessment with recommendations for improvements, if applicable. Information that is obtained through AML programs may be shared under the ______ Act.

3. Failure to comply with the guidelines set forth by the USA Patriot Act may result in __________.

Back 202

1. an independent third party

2. Patriot

3. severe fines and penalties

Front 203

SAR rules state that procedures and plans must be in place to identify activity that one would deem suspicious of money laundering, terrorist financing, and/or other illegal activities. Deposits, withdrawals, transfers and any other business deals involving $_____ or more are required to be reported if the financial company or insurer "know, suspects or has reason to suspect" that the transaction (5):

Back 203

$5,000

--has no business or lawful purpose

--is obtained to exaggerate other reporting constraints

--uses the financial institution or insurer to assist in criminal activity

--is obtained using fraudulent funds from illegal activities

--is intended to mask funds from other illegal activities

Front 204

Some "red flags" to look for in suspicious activity: (7)

Back 204

1. customer uses fake ID

2. two or more customers use similar IDs

3. customer changes a transaction after learning the he or she must show ID

4. customer conducts transactions so that they fall just below amounts reporting or recordkeeping

5. two or more customers, trying to evade BSA requirements, seem to be working together to break one transaction into two or more

6. customer, trying to evade BSA requirements, uses two or more locations or cashiers on the same day to break one transaction into two smaller transactions

7. when opening the account, the customer is not concerned about the services provided, cost of services, or the securities to be invested in, but is very interested in the firm's AML program

Front 205

1. Note that if a firm is filing a _____, they are not allowed to provide this information or action to the subject party.

2. Relevant SAR reports must be filed with FinCEN within ___ days of initial discovery. Reporting takes place on Form _____.

Back 205

1. SAR

2. 30 days, Form 108

Front 206

1. The _______ Act was designed to help identify the source, volume, and movement of currency transported into or out of the U.S., or deposited in financial institutions.

2. The _____ authorizes the U.S. Department of Treasury to require financial institutions to maintain records of financial transactions and to report any suspicious transactions.

Back 206

1. Bank Secrecy Act

2. BSA

Front 207

1. For wire transmittals of funds in excess of $______, broker/dealers must obtain and keep specified information about the transmitter and the recipient of those funds. This information also must be included on the actual transmittal order.

2. For transmittals in excess of $_____, financial institutions must verify the identity of persons conducting the transaction.

3. Broker/dealers are required to file _______ for single transactions involving currency that exceeds $_______, or multiple transactions during any one business day that total more than $_______. These must be filed with the Financial Crimes Enforcement Network (FinCEN) with the Bureau of the U.S. Treasury within ____ days. Records of these reports must be kept for ___ years.

Back 207

1. $3,000

2. $5,000

3. CTRs, $10,000, $10,000, 15 days, 5 years

Front 208

Every registered broker/dealer who is subject to the requirements of the Currency and Foreign Transactions Reporting Act of 1970 is required to maintain records related to the Act for ____ years to comply with the reporting, recordkeeping, and record retention requirements of the Code of Federal Regulations.

Back 208

5 years

Front 209

1. A company's internal control begins with an accurate and fair risk ______ of the company's business aspects that are, or could potentially be, vulnerable to laundering and manipulation by, or those aiding in the advancement of, terror groups.

2. Transactions that are generally seen as susceptible to _______ or manipulation include, but are not limited to payments, rollovers, loans, transfers, partial withdrawals, surrenders and death claims.

Back 209

1. assessment

2. laundering

Front 210

1. Special tax treatment is available only to investment companies that qualify as ________ companies.

2. As defined by the Subchapter M of the Internal Revenue Code, a regulated investment company must distribute at least ___% of its investment income back to its shareholders.

3. This distribution is inclusive of dividend income and earned interest, minus any ______.

Back 210

1. regulated investment

2. 90%

3. expenses

Front 211

Investment companies are eligible for special tax considerations if certain requirements are met. Subchapter M of the Internal Revenue Code defines this tax treatment as the conduit theory or ________ theory. These considerations are designed to alleviate extra ______ on shareholders.

Back 211

pipeline, tax burdens

Front 212

1. An investment company that qualifies as a regulated investment company is not required to pay tax on net income distributions made to shareholders. The ____% regulation test is based on gross interest and dividend income, minus expenses.

2. For example, if an investment company receives $110,000 in dividend and interest income and has $10,000 in expenses, it needs to distribute at least $_________ to shareholders in order to qualify as a regulated investment company.

3. Regulated investment companies are required to pay taxes only on the portion of net income not distributed to _______.

Back 212

1. 90%

2. $90,000 (90% of $100,000 net income)

3. shareholders

Front 213

Net investment income excludes ______. Regulated investment companies are taxed on the excess capital gains, if any, that remain after the deduction for distributed capital gains dividends.

Back 213

capital gains

Front 214

1. A corporation investing in stock other than its own may exclude ___% of any dividends received from its taxable income.

2. This is referred to as the ______ and is not available to who?

Back 214

1. 70%

2. Corporate Dividend Exclusion, the individual investor

Front 215

1. Investment companies provide each shareholder with a Form ____ for reporting taxable distributions, and/or Form _____ for reporting proceeds from the sale of shares.

2. These forms identify the amounts and types of distributions received. The shareholder is responsible to report these income and capital gains distributions on his or her _____ and _____ income tax returns.

Back 215

1. 1099-DIV and Form 1099-B

2. federal and state

Front 216

According to Rule _____, dividend payments distributed by investment companies (mutual funds) must be accompanied by a separate ______ that indicates the source of the dividend and the portion of dividend that comes from each of the following sources (3):

Back 216

19a-1

--net income from the current or preceding fiscal year

--accumulated profits from the sales of securities (long term and/or short term capital gains)

--paid in surplus or other capital sources (returns of capital)

Front 217

1. The _______ of a security is the original price paid for the security, plus any sales charges or commissions. Redemption fees paid are also considered sales charges and are added in when determining the cost basis for a security. The original price paid is figured on the offering price, because this includes the sales charge paid for the shares.

2. An increase or decrease in the value of a security represents an ______ gain or loss and is not a taxable event. However, when a security is sold, any gain or loss becomes ______ and is then a tax issue.

3. When a security is sold, the amount received is compared to its cost basis. Securities sold for more than their cost basis result in a net _______. Securities sold for less than their cost basis result in a net _______.

Back 217

1. cost basis

2. unrealized, realized

3. capital gain, capital loss

Front 218

1. Capital gains are classified by the length of time the asset was held, calculated from the purchased date to the trade date of the sale. Assets held less than _____ are short-term gains, and those held ____ or longer are long-term gains.

2. The capital gain rule applies both to distributions from the investment company as well as to investors who purchase and subsequently sell a mutual fund. If an investment company distributes a long-term capital gain to its shareholders, these distributions are always classified as long-term __________ for tax purposes regardless of the length of time the investor held the fund.

Back 218

1. 1 year, 1 year

2. capital gains

Front 219

1. If an investment is sold for less than its cost basis, a _____ occurs for tax purposes. These are classified as short-term or long-term in the same manner as capital gains.

2. The tax treatment is the same for both short-term and long-term capital losses. Capital losses are first used to offset any capital gains. Any remaining net capital losses are allowed as a _______ against ordinary income on a dollar-for-dollar basis (referred to as a _______ deduction).

3. The maximum allowable net capital loss is $______ per year, per return. Any losses in excess of the allowable limit may be carried over into subsequent years.

Back 219

1. capital loss

2. deduction, above-the-line deduction

3. $3,000

Front 220

1. In order to compute possible investment losses, one must refer to all Form _____ received from all investment accounts. Losses are determined by reviewing the total dollar amount invested vs. the value of the investment or mutual fund upon liquidation.

2. For example, if an investor invested $10,000 in a particular security or mutual fund and upon liquidation it was worth less than $10,000, this would have a _____.

Back 220

1. 1099

2. loss

Front 221

The Internal Revenue Code defines an _____ as a sale for tax purposes. The above taxation rules for capital gains and losses apply as in any other sale.

Back 221

exchange

Front 222

1. The ______ basis, or _________ basis, of securities is required to determine gains or losses from securities transactions. This may be calculated by one of three methods.

2. Name the 3 methods.

Back 222

1. tax basis or cost basis

2. -- average share cost basis

--FIFO

--Share identification

Front 223

1. The method of calculating the cost basis called _______ is the average cost per share is determined by dividing the total cost of all shares owned by the total number of shares.

2. Once this method is chosen for a given security, can it be changed?

3. To be calculated correctly, investors must also take into account all _____ previously paid on shares that have been purchased through dividend or capital gains reinvestment programs.

Back 223

1. average share cost basis

2. no

3. taxes

Front 224

The method of calculating the cost basis called ________, the assumption is that the investor is redeeming the oldest shares. In other words, the cost of the shares held the longest become the cost basis for the shares being redeemed. If no other method is identified, the IRS assumes this method for the computation of the gain or loss.

Back 224

FIFO

Front 225

The method of calculating the cost basis called ________, the investor keeps track of the cost of each share purchased and identifies the specific shares to be liquidated (i.e. the shares purchased on a given date at a given cost). Although this method is the most accurate method of paying taxation, it is also the most cumbersome since each transaction must be accurately recorded at the time of purchase and at the time of sale. If dividends and capital gains for "directly" purchased shares are to be reinvested, such reinvestments are considered "new" purchases and must be recorded as such.

Back 225

share identification

Front 226

Mutual funds are purchased at the _____, which includes sales charges. The sales charges become part of the original cost of the security for tax purposes. Also, if a fund charges a redemption fee, this fee is also included as part of the basis.

Back 226

POP

Front 227

As previously mentioned, an exchange is considered a sale for tax purposes. If the exchange is performed at _____, the ______ will be the basis for the exchange fund. If there is an exchange fee, the fee is included in the basis in the same manner as any other sales charge.

Back 227

NAV, NAV

Front 228

1. When a security is received as a _____, the cost basis to the recipient depends on the relationship of the market value of the securities to the donor's cost basis.

2. If the market value is higher than the donor's basis, the recipient's cost basis is _____ to the donor's original purchase price of the security.

3. If the market value is lower than the donor's cost basis, the recipient's basis is _____ to the market value of the securities at the time of the gift.

4. In the gift of securities, a ____ tax is paid by the donor if the value exceeds $______. The tax paid increases the gift's cost basis.

5. If the recipient sells the securities later, the recipient pays _____ taxes on the gains above the cost basis.

Back 228

1. gift

2. equal

3. equal

4. gift tax, $14,000

5. capital gains

Front 229

If a security is inherited, the beneficiary gets a _____ basis, that is, the cost basis to the beneficiary is "stepped up" (or "stepped down" if the value has declined) to the fair market value of the securities on the day of _______. The holding period is always considered long-term regardless of the deceased's actual holding period.

Back 229

stepped-up basis, the deceased's death

Front 230

Reinvested dividend and capital gain distributions have a cost basis equal to the value of the _____ at the time of the transaction. Most fund reinvest these distributions at the fund's NAV.

Back 230

security

Front 231

The investor's cost is based on the ____ method for mutual funds and is determined by the trade date.

Back 231

forward pricing

Front 232

The holding of a security is determined by the ____ date of the transaction for both acquisitions and redemptions

Back 232

trade

Front 233

When an investor sells a security in order to establish a tax loss, it is possible that the IRS may not recognize the loss. If the investor repurchases essentially the same security within ___ days of the sale, this is known as a ______, and the loss is disallowed. The defining period applies to dates both 30 days prior and 30 days after the sale.

Back 233

30 days, wash sale

Front 234

1. The tax consequences of annuities are determined by the ______ ratio. A portion on an annuity payment is taxable and a portion is not. The portion that is nontaxable is the anticipated return of the principal paid in. This is known as the ______.

2. The portion that is taxable is the interest earned on the principal. This is known as the ______.

Back 234

1. exclusion ratio, cost base

2. tax base

Front 235

________ of the Internal Revenue Code treats the separate account used to fund a variable annuity contract as _______. Current federal law interprets investment income in the separate account as nontaxable; therefore a separate account can realize net investment and reinvested dividends without tax consequences.

Back 235

Subchapter L, life insurance

Front 236

Accumulation units in nonqualified annuities are purchased with ______ dollars, and thus establish a cost basis for the purchased units. Investors receive tax deferral on all realized income and reinvested capital gains in the separate account during the accumulation period.

Back 236

after-tax

Front 237

1. If the annuitant dies during the accumulation period, the value of all accumulation units at the time of death is added to the individuals _______ for tax purposes. Any amount received by the beneficiary in excess of the cost basis of the contract is taxed as ______ to the beneficiary.

2. The beneficiary has 3 settlement options. Name them.

3. If the annuitant's spouse is the sole surviving owner or ______, they may elect to continue the contract as is.

Back 237

1. estate, ordinary income

2. --lump sum payment

--complete payment of the annuity balance over a period of 5 years

--lifetime payments to begin within one year of the annuitant's death

3. beneficiary

Front 238

1. The payments received during the annuity period are divided into two parts for tax purposes. Name and define them.

2. The _______ is a return of income and is not taxable. The investment income (tax basis) is taxable as ordinary income in the year received. 3. An IRS _______ table is used to determine the percentage of each payment that is taxable. This schedule provides a formula based on the annuitant's cost basis. There are different schedules depending on the selected settlement option.

Back 238

1. cost basis -- the client's investment in the annuity and the investment income -- the remaining balance that is the taxable portion

2. cost basis

3. life expectancy multiplier table

Front 239

1. If an individual makes a full or partial withdrawal of an annuity contract prior to reaching age _____, a ____% early withdrawal penalty is assessed on the ordinary income portion of the withdrawal.

2. An exception to this penalty exists if distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the individual or the joint lives (or joint life expectancy) of the individual and beneficiary. The payments under this exception must continue for at least ___ years or until taxpayer reaches the age of ______, whichever is the longer period.

Back 239

1. 59 1/2, 10%

2. 5 years, 59 1/2

Front 240

A policyholder must consider the _____ treatment of the variable life insurance contract before purchasing.

Back 240

tax

Front 241

During the life of the policy, all net investment income and realized capital gains accumulate in the separate account and are not _______ to the policy owner. The amount of any policy loans will be made up as the loan value portion of the cash value without any recognition of gains for taxation purposes.

Back 241

taxable

Front 242

1. The proceeds upon the death of the insured are exempt from _____ taxes, but may be subject to federal estate taxes under the following circumstances (3):

2. The proceeds of the policy are added into the insured's estate for _______ calculations.

Back 242

1. federal

--the insured was the owner of the life insurance policy at the time of death

--there were no beneficiaries, or the insured's estate was the beneficiary

--the insured transferred ownership of the policy within the previous 3 years

2. estate tax

Front 243

Upon full or partial surrender of the policy, the cost basis, which is equal to the gross premiums paid, is treated as a return of capital and is not _______. Anything in excess of the cost basis is taxable as ordinary income.

Back 243

taxable

Front 244

1. In accordance with Section _____ of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as ______ exchanges.

2. This exchange allows a policyholder to roll the ________ from one product to another, thereby deferring recognition and tax on any capital gain realized in the exchange.

Back 244

1. 1035, nontaxable exchanges

2. cost basis

Front 245

1. The following are allowable exchanges when effected directly between trustees: (3)

2. There will be no _____ on these transactions, as long as the policies or annuities exchanged are on the same life. Note than an exchange of an annuity for a life policy is not eligible for ______ exchange treatment.

3. Although they enjoy special tax deferral privileges, _____ exchanges raise suitability concerns which should be reviewed by a principal. These include the consequences of possible surrender charges on the old policy, the initiation of a new surrender period on the new policy, and sales charges assessed on the new product.

Back 245

1. --a life insurance policy for another life insurance policy, an endowment contract, or an annuity contract

--an endowment contract for another endowment contract or an annuity contract

--an annuity contract for another annuity contract

2. income tax, 1035 exchange

3. 1035

Front 246

1. A ______ plan is approved by the IRS, which then gives both the employer and employee benefits, such as deductible contributions and tax-deferred growth.

2. In order for a retirement plan to be qualified, it must meet certain federal requirements and have the following characteristics: (7)

Back 246

1. qualified retirement plan

2. --be designed for the exclusive benefit of the employees and their beneficiaries

--be formally written and communicated to the employees

--the plan's benefit or contribution formula cannot discriminate in favor of the so-called "prohibited group" i.e. officers, stockholders, or highly compensated employees

--participation in a plan may not be geared exclusively to the prohibited group

--be permanent

--be approved by the IRS

--have a vesting requirement

Front 247

1. If general requirements are met, the plan is a qualified retirement plan and the employer is entitled to the following tax advantages: (3)

2. Employer contributions to a qualified retirement plan are considered to be a ______ business expense, which lowers the business's income tax.

3. Employer contributions to a qualified plan are not _____ to the employees during the years the plans are contributed, and the contributions grow tax-deferred.

Back 247

1. --employer contributions are tax-deductible and are not taxed as income to the employee

--the earnings in the plan accumulate tax deferred

--lump sum distributions to employees are eligible for favorable tax treatment

2. deductible

3. taxable

Front 248

1. Benefits are taxable to the plan participant when they are received during retirement and when the retired person may be in a ______ tax bracket.

2. Distributions prior to age _____ are assessed a ____% penalty in addition to income taxes.

3. The following types of distributions are considered exceptions to the early distribution rule, and therefore, and not subject to the penalty tax: (6)

Back 248

1. lower

2. 59 1/2, 10%

3. --death of the participant

--the participant's disability

--a divorce decree

--as a series of equal payments (at least annually) over the participant's life expectancy

--a loan from the plan

--as part of a qualified rollover

Front 249

Amanda caller her broker and instructed her to buy a mutual fund just below it went ex-dividend so that she could receive the dividend. What should the broker discuss with Amanda?

A. the dividend will be taxable

B. the price of the fund will go down by the value of the dividend when it goes ex-dividend

C. the dividend is already included in the market price of the fund

D. all of the above are important topics to be disclosed by the rep

Back 249

D. All of the above are important topics to be disclosed by the rep

Front 250

Which of the following is true regarding the review and approval of correspondence?

A. Correspondence must be approved by FINRA prior to use

B. correspondence must be approved by the financial regulatory branch of each state government prior to use

C. correspondence does not need to be approved

D. correspondence must be approved by a registered principal before or after use

Back 250

D.

Front 251

When is it permissible to circulate information regarding the amount of brokerage commissions received by the member from any investment company?

A. under no circumstances

B. only in public books that list the commissions of all U.S. companies

C. only in state-approved communication

D. under all circumstances

Back 251

A. under no circumstances

Front 252

An underwriter of the securities of an investment company is allowed to sell securities to a member firm at a price other than the POP under what circumstances?

A. when a special agreement with FINRA is in effect

B. when a selling agreement is in effect

C. under no circumstances

D. at any time at the member firm's discretion

Back 252

B. when a selling agreement is in effect

Front 253

After receiving an initial privacy notice, subsequent privacy notices should be provided to customers

A. quarterly

B. semiannually

C. annually

D. every 3 years

Back 253

C. annually

Front 254

Joseph Herrara was the owner and insured of a variable life insurance policy at his death. Which of the following statements is most accurate concerning the taxation of the policy proceeds?

A. gift taxes are due from the beneficiary

B. policy value will be included in his estate for tax purposes

C. proceeds are federal taxable to the beneficiary

D. no tax consequences to the beneficiary and death benefit is not included in his estate

Back 254

B. policy value will be included in his estate for tax purposes

Front 255

After the last issue date, how long must institutional communication to be kept on file for inspection?

A. 3 years

B. 5 years

C. 8 years

D. 10 years

Back 255

A. 3 years

Front 256

To qualify as a regulated investment company, what minimum percentage of net investment income must be distributed to the shareholders?

A. at least 75%

B. at least 90%

C. at least 95%

D. at least 97%

Back 256

B. at least 90%

Front 257

Communication directed exclusively to nonretail investors is called

A. institutional communication

B. exempt communication

C. correspondence

D. wholesale communication

Back 257

A. institutional communication

Front 258

Under what circumstances would it be permissible to demand commissions as a condition to a sale

A. only during quick sales

B. only when dealing with restricted stock

C. under no circumstances

D. under all circumstances

Back 258

C. under no circumstances

Front 259

Mr. Thompson has both a cash account and a margin account at a brokerage firm in his name. What is his maximum coverage under SIPC?

A. $100,000

B. $500,000

C. $1,000,000

D. Unlimited

Back 259

B. $500,000

Front 260

Of the following examples, which would be exempt from liability under insider trading laws?

A. clerical employees of corporations

B. there are no exceptions from liability under insider trading laws

C. accountants for publicly traded companies

D. printers of financial periodicals

Back 260

B. there are no exceptions from liability under insider trading laws

Front 261

A mutual fund wants to send out a brochure about its new income fund but does not want the piece to be considered a prospectus. According to FINRA rules, the brochure may NOT contain which of the following?

A. investment objectives of the fund

B. the company's principal offers

C. fund performance charts

D. all of the above are allowable

Back 261

C. fund performance charts

Front 262

The purpose of the Bank Secrecy Act is all of the following EXCEPT

A. to authorize the maintenance of records of financial transactions

B. to protect the privacy of customers

C. to identify the source of currency transported into or out of the US

D. to identify the source and volume of currency deposited in financial institutions

Back 262

B. to protect the privacy of consumers

Front 263

The best definition for a "breakpoint sale" is:

A. the sale of mutual fund shares in an amount just below the level whereby a reduction in sales charges would occur

B. the sale of mutual fund shares just prior to a dividend or capital gain distribution

C. the receiving of a letter of intent to take advantages of decreased sales charges over a period of time

D. none of the above

Back 263

A. the sale of mutual fund shares in an amount just below the level whereby a reduction in sales charges would occur

Front 264

The main function(s) of FINRA include: I. self-regulation for the over-the-counter market II. self-regulation for national exchanges III. monitoring compliance with rules of ethical practice IV. approve and monitor SEC rules and regulations

A. II and IV

B. I, II, III and IV

C. I only

D. I, II and III

Back 264

D. I, II and III

Front 265

A customer asks a registered rep to circle the material facts in a prospectus. The rep

A. can do this with FINRA approval

B. may not do this at any time

C. is permitted to do this at the customer's request

D. can do this with his principal's approval

Back 265

B. may not do this at any time

Front 266

Under FINRA rules, which of the following would be considered a Ranking Entity for the purpose of using investment company performance information in retail communications?

A. a mutual fund research website that accepts paid advertising from investment companies

B. a mutual fund research company that provides general information to the public that is paid for by subscribers

C. the research department of a member firm that has selling agreements with investment companies

D. the research department of an investment company

Back 266

B. a mutual fund research company that provides general information to the public that is paid for by subscribers

Front 267

A decision that comes from FINRA Board of Arbitration is

A. binding on all parties involved

B. not binding if either party disputes the decision

C. not binding of both parties mutually dispute the decision

D. subject to an appeal

Back 267

A. binding on all parties involved

Front 268

The SIPC (Securities Investor Protection Corporation) insures a customer's account for unreturned securities for up to

A. $50,000

B. $250,000

C. $500,000

D. $1,000,000

Back 268

C. $500,000

Front 269

A firm is acting in the capacity of a broker and receiving a commission. The firm is performing as

A. a principal

B. an agent

C. an investment adviser

D. a dealer

Back 269

B. an agent

Front 270

How long do registered persons returning from active duty in the US military have to associate themselves with a member?

A. 30 days

B. 60 days

C. 90 days

D. 180 days

Back 270

C. 90 days