Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Series 66 > 66-7 > Flashcards

66-7 Flashcards

1
Q

May an RR and a client share in an account?

A

Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Is discretionary authorization required to enter a not held order?

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What three items must be specified on a not held order?

A

buy/sell, security name, quantity of shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

For how long may a not held order be maintained?

A

that day

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

True or False: Principals must approve discretionary orders prior to entry.

A

False. must be approved promptly afterwards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define an insider.

A

Officers, directors, partners, greater than 10% owners, and immediate family members of all listed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Name two prohibitions related to being an insider.

A
  1. No shorting of the stock and 2. No keeping of short-swing profits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Insiders must return short-swing profits, which are those earned on stock held less than ____ months.

A

six months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Trading on material, non-public information is considered __________________.

A

insider trading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define painting the tape.

A

Traders effecting transactions back and forth to create a misleading appearance of activity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

__________ is a manipulative activity designed to keep the price of a stock from rising (and is prohibited).

A

capping

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

__________ is a manipulative activity designed to keep the price of a stock from falling (and is prohibited).

A

pegging

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

A corporate officer informs his son of an upcoming earnings report and the son effects trades. Is this a violation?

A

yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The criminal penalties for insider trading by individuals is a maximum of $____________ and/or ____ years in prison.

A

$5 million, 20 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are treble damages?

A

The civil penalty for insider trading, which is three times the profit made or loss avoided

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the criminal penalty for insider trading by corporations?

A

$25 million per violation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

True or False: Not held orders may only be executed in a discretionary account.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

“For insider trading violations, the SEC can sue for treble damages.” What does that statement mean?

A

The SEC can sue for three times the damage (profit made or loss avoided).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is required for an RR to open a joint account with a customer?

A

Written principal approval and sharing in gains/losses must be in direct proportion to the employee’s contribution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

True or False: Fraud may sometimes be unintentional.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

r an agent to exercise discretion over a client’s account, the client must have signed a ________________________.

A

power of attorney

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

BD securities and client securities must be segregated; in other words, they may not be ______________.

A

commingled

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

John and Sam are continually trading QRS stock between their accounts to cause the price to rise. Is this permitted?

A

no, they’re painting the tape

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Sam buys stock on one exchange and shorts it on another at a slightly higher price. Is this permitted?

A

yes, this is arbitrage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

An IAR may exercise discretion over a client’s account based on oral authorization from the client for up to _____ days.

A

10 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

May an agent execute securities trades for compensation and not record the trades on the BD’s books and records?

A

no, this is “selling away”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

__________________ is the prohibited act of a BD trading for its own account ahead of a customer’s block order.

A

front-running

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

True or False: It is an unethical practice for a BD to delay the delivery of securities purchased by a customer.

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Joe places an order to sell 10,000 shares of ABC whenever it’s best. Is written discretionary authority required?

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What 3 details must be provided by a client so a BD may accept a discretionary order without written authorization?

A

security, buy/sell, quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

True or False: Charging an unreasonably high commission is acceptable provided disclosure is made to client.

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Transactions should be executed at a price that is reasonably related to the _________________ price.

A

current market price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is required of a BD controlled by/affiliated with an issuer of a security being sold to/purchased by a customer?

A

both oral and written disclosure of relationship

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

With whom may an agent split commissions?

A

Another agent registered with the same BD, or another BD under common control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Next week ABC plans to announce its earnings. If ABC’s CEO wants to sell some of her shares now, is the sale restricted?

A

yes. Insiders are required to wait until an earnings report is released publicly before selling shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

A firm promises a refund to all clients who invest in an IPO if shares fail to rise 20%. Is this permitted?

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

An IA directs transactions to a BD who rebates 15% of the commissions to the IA for the business. Is this acceptable?

A

Yes, provided the IA provides written disclosure (often in Form ADV) to clients.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

May an agent use a new issue prospectus to create a marketing piece and only include positive details about the issue?

A

no. Material provided to clients must include all facts about the issue, not just the positive ones.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

When selling mutual funds, an agent must adequately disclose the _____________.

A

sales charge

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

True or False: Promoting the purchase of certain fund shares due to an impending dividend payment is acceptable.

A

False. Selling dividends is prohibited.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Is it acceptable to recommend that a client sell a mutual fund in order to buy another fund with the same objective?

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

True or False: If a customer receives a prospectus during a solicitation, an agent has provided full and fair disclosure.

A

False. The agent may still have omitted material facts.

43
Q

True or False: Forward-looking statements regarding mutual fund performance may be used when soliciting clients.

A

False

44
Q

An agent makes this statement to a client: “Go with us; we’re approved by the Administrator and SEC.” Is it acceptable?

A

No. Neither the SEC nor the Administrator provide approval for securities or securities professionals.

45
Q

What may an investment adviser do with full discretion, but not with limited discretion?

A

Withdraw money from the account

46
Q

The rule governing the disclosure requirement of an IA to its clients is called the __________ Rule.

A

Brochure Rule

47
Q

What is required of an IA that uses third-party research?

A

The IA must disclose the source of the research to its client.

48
Q

Is an adviser required to disclose the source of raw data used to determine the recommendations to its customers?

A

No. Disclosure is not required if the IA’s recommendations are based on its own independent conclusions.

49
Q

Are advisory fees fixed and are they subject to administrative review?

A

Fees are not fixed, but must be in line with other advisers. Fees are subject to administrative review.

50
Q

How are advisory fees most commonly charged?

A

As a percentage of assets under management over a specific period of time

51
Q

What is needed for an investment adviser to exercise discretion over a client’s funds?

A

An adviser may exercise discretion for 10 days with oral authorization as long as it is followed up in writing.

52
Q

What is needed for a BD to exercise discretion over a client’s account?

A

BDs need prior written authorization.

53
Q

An IA is required to deliver the brochure to its clients no later than the __________ of the contract.

A

signing of

54
Q

If an IA delivers a brochure at the time of contract signing, clients must be given ____ days to cancel without penalty.

A

5 days

55
Q

If an IA contract stipulates cancellation penalties, a brochure must be provided ____ hours before the contract signing.

A

48 hours

56
Q

________ is the willful or intentional act of deceiving another person for gain or profit.

A

fraud

57
Q

What is selling away?

A

An agent executes securities transactions for compensation and does not record the trades on the BD’s books and records.

58
Q

Define commingling.

A

The prohibited act of mixing client funds with those of the BD

59
Q

May an agent share in the profits of a client’s account?

A

Yes, in a joint account with proportionate sharing. Permission is required from both the client and the firm.

60
Q

If an agent has been given time and price discretion on a client order, is written power of attorney required?

A

No. Provided the client determines the action (buy/sell), amount, and asset, power of attorney is not required.

61
Q

When does a durable power of attorney become automatically cancelled?

A

Upon the death of the grantor of the POA

62
Q

When does a standard power of attorney become automatically cancelled?

A

Upon either the death of the grantor or declaration of incompetence of the grantor

63
Q

__________ stock is the repeated practice of placing stock in the account of someone who is not the rightful owner.

A

parking

64
Q

What step must an IA complete when faced with a conflict of interest?

A

The conflict must be disclosed to the client. If disclosure is insufficient, the IA must abstain from the action.

65
Q

What is a client’s right if an IA does not deliver the required brochure 48 hours prior to the signing of the contract?

A

The client may terminate the contract without penalty within 5 business days from the signing of the contract.

66
Q

True or False: An IA must physically deliver its brochure to clients at least annually.

A

False. At a minimum, the IA must (in writing) offer to deliver its brochure annually.

67
Q

When assigning an IA contract to another IA, __________ must be obtained from the client prior to assignment.

A

consent

68
Q

Identify the acronym: POA

A

Power of Attorney

69
Q

Define the prohibited practice of shadowing.

A

After executing a large block order, but before the trade is reported, a BD trades for its own account.

70
Q

Define front running.

A

A firm/individual executing trades for its own account with knowledge of an impending large block customer order.

71
Q

True or False: All illegal activities are intentional.

A

False

72
Q

An agent encourages a customer to buy a stock due to an upcoming dividend. Is this a legal practice?

A

No

73
Q

You advise a client to buy stock of a company that just fired its CEO. Is disclosure to the client required?

A

yes

74
Q

Define conversion.

A

The prohibited act of an agent using client funds for personal use.

75
Q

True or False: If an agent disagrees with a customer’s order, he may disregard the order.

A

False

76
Q

May an agent and a client share in an account?

A

Yes, with firm & customer’s approval provided the sharing in gains & losses is proportionate to each party’s investment.

77
Q

What is a not held order?

A

An order giving RRs discretion as to the time/price of execution. Clients must specify buy/sell, security, and quantity.

78
Q

Not held orders are considered to be in effect for ___________________.

A

day of order

79
Q

Does this order require prior discretionary authorization? “Buy some ABC today if it begins to fall”

A

yes; quantity not specified

80
Q

Does this order require prior discretionary authorization? “Buy 500 shares of DMB sometime today”

A

no

81
Q

Does this order require prior discretionary authorization? “Buy 300 shares of DMB this week”

A

Yes, since it is NOT a not held order. Not held orders are only good for a trading day, and this order is for the week.

82
Q

True or False: BDs may accept oral permission from clients to exercise discretion in their accounts.

A

False

83
Q

True or False: A power of attorney given to an agent (RR) must be renewed.

A

False

84
Q

If an agent (RR) received a power of attorney seven years ago, could she still trade that customer’s account?

A

yes

85
Q

Define selling away.

A

The execution of transactions by an associated person outside his employment with a member firm

86
Q

Not held orders allow for what level of discretion?

A

time and price of execution

87
Q

It is a violation of the USA for an IA to act as a broker-dealer for a buyer of securities without __________________.

A

written disclosure

88
Q

True or False: A BD may withhold shares of an IPO for the purpose of later selling them to customers at a higher price.

A

False

89
Q

True or False: It is always prohibited for agents to split commissions.

A

False. Splitting commissions is allowed if both agents are licensed with the same firm and in the same state.

90
Q

True or False: Agents of a broker-dealer must disclose material facts about a stock they are recommending.

A

True. Agents should make a good-faith effort to disclose all material facts to an investor.

91
Q

True or False: Agents of a broker-dealer must disclose all facts about a stock they are recommending.

A

False. Agents only need disclose material facts, not all facts.

92
Q

What type(s) of transaction(s) are exempt from the antifraud provisions of the USA?

A

None are exempt

93
Q

True or False: If a BD receives a written complaint from a client, it may be ignored if the complaint seems baseless.

A

False.

94
Q

To whom are written or electronically-sent grievances (complaints) forwarded?

A

an immediate supervisor

95
Q

True or False: According to the IA Act of 1940, delivery of a disclosure document is required for all IA contracts.

A

False. A brochure is not required for investment company contracts or impersonal advisory services priced below $500.

96
Q

An IA’s brochure must have the same information that appears in what part of Form ADV?

A

Part 2

97
Q

In lieu of an IA-prepared brochure, what document may be delivered to IA clients?

A

Part 2 of Form ADV

98
Q

May an RR and a client share in an account?

A

Yes. However, firm approval is required and sharing in gains and losses must be proportionate to a person’s investment.

99
Q

May an IAR and a client share in an account?

A

No. However, an RR may share in a client’s account.

100
Q

For any securities delivered to a BD, an agent must provide the customer with a receipt ____________.

A

immediately

101
Q

Give some examples of insurance company offerings that are exempt from the antifraud provisions of the USA.

A

Life insurance policies and fixed annuities are exempt from the provisions since they are not securities.

102
Q

May an RR of a BD effect personal trades in a stock two days before her firm releases a research report on the stock?

A

No

103
Q

True or False: An RR may trade a stock two days prior to a research report on the stock being released by his employer.

A

False. This is trading ahead

Series 66 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions