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Variable Annuities, Municipal Securities, Issuing Securities, Trading Securities > 70 Question Test > Flashcards

70 Question Test Flashcards

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SIE Exam flashcards
1
Q

An agency cross transaction in the OTC market occurs when a broker/dealer:

A

matches a customer buy order with a customer sell order on the same stock at the same price and charges each side a commission.

When a broker/dealer crosses stock between 2 customers, it does so at the same price. For example, if one customer wants to buy 500 WXYZ at 36 and another customer wants to sell 500 WXYZ at 36, the firm could cross 500 at 36, charging each side a commission (agency).
Reference: 8.4.1.5 in the License Exam Manual

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2
Q

Which of the following market tiers are included in Nasdaq?

A

Nasdaq consists of three market tiers: Nasdaq Global Select Market, Global Market, and Capital Market.

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3
Q

In a municipal underwriting, the interest cost calculation discounts future interest payments to arrive at present value. This interest cost calculation method is the:

A

When an issuer discounts future interest payments to arrive at present value, the interest cost method being used is the true interest cost (TIC). This method takes into consideration the time value of money.

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4
Q

The Three Contact Rule does NOT apply to the purchase or sale of a non-Nasdaq security provided there is at least:

A

Provided there are at least 2 priced quotations available electronically, the Three Contact Rule does not apply.

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5
Q

All of the following securities are exempt from the registration provisions of the Securities Act of 1933 EXCEPT:

A

commercial bank holding company securities.

Commercial bank holding companies are corporations that have to register with the SEC. State and municipal bonds do not have to be registered under the Securities Act of 1933. Commercial paper and bankers’ acceptances that have maturities of no more than 270 days are exempt from the registration provisions. National and state banks are regulated by various state and federal agencies.
Reference: 7.6.1 in the License Exam Manual

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6
Q

Which of the following are TRUE regarding the two tiers of securities offerings under Regulation A+?

A

Both tiers are open to the public for investing

While both tiers under Regulation A+ are open to the public with general solicitation permitted, investors wanting to invest in Tier 2 securities offerings must be “qualified” not accredited. Tier 1 offerings have no investment limits for investors but tier 2 offerings do. The maximum investment allowed for a Tier 2 offering is the greater of 10% of the investors net worth or 10% of their net income per offering.
Reference: 7.6.2.1 in the License Exam Manual

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7
Q

Which of the following is the largest component of a municipal underwriting spread?

A

Total takedown

The underwriting spread is the entire amount. Total takedown is made up the additional takedown and the concession which makes it the largest component. The management fee is the smallest.
Reference: 3.2.6.3 in the License Exam Manual

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8
Q

To determine the winning bid on an NIC (net interest cost) basis, an issuer will do which of the following?

A

Subtract any premium from total interest cost.
Add any discount to total interest cost.

Interest cost to the issuer is reduced by any premiums received by the issuer when the bonds are initially sold or is increased by any discounts the issuer must accept when the bonds are initially sold. Reducing interest cost by the amount of any premium received or increasing interest cost by the amount of the discount the bonds are sold at, is how the issuer will arrive at the net interest cost (NIC).
Reference: 3.2.5.1 in the License Exam Manual

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9
Q

An investor has purchased a municipal certificate of participation (COP). COPs can be characterized by all of the following EXCEPT

A

they would require voter approval before a municipality could issue them

Certificates of participation (COPs) are considered revenue issues and, therefore, do not require voter approval. They are a form of lease revenue bond that allow the holders of the certificates to participate in some revenue stream (lease or loan payments) associated with land, equipment, or facilities purchased or built by the municipality. They are unique in that in the case of default, the holders of the COPs could foreclose on the asset associated with the certificate.
Reference: 3.1.2.2.5 in the License Exam Manual

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10
Q

Which of the following transactions is subject to the 5% markup policy on markups and markdowns?

A

NYSE-listed stock traded in the third market.

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11
Q

A prospectus must be delivered to customers who purchase which of the following new issues?

A

Corporate bonds.

Unit Investment Trusts.

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12
Q

Which of the following describes the responsibilities of a municipal finance professional (MFP)?

A

An associated person of a broker/dealer engaged in municipal securities representative activities other than retail sales

Is subject to the political contribution rules as outlined in MSRB Rule G-37

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13
Q

Which of the following statements regarding quotes and information for stocks on the electronic “OTC Pink” are TRUE?

A

Quotes are not firm.
Updates may not be current or made intra-day.

With updates made infrequently, quotes found on the electronic OTC Pink are never firm. Quotes on such systems are for informational purposes only; subject to change.

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14
Q

Which of the following can you find on the Level 1 service of Nasdaq?

A

Inside bids and offers.

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15
Q

All of the following MSRB Rules of Uniform Practice requirements may be altered by mutual agreement between dealers EXCEPT the:

A

content of confirmations.

The MSRB regulates the contents of confirmations to standardize information. There must be an original record of the agreement even though dealers may mutually agree to change the terms.
Reference: 3.4.5.1.2 in the License Exam Manual

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16
Q

A representative enters a customer’s immediate or cancel order to sell 1,000 shares at $12. If only 500 shares can be sold at $12, which of the following will occur?

A

The 500 shares will be sold at $12; the remainder of the order will be canceled unexecuted.

An immediately or cancel order will take a partial fill. Time is the limiting factor in an IOC.
Reference: 8.4.3.6 in the License Exam Manual

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17
Q

Which of the following is NOT considered when trying to diversify a municipal bond portfolio?

A

A) Quality.
B) Price. - Correct Answer
C) Maturity.
D) Geographical location.

One of the purposes of diversifying a municipal bond portfolio is to spread the risk among the portfolio’s issues. This can be accomplished by buying bonds of differing maturities, geographical locations, and quality.
Reference: 3.3 in the License Exam Manual

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18
Q

Variable rate municipal bonds are subject to all of the following risks EXCEPT:

A

interest rate.
A variable rate bond is one whose coupon is adjusted periodically (semiannually or annually) to reflect current interest rates. Therefore, if rates rise, forcing prices down, the coupon on a variable rate bond will be adjusted upward, thereby tending to keep the bond’s price at or near par. Therefore, no interest rate risk is associated with these bonds. However, if rates fall, the coupon will be adjusted downward, keeping the bond’s price at or around par. Normally, a fall in rates will force prices up, but not with variable rate bonds.
Reference: 3.1.2.3.1 in the License Exam Manual

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19
Q

FINRA’s Trade Reporting Facility (TRF) electronically facilitates the reporting of trade data such as price and volume for

A

trades in Nasdaq-listed securities and exchange-listed securities when they occur off of the exchange trading floor

FINRA’s Trade Reporting Facility (TRF) is an automated electronic system that facilitates the reporting of data for transactions that occur in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor. It is used for transactions that are negotiated between brokers, therefore acting as a dealer, rather than as an agent.
Reference: 8.2.2.5 in the License Exam Manual

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20
Q

An order confirmed for the entire underwriting syndicate’s benefit is called a:

A

group net order.

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21
Q

The Securities Act of 1933 requires securities issued by all of the following to register and be subject to prospectus provisions EXCEPT:

A

the U.S. government.

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22
Q

A centralized online site intended for use by retail, non-professional investors to locate key information about municipal securities including real-time access to prices is known as:

A

Electronic municipal market access (EMMA)

EMMA is a centralized online site to locate key information about municipal securities presented for retail, non-professional investors. Available on the site are official statements for most new municipal bond offerings, 529 college savings plans and other municipal securities as well as real-time access to prices for municipal bonds trading in the secondary market.

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23
Q

With respect to municipal discretionary accounts, all of the following statements are true EXCEPT

A

if a control relationship exists between the broker/dealer and issuer, that relationship must first be terminated in order for the BD to effect transactions of the issuers securities in their customer’s discretionary account

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24
Q

SLoBS over BLiSS

A

Stop Limit and Buy Stops are placed OVER the market price, while Buy Limits and Sell Stops are placed BELOW the market price.

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25
Q

A member receives an order to buy non-Nasdaq OTC securities and sees no published quotes. To determine the prevailing market, the member must contact a minimum of

A

A member must contact a minimum of 3 dealers (or all dealers making a market in the security if 3 or less) to determine the prevailing market. If 2 or more quotations can be found, the requirement to contact dealers is waived.

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26
Q

Within a firm commitment underwriting, which document details the responsibilities and liabilities of each firm?

A

The agreement among underwriters, also called the syndicate letter, is signed by representatives of all syndicate members and establishes a joint account to sell newly-issued securities.

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27
Q

A customer buys a 20-year 7% bond on a 7.35 basis. The bond is callable in 6 years at 103, in 8 years at 102, in 10 years at 101, and at par beginning in the 12th year. The customer’s confirm will show yield to the:

A

20-year maturity.

The confirmation of a bond trade must disclose the lower of yield to call or yield to maturity. This bond is being bought at a discount because the basis is higher than the coupon. Because the yield to maturity on a discount bond is lower than the yield to call, this is the yield that will be shown on the confirmation.

28
Q

If a customer wants to place an order for a specific municipal bond and provides the bond’s issuer, coupon, maturity date, and CU.S.IP number, but has not disclosed his financial objectives or tax status, the representative must:

A

execute the order and mark it “unsolicited”.

When a customer wants to buy a specific municipal bond and possesses all of the bond’s material information, MSRB Rule G-19 allows the representative to execute the order and mark it “unsolicited.” The representative may not recommend any municipal bond without first knowing the customer’s financial objectives and tax status.
Reference: 3.5.1.1 in the License Exam Manual

29
Q

An affiliate of a corporation wants to sell 80 calls covered by 8,000 shares of Rule 144 stock she owns. This transaction is:

A

not allowed because Rule 144 stock may not be sold unrestricted by an affiliate.

Rule 144 stock is considered to be illiquid. It cannot be sold unrestricted by an affiliate and could, therefore, not be used to cover the calls in the event the calls were exercised.
Reference: 7.6.2.4 in the License Exam Manual

30
Q

Which of the following orders may be left with a designated market maker on the New York Stock Exchange?

A

The designated market maker on the NYSE will accept GTC (good-till-canceled orders) and hold them on the order display book until they are executed or are canceled.

31
Q

According to MSRB rules, if a municipal securities broker/dealer receives an advisory fee from an issuer, it must notify in writing any of its customers purchasing bonds issued by that municipality of

A

any advisory relationship existing between itself and the issuing municipality.

MSRB rules require that if a broker/dealer has an advisory relationship with a municipality, that relationship must be disclosed to any of the broker/dealer’s clients who are buying bonds issued by the municipality.

32
Q

The spread in a municipal competitive bid is the:

A

difference between the bid and production (the price at which the bonds are reoffered to the public).

Bid refers to the winning bid and is the price the syndicate pays to buy the bonds from the issuer. The term “production” is a sales term and refers to the price at which the bonds are reoffered to the public. The difference between the two is the spread.
Reference: 3.2.6 in the License Exam Manual

33
Q

An issuer may direct sales of a new issue to all of the following EXCEPT:

A

officers of the managing underwriter.

Issuer-directed sales are permitted if the persons to whom the new issue is sold are not restricted. Officers of the managing underwriter are restricted.
Reference: 7.6.3.1 in the License Exam Manual

34
Q

An official statement has a dated date of March 1, but the first interest payment is October 15. This most likely reflects:

A

This is a long coupon, and, after the first payment, subsequent payments will be made every 6 months.

35
Q

Your manager notifies you that a new municipal revenue bond issue you have been working on has been oversubscribed. How is the order acceptance priority for this issue determined?

A

As outlined in the agreement among underwriters.

36
Q

Which of the following exemption provisions of the Act of 1933 may NOT be used for an initial offering of securities?

A

Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities.

37
Q

Which of the following taxes are considered sources of debt service for revenue bonds?

A

License taxes paid by businesses

Special liquor and tobacco taxes

38
Q

All of the following are covered under the Securities and Exchange Act of 1934 EXCEPT:

A

Trust Indentures are covered under the trust indenture act of 1939.

39
Q

A municipal finance professional eligible to vote in a municipality which frequently issues debt securities has made a contribution to the political campaign of one of the issuer’s elected officials. More than which amount would disqualify the firm from engaging in certain municipal businesses with that issuer for 2 years?

A

250.

40
Q

Which of the following are considered sources of debt service for GO bonds?

A

Real estate taxes

Liquor license fees

41
Q

All of the following statements regarding municipal advertising are true EXCEPT:

A

copies must be sent to the MSRB.

42
Q

Which of the following municipal securities could have been sold in a negotiated underwriting?

A

A) Industrial development bonds.
B) School bonds.
C) All of these municipal issues. - ANSWER
D)Limited tax bonds.

43
Q

Which of the following is NOT under governance of the MSRB?

A

Issuers of municipal fund securities.
Issuers of municipal bonds.

Issuers of municipal or municipal fund securities are exempt issuers and are not regulated or under the guidance of the MSRB or any other SRO.

44
Q

Which of the following provisions govern the offering of restricted shares to the public without filing a Form 144?

A

Under Rule 144, Form 144 need not be filed if 5,000 or fewer shares are sold and the dollar amount is $50,000 or less. This de minimis rule applies to sales in any 90-day period.

45
Q

All of the following statements regarding the over-the-counter market are true EXCEPT:

A

it is an auction market.

The OTC market is a negotiated market. The exchanges are auction markets.

46
Q

All of the following statements regarding the over-the-counter market are true EXCEPT:

A

it is an auction market.

47
Q

SLGS are purchased by

A

state and local governments.

48
Q

Shortly before the end of the cooling-off period, the underwriters and representatives of the issuer have a meeting to review the status of the new issue. This is called a:

A

due diligence meeting.

49
Q

Debt service is best described as the:

A

total of interest and principal payable by the issuer plus any amount required to be deposited into a sinking fund.

50
Q

A customer has written a letter of complaint to the dealer. On receipt of the complaint, a municipal securities dealer must first:

A

accept the complaint and record the action taken.

51
Q

The syndicate manager in a firm commitment underwriting takes which of the following actions in a divided municipal syndicate account that does not sell out?

A

Confirms the bonds to the member that did not sell its share

52
Q

A bank doing which of the following would NOT be required to register as a municipal broker-dealer with FINRA?

A

Holding municipal securities as custodian for public customers

A bank simply holding municipal securities as custodian for public customers need not register as a municipal securities broker-dealer with FINRA.

53
Q

Which of the following are TRUE of an official statement?

A

It is required to be delivered to purchasers at or before settlement.

It is generally used by underwriters to help sell the issue.

54
Q

If a customer buys callable municipal bonds, MSRB rules state that the confirmation sent to the customer must disclose the:

A

lower of either the yield to call or yield to maturity.

55
Q

A day order is entered to buy 500 LMN at 24.35. By the close of the trading day the firm has been able to purchase 100 shares at 24.25 and 200 shares at 24.35. If the remainder of the order is unfilled, what is the outcome?

A

The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.

The customer must accept the order for 300 shares. The representative cannot guarantee that the order will be filled by the end of day.

56
Q

All of the following statements regarding municipal bond official statements are true EXCEPT:

A

an official statement must be delivered only upon request of a retail customer.

A final official statement must be delivered to retail buyers of a new issue on or before the settlement date. The MSRB does not regulate issuers, but does make this requirement of bond dealers.

57
Q

All of the following statements about municipal brokers’ brokers are true EXCEPT that they:

A

perform trades on a principal basis only.

A broker’s broker does not maintain an inventory of bonds. Therefore, they do not act as principals; they act as agents only in trades between dealers or between institutions. They do no retail business.

58
Q

Information found in the Bond Buyer would include all of the following EXCEPT

A

secondary market volume

The Bond Buyer is a source of information for new (primary market) municipal bond issues. It contains REVDEX, an index for revenue bonds as well as GO bond indexes. Additionally it includes the 30-day visible supply and the placement ratio.

59
Q

The locate requirement for short sales applies to:

A

over-the-counter securities.
securities traded on the NYSE.
Nasdaq global select and global market securities.

60
Q

Disclosure to customers of control relationships is required in:

A

principal transactions.
agency transactions.
primary distributions.

61
Q

Nonmembers of a syndicate who are assisting in its sale of bonds buy the bonds at a discount called:

A

a concession.

62
Q

You receive a not-held order from a customer who wants you to buy 1,000 shares of ABC when the price is right. Under NYSE rules, this order is a:

A

Unless the customer instructs you otherwise, not-held orders must be executed on the day received.

63
Q

If QRS, Inc., makes a new offering not registered with the SEC to accredited investors, this arrangement is called a(n):

A

Private placement

64
Q

The bond placement ratio, as shown in the Daily Bond Buyer, is found by which of the following?

A

The dollar value of new issues sold divided by dollar value of the new issues offered.

65
Q

Consider the following Nasdaq system quotes:

Bid Offer
Market Maker 1: 14.75 - 15.15
Market Maker 2: 15 - 15.50
Market Maker 3: 14.85 - 15.50

The inside market is:

A

The inside market is the highest bid and the lowest offer available.

A) 14.75 - 15.50.

B) 14.85 - 15.15.

C) 15 - 15.50.

D) 15 - 15.15. - ANSWER

66
Q

Which of the following quotes represents a municipal dollar bond quote?

A) 0.085.
B) 85½.
C) 8.20 - 8.00.
D) 85.24 - 85.30.

A

85½.

67
Q

All of the following would be excluded from raising capital under Regulation A+ EXCEPT

A) a venture capital firm raising money for small and medium size companies

B) a private equity fund

C) a hedge fund specializing in small startup companies

D)a small manufacturing company

A

a small manufacturing company

Variable Annuities, Municipal Securities, Issuing Securities, Trading Securities (13 decks)

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