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SIE Exam flashcards
1
Q

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True or false: Under federal securities laws, every partner, officer, director, and most employees of a broker-dealer are required to be fingerprinted in order to complete a criminal background check. An exception applies if the person does not sell or have access to securities or funds and doesn’t have access to the firm’s books and records?

A

True

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2
Q

Under MSRB rules, firms that transact business in municipal securities are required to notify customers of the availability of a investor brochure how frequently?

A

Annually

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3
Q

True or false: All customer complaints must be forwarded to FINRA?

A

False, only some. The original complaint should be forwarded to the appropriate supervisor or principal. In some circumstances, it may be the compliance department. The complaint may be reviewed by the registered representative, but its the supervisor’s responsibility to review and initial it. Only certain events trigger the need to send a complaint to FINRA.

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4
Q

A customer wants to establish a joint account at a brokerage firm with an individual who is employed by the same firm. Is this permitted?

A

A customer and an employee of a member firm may establish a joint account with prior approval of both the customer and the firm. Sharing in the profits and losses of the account must be proportionate to the financial contributions of each person.

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5
Q

What is the maximum civil penalty for insider trading violations?

A

Three times the amount gained or loss avoided

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6
Q

True or false: Utilities is a cyclical industry?

A

False

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7
Q

True or false: If taken from a Roth IRA prior to age 59 1/2, these following withdrawals will result in a 10% tax penalty:
* Withdrawal for a first-time homebuyer for less than $10,000
* Withdrawal that’s made within five years of the first contribution
* The payment of an IRS tax levy
* Equal withdrawals over the individual’s life

A

False, on withdraals made within five years of the first contribution will be subject to the 10% penalty.

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8
Q

True or false: Liquidity is a benefit of investing in REITs?

A

True since many REITs trade on an exchange.

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9
Q

True or false: Passive losses is a benefit of investing in REITs?

A

False, unlike DPPs, real estate investment trusts (REITs) do not generate passive losses.

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10
Q

True or false: A fee based account is suitable for investors who frequently trade?

A

True

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11
Q

True or false: Long-term munis tend to have less price volatility than short-term corporate bonds?

A

False

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12
Q

How often are broker-dealers required to send clients balance sheets?

A

Every six months

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13
Q

True or false: If YTM < Coupon, a bond is trading at a discount?

A

False, premium

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14
Q

What would a person who invests in fixed annuities be most concerned with the performance of the insurance company?

A

The general account

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15
Q

A customer requests that a broker-dealer sell stock that she owns and, at the same time, use the proceeds of the sale to purchase a different stock. Can the broker charge a markup?

A

This is a proceeds transaction. When the broker-dealer determines the markup it will charge, industry rules state that the firm may charge a markup or commission on both transactions, but should compute the markup based solely on the amount of money involved in the sale to the customer. The regulatory focus is to be certain that the total amount received for executing a proceeds transaction does not violate the 5% Markup Policy.

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16
Q

If an equity option is exercised, when does the stock transaction settle?

A

T+2

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17
Q

True or false: TIPS are subject to state and federal tax?

A

False, they are subject to federal tax but not state tax.

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18
Q

True or false: Delivery in the sale of shares must be made in 100-share certificates, multiples of 100, or any combination that adds up to 100 shares?

A

True

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19
Q

An investment company that is purchased in installments and that matures at a fixed-dollar amount is called a:

A

Face-amount certificate company

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20
Q

True or false: The 5% Markup Policy applies when a member firm acts as a dealer/principal with a customer?

A

True

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21
Q

Who has the responsibility to investigate the accuracy of the information in a prospectus for a DPP?

A

The managing underwriter.

The SEC reviews only the information in a prospectus. It never attests to its accuracy.

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22
Q

True or false: A clearing corporation is responsible for automated book-entry changes in the ownership of securities?

A

False

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23
Q

True or false: A registered person wants to set up an investment program for a charity and will not be receiving compensation for his service. He must notify his broker dealer?

A

True

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24
Q

An index option has been exercised. What is the writer of the option required to do to satisfy his obligation?

A

Deposit cash equal to the difference in the strike price and the value of the index.

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25
Q

A registered person wants to borrow funds from a neighbor who is also a customer of his firm. Does he need to receive approval for his firm?

A

Yes

If the loan is based on provisions 1 or 2 (borrowing from family members OR from a financial institution whose business is loaning money), firm notification or firm approval is not required. However, if the conditions indicated in provisions 3, 4, or 5 apply (e.g., borrowing from a neighbor), the firm must approve the lending activity prior to the execution of the loan.

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26
Q

An individual purchased 100 shares of stock at $35 per share. The stock is now trading at $44 per share and the issuer decides to split the stock 2-for-1. After the split, the individual’s cost basis per share will be:

A

35 * 0.5 = 17.5

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27
Q

What is stabilization used for?

A

To prevent the price of a newly issued stock from falling

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28
Q

What type of security is SPDR?

A

ETF

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29
Q

What is a pass-through entity?

A

A business that avoids double taxation.

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30
Q

Breakpoint sale

A

The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions

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31
Q

True or false: The S&P 500 is the broadest index?

A

False, The Wilshire Index represents the dollar value of all the stocks and is considered the broadest of all indexes and averages. T

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32
Q

If an investor sells 10 ABC June 40 calls at a premium of $4 each, his maximum profit is:

A

$4 * 100 shares * 10 options = $4,000

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33
Q

What is the minimum denomination for negotiable certificates of deposit?

A

$100,000

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34
Q

The payment date for securities purchased in a cash or margin account as stated by Regulation T is:

A

two business days after the settlement date

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35
Q

True or false: DPPs proide investors exposure to non-correlated assets?

A

True

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36
Q

Under rule 144A, who can an issuer of restricted stock sell to?

A

QIBs

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37
Q

Who must a RR who wants to create a mutual fund advertisement get approval from?

A

The supervising principal

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38
Q

Which investment risk is the greatest risk to a variable annuity?

A

Market risk

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39
Q

What is the cost basis of an inherited mutual fund?

A

The NAV of shares when the owner died

40
Q

True or false: The writer of a call option has unlimited profit but limited loss?

A

False, limited profit and limited loss

41
Q

True or false: A RR should explain the potential deductability of state taxes when an investor is interested in a 529 plan?

A

True

42
Q

Company ABC announces a 20% stock dividend for its common shareholders. If a customer holds 1,000 shares at $50.00 what is the new price and number of shares following the payment of the stock dividend?

A

New shares = 1,000 * 1.2 = 1,200
New price = 50,000/1,200 = $41.67

43
Q

The redemption value of an open ended fund is based on what?

A

The NAV computed after the order is received

44
Q

under normal circumstances a customers LOI on a mutual ufnd purchase is valid for what maximum period of time?

A

13 months

45
Q

True or false: with a customer account has as tenants in common, the ownership of the decendent’s assets is governed by their will or state law?

A

True

46
Q

True or false: at the time of issuance, options have longer periods to expirations than warrants?

A

False

47
Q

True or false: both Roth 401Ks and Roth IRAs can have federal income tax excluded for qualified distributions?

A

True

48
Q

True or false: a firm that’s participating in a public offering agrees to repurchase shares at no less than the original sales price. Such agreements are permissable if the customers retain the right to sell securities in the open market?

A

True

49
Q

True or false: Under FINRA rules, noncash compensation connected w/ the sale of variable contracts includes commissions?

A

False

50
Q

A customer has a cash balance in several long positions and has made no securities transactions in the last 18 months. How often must the firm send her an account statement?

A

Quarterly

51
Q

True or false: Government agency securities are exempt from registration under the Securities Act of 1933?

A

true

52
Q

True or false: Under the Securities Act of 1933, registration is required for ADRs and Eurodollar bonds?

A

False, just ADRs

53
Q

True or false: No-load funds are NOT permitted to charge a 12b-1 fee greater than 25 basis points?

A

True

54
Q

What is a closing purchase?

A

A transaction where a writer covers a position by purchasing an option

55
Q

True or false: Although non-competitive bids that are submitted at a Treasury auction don’t allow firms to specify the price and/or yield at which they’re willing to purchase Treasuries, they do guarantee that the orders will be filled?

A

True

56
Q

Who are Sales charge breakpoints availabe to?

A

for quantity mutual fund share purchases of the same family of funds at the same broker-dealer. Additionally, purchases of shares of the same family of funds at the same broker-dealer by a spouse can be added together to reach a breakpoint.

57
Q

True or false: The Treasury is ultimately responsible for collecting taxes?

A

True

58
Q

True or false: Industrial production is a leading indicator?

A

False, conicident

59
Q

True or false: If a firm places a temporary hold on a customer’s account, it applies to either the entire account or specific disbursements?

A

True

60
Q

True or false: In a 529 plan, can an individual be both the donor and the beneficiary?

A

True, if the person is 18 or older.

61
Q

True or false: A reverse repo is sometimes know as a matched sale?

A

True

62
Q

True or false: When selling a security for a customer, the customer’s SSN must be on the ticket?

A

False. An order ticket must include the customer’s account number, the number of shares or par value (for a bond), a description of the security, limitations (e.g., limit, stop), and whether it is a buy or sell order. If it’s a sell order, the location of the security (long or short) must be indicated. For discretionary accounts, the ticket must indicate whether discretion was exercised.

63
Q

True or false: If a brokerage firm creates an in-house, non-cash incentive program, it’s only permitted for the RRs sale of equity securities?

A

False. A broker-dealer is permitted to create its own internal sales programs that offer non-cash incentives, such as merchandise and vacation trips. However, FINRA places some restrictions on these arrangements. One of the restrictions requires that non-cash incentive programs be based on an RR’s total production for all securities products sold, rather than being based on the sale of any specific products. The products may be created by a different broker-dealer, such as a mutual fund sponsor.

64
Q

What is the call rate?

A

What commercial banks charge on loans to broker-dealers for margin purposes.

65
Q

True or false: Written or electronic communication that’s only distributed to investment advisers (or other institutional investors) is considered institutional communication and is also only subject to review and supervision?

A

True

66
Q

An individual wants a real estate investment that offers tax benefits and provides the ability to share directly in the earnings of the business. Which security best meets those objectives?

A

DPP

REITs invest in real estate properties and/or debt, but deductions and revenues don’t flow through the trust.

67
Q

True or false: If an employee had opened an account prior to the time that he became associated with a broker-dealer, the account may be maintained if he obtain his employer’s written consent within 30 days of the beginning of his employment. Additionally, the employee is required to provide written notification to the executing firm of his employment with another broker-dealer?

A

True

68
Q

True or false: The transfer agent is responsible for maintaining the issuer’s ownership register for each issuance of securities?

A

False, the transfer agent is responsible for the issuance and cancellation of certificates to reflect changes in ownership, acting as the company’s paying agent for interest payments on bonds and for cash or stock dividends on equities, acting as proxy agent (sending voting materials) and mailing agent (mailing the company’s financial reports to shareholders), as well as handling lost, destroyed, or stolen certificates.

69
Q

The net asset value (NAV) of an open-end investment company is $22.20 and its sales charge is 8%. What is the public offering price?

A

NAV / (100% - sales charge)
$22.20 / (100% - 8%)
$22.20 / .92 = $24.13

70
Q

Moral obligation bonds

A

Muni revenue bonds that are payable by the state if revenues from the project don’t satisfy debt service payments. However, in order for the state to service the debt, approval of the state legislature is required.

71
Q

True or false: A brokerage firm will generally distribute watch lists to customers?

A

False, they typically distribute restricted lists (restricted securities) to customers but only the legal and compliance departments of the brokerage receive a watch list.

72
Q

True or false: An individual or other entity needs to have total assets of at least $50 million to be considered an institutional investor?

A

True

73
Q

True or false: Preferred stockholders have ownership in the company?

A

True

74
Q

True or false: According to FINRA, if an RR suspects financial exploitation of a senior investor, he should first place a temporary hold on the account?

A

False, he should first attempt to resolve the matter prior to placing a temporary hold on the account

75
Q

True or false: The payout on a variable annuity is based on a fixed number of annuity units with a fluctuating value per unit?

A

True

76
Q

True or false: MSRB states that if a violation occurs, the MFP’s firm is prohibited from engaging in negotiated underwriting business with the municipality with which the candidate is associated for a period of three years?

A

False, two years

77
Q

When is the ex-dividend date?

A

One business day before the record date.

78
Q

List of corporate actions

A
  • Stock splits
  • Stock dividends
  • M&A
  • Rights offerings
  • Tender offerings
79
Q

What is the call premium?

A

The amt the issuer must pay in excess of par value to exercise the call privilege.

80
Q

True or false: Volume and holding-period restrictions do NOT apply to the resale of private placements when the purchaser is a QIB?

A

True

81
Q

True or false: The 5% markup policy is a guideline, not a ceiling, and applies to both agency and principal transactions. According to industry rules, commissions and markups must be reasonable and justifiable?

A

True

82
Q

Who is responsible for sending issuer communications to objecting beneficial owners for stock held in street name?

A

The broker-dealer is not permitted to release confidential, personal information of objecting beneficial owners to issuers. As a result, the broker-dealer would receive the information and forward it to the beneficial owners.

83
Q

A customer buys an IBM call option and pays a 2.50 point premium. The aggregate dollar amount paid is:

A

Each option contract is based on 100 shares of common stock. The dollar amount paid is $250 ($2.50 x 100 shares).

84
Q

If an investor purchases a new issue of mutual fund shares, when does the investor receive a prospectus?

A

If an investor purchases a new issue of a mutual fund shares, she must receive a prospectus by no later than the time she receives a confirmation. Note, this is different from the 25- and 90-day rules for receiving a prospectus for an equity IPO. (13462)

85
Q

The person who distributes interest in a DPP is referred to as the:

A

Syndicator/underwriter

86
Q

True or false: Sector funds are very likely to provide income?

A

False

87
Q

True or false: A seller’s option may be requested and implemented if the buyer agrees. This accommodation must be requested prior to the trade execution?

A

True

88
Q

True or false: persons who violate federal insider trading regulations are subject to FINRA fines?

A

False, FINRA fines may be assessed only against FINRA members and their associated persons. FINRA has jurisdiction only over members while anyone can be held civilly or criminally liable for insider trading.

89
Q

True or false: Official statements are neither approved nor required by any regulator. However, if official statements are created, they must be distributed to purchasers?

A

True

90
Q

An order that becomes a market order when a stock trades at or below (or at or above) a particular price is considered a:

A

stop order

91
Q

1.

True or false: Warrants are guarenteed by the OCC?

A

False

92
Q

What is the typical maturity for an ETN?

A

10-30 years

93
Q

True or false: The NYSE index has a more narrow focus than the Dow?

A

False

94
Q

True or false: If a bond is trading at a discount, it’s YTC > nominal yield?

A

True

95
Q

True or false: OTC equities (unless specifically approved by the FRB), equity IPOs, and open-end investment company shares cannot be purchased on margin?

A

True

96
Q

True or false: Institutional investors are exempt from SRO suitability requirements?

A

False, they are still subject under FINRA but the requirements are much less strict.

97
Q

A financial services firm that charges customers based on a percentage of the assets under management is BEST defined as:

A

An investment advisor

SIE (8 decks)

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