Ch. 20 S7 Flashcards by Rachel McGovern

What is the CRD?

The Central Registration Depository (CRD). CRD is FINRAs database for member registrations

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T/F: Mediation is often cheaper and quicker than an arbitration proceeding.

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If a pricing error occurs when reporting a trade, the client is obligated to accept the _______ price.

Actual

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Would a civil lawsuit filed by a customer against an RR be reported in the RRs Form U4?

Yes, arbitration cases and civil lawsuits are reportable events

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Hearing panel findings may be appealed to the _____________, then the ______, and then _________.

national Adjudicatory Council (NAC); SEC; federal court

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Investors who want to generate income on a stock position should ______ an option.

Sell

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If a clients goal is preservation of principal, what fund would be most appropriate?

Money market fund

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T/F: A gambling related misdemeanor must be reported on Form U4

F; only gambling related felonies must be reported

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T/F: Listed securities and OTC securities have the same threshold for filing erroneous trade reports.

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Member firms must acknowledge receipt of written customer complaints within _____ business days of receipt.

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What is a suitable investment in a college fund for a 3 year old?

Growth funds, since the child has a long time horizon

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What is a suitable investment for a conservative client seeking monthly income?

A GNMA fund, since income is typically paid monthly

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After acknowledging receipt of a written complaint, when must firms respond to the complaint?

Within a reasonable period

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What is a suitable investment in a college fund for a 17 year old?

High grade bond funds, since the individual has a short time horizon.

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T/F: On Form U4, a person must disclose any aliases or previously used names.

T; an alias or previously used name could simply include a persons maiden name

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Industry disputes are handled through _____________.

Arbitration

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

An immediate supervisor

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A BD bought 100 shares of CBA for Jim, rather than ABC shares. How is the BDs error account used to fix the mistakes?

Move CBA to error account
Sell ABC to client from error account
Buy ABC to cover sale
Sell CBA from error account

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To apply for a securities license, one must file Form ______ with FINRA.

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What should an RR do if she receives a written complaint?

Immediately forward it to her manager

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For what reasons would a firm use it’s error account?

If the firm or one of its RRs executed a trade involving the wrong security/quantity or on the wrong side of the market

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Is market timing a suitable recommendation for mutual fund investors?

No, since market timing is a short term trading strategy

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The maximum claim under simplified arbitration is $_______.

$50,000

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When a minor dispute is handled through simplified arbitration, is the ruling final and binding?

Yes, all arbitration decisions are final

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T/F: Covered call writing is a conservative option strategy that is designed to generate income.

Any amendments to Form U4 must be filed within _______ days of the event.

Shares were mistakenly bought in a clients account. Who is authorized to place the shares in the firms error account?

The firms principal

A BD must file Form U5 with FINEA when a persons association with that firm ____________.

Ends/ceases

A written customer complaint is retained for _______ years from the date of its resolution.

Four

Simplified arbitration may be used if a dispute does not exceed $_______.

$50,000

What is a suitable investment for a client whose goal is capital preservation?

T-bills or a US Government money market fund

An investor buys 100 shares of RST at 30 and sell 1 RST Oct 35 call at 2. What is the reason for selling the call?

To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.

T/F: If an RR executes a trade in error, the trade goes into the RRs error account.

F; firms, not RRs, maintain error accounts.

If long stock, a put option can be used to limit ________ risk.

Downside

When arbitration involves public customers, _________ of arbitrators must be from outside the securities industry.

A majority

If a short stock, a call option can be used to limit _______ risk.

Upside

What should an investor do on the VIX if she anticipates an increase in volatility?

Buy VIX Calls. If volatility increases, the underlying VIX will rise and the calls will increase in value.

A client was screaming at an RR on the telephone. Is a record of this complaint required to be maintained?

No, only records related to written complaints are required to be maintained.

What steps should be taken when an RR executes a trade but uses the wrong account number?

Do a cancel and refill. Transfer the trade to the correct account number with permission of a supervising principal

What is suitable asset mix for a 65 year old retiree?

65% fixed income and 35% equity

T/F: Ant tax liens against an agent must be reported on Form U4

T/F: In setting disputes, arbitration and mediation attempt to help the disputing parties reach an agreement

F; only mediation seeks to find a mutually acceptable resolution for disputing parties

What actions may the hearing panel take regarding rule violations?

Censure, fine, suspension, request to requalify, or expulsion of the respondent

If a transaction is reported at a clearly erroneous price, when will review and action be taken by FINRA?

Under normal circumstances within 30 minutes

What must be included in a file related to written customer complaints?

Customer ID, date, name of the RR handling the account, complaint description, and a record of action taken

May a customer be forced to use arbitration?

No, but signed pre dispute arbitration agreements are binding

T/F: To hedge a stock position, buying options provides more protection than writing options

T; when long stock, investors may buy a put. When short stock, investors may buy a call.

T/F: A difference between arbitration and mediation is that mediation is binding and arbitration is not.

F; arbitration is binding on all parties, whereas mediation is not.

An investor sells short 100 XYZ at 47 and buys 1 XYZ Nov 50 call at 3. Is the investor bullish or bearish on XYZ?

Bearish since the investor is short the stock. The call is purchased to protect upside risk

Simplified arbitration procedures are used for monetary disputes not exceeding $___________.

$50,000

I’m the case of an erroneous transaction report, the ________ execution price is binding on the client.

Actual

An applicant will be subject to statutory disqualification for any felony conviction within the last _____ years.

T/F: Zero coupon bonds would be a suitable recommendation for college funding.

T; especially since clients may want to avoid stock market risk

Form U4 contains a persons employment history for the last ______ years.

List some of the items found on an associated persons Form U4.

Personal data, address, 10- year employment history, personal bankruptcy within the last 10 years, SEC or SRO discipline

Form U4 contains details about settlements exceeding $_________ related to complaints, arbitration, or civil litigation.

$15,000

Is an income bond appropriate for a client who desires income?

No. Income (adjustment) bonds will only pay interest if the issuer has sufficient income

Firms are required to maintain written complaint records for ______ years.

Four

Name some of the advantages of buying convertible bonds.

Consistent interest payments, appreciation of stock rises, downside protection if stock falls since (since it’s still a bond).

If a written complaint is received from a customer, what must be kept in the firms complaint file?

The original complaint, the firms response, as well as any action taken

T/F: the findings of an arbitration panel may be appealed.

F; arbitration decisions are final and binding.

T/F: A sales practice violation settled for $10,000 or more requires an amendment to Form U4.

If a firm makes an error in executing a client order, a ________ must be consulted to correct the error.

Principal

A variable annuity is most suitable for a client who is seeking ______ _______ over a long period.

Capital appreciation

T/F: Form U4 provides information regarding the schools the associated person has attended.

List events that must be reported on an RRs Form U4.

Declaration of bankruptcy in the last 10 years, felony convictions, or making false statements to regulators

For what type of investor is a large cap mutual fund most suitable?

Conservative equity investors, since the portfolio consists of stocks of large, established companies

What annuity does not protect an investor against inflation?

Fixed (guaranteed) contracts are not a good hedge against inflation