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S 66 > Ch. 7 > Flashcards

Ch. 7 Flashcards

1
Q

What is a not held order?

A

An order giving agents discretion as to execution time/price. Clients must specify but/sell, security, and quantity.

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2
Q

What is a no load fund?

A

A mutual fund with no front end sales charge, no deferred sales charge, and no 12b-1 fee exceeding .25% per year

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3
Q

List the access persons of an investment adviser.

A

Officers, directors, partners, or persons with access to client investment positions or investment company holdings

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4
Q

T/F: Charging an unreasonably high commission is acceptable if disclosure is made to the client.

A

F

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5
Q

Identify the acronym: POA

A

Power of Attorney

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6
Q

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

A

Yes. Sam is engaging in arbitrage

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7
Q

T/F: A BD may withhold shares of an IPO for the purpose of later selling them to customers at a higher price.

A

F

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8
Q

When must an access person file a transaction report?

A

Within 30 days of the end of each calendar quarter

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9
Q

____________ is the prohibited practice of a BD trading for its own account ahead of a customers block order.

A

Front running

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10
Q

Define commingling.

A

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

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11
Q

T/F: If churning in a clients account generates large profits, it is not considered a violation.

A

F

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12
Q

T/F: If an agent disagrees with a customers order, he may disregard the order.

A

F; Agents and IARs must follow all customer requests, even those with which they disagree

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13
Q

A holdings report filed by an access person must be current as of ____ days prior to the date the report is submitted.

A

45

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14
Q

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

A

No, this is a prohibited action known as selling dividends

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15
Q

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

A

Current market

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16
Q

When selling mutual fund shares, an agent must adequately disclose the ________ _________.

A

Sales charge

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17
Q

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

A

Parking

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18
Q

An IAR may exercise discretion over a clients account based on the clients oral authorization for up to ____ days.

A

10

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19
Q

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

A

Both oral and written disclosure of the relationship

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20
Q

May an agent share in the profits of a clients account?

A

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

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21
Q

What is needed for an investment adviser to exercise discretion over a clients funds?

A

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

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22
Q

May an agent and a client share in an account?

A

Yes, if both the firm and customer provide approval and all sharing is proportionate to each party’s investment.

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23
Q

Next week ABC plans to announce its earnings. If ABCs 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

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24
Q

May an agent and a client share in an account?

A

Yes. However, client and firm approval is required and the sharing must be proportionate to each persons investment.

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25
Q

T/F: If a customer receives a prospectus during a solicitation, an agent has provided full and fair disclosure.

A

F; the agent may still have omitted material facts

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26
Q

What is the annual fee levied against a funds assets and used to pay expenses of commissions and retail communications?

A

12b-1 fee

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27
Q

T/F: Forward looking statements regarding mutual fund performance may be used when soliciting clients.

A

F; past performance is not indicative of future results.

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28
Q

Firms must keep client information confidential unless disclosure is authorized by the ________ or a ___________ __________.

A

Client; regulatory authority

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29
Q

An agent advises a client to buy stock of a company that just fired its CEO. Is disclosure to the client required?

A

Yes, since this is a material fact, it must be disclosed before the customer buys the stock.

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30
Q

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

A

No. Employees of a BD may not trade ahead of their firms research report

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31
Q

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

A

Yes. Both parties, the tipper (officer) and the tippee (the son), have violated the Insider Trading Act

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32
Q

Is an agent permitted to execute securities trades for compensation and not record the trades on his BDs books and records?

A

No. This is referred to as “selling away”

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33
Q

Does this order require prior discretionary authorization? “Buy some ABC shares today if it’s price begins to fall.”

A

Yes. This is NOT a not held order since the client did not specify the quantity of shares to be purchased.

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34
Q

Churning is described as ______________ designed to _____________.

A

Excessive trading; generate commissions

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35
Q

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

A

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

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36
Q

Not held orders are considered to be in effect for ______ trading day(s).

A

One

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37
Q

Does an IA need written consent before executing each agency cross trade with an advisory client?

A

No, the client must provide written consent initially, but not for every trade

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38
Q

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

A

No, this is a not held order. The customer specified the action (buy), the amount (500 shares), and the asset (DMB)

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39
Q

An IA that is also a BD may execute agency cross trades, earning commission on both sides, if one side is _____________.

A

Unsolicited

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40
Q

When does a standard power of attorney become automatically
cancelled?

A

At the time of either the grantors death or declaration of grantors incompetence

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41
Q

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

A

Pegging

42
Q

May an adviser release account information to the spouse of a client?

A

No, not without the clients written authorization.

43
Q

When does a durable power of attorney become automatically cancelled?

A

At the time of death of the grantor of the POA

44
Q

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

A

Commingled

45
Q

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

A

Fraud

46
Q

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

A

No. This is unethical since it is considered a guarantee against loss

47
Q

T/F: A power of attorney given to an agent (RR) must be renewed.

A

F; POA do not have to be renewed

48
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

49
Q

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

A

Capping

50
Q

T/F: Access persons must file holdings reports annually.

A

T

51
Q

Define front running.

A

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

52
Q

T/F: If a BD received a written complaint from a client, it may be ignored if the complaint seems baseless.

A

F; failing to respond to a formal written complaint is prohibited

53
Q

Define an insider.

A

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

54
Q

May an IAR and a client share in an account?

A

No. However, an agent may share in a clients account

55
Q

Define painting the tape.

A

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

56
Q

What restrictions exist in describing a fund as no load?

A

It may have no front end or deferred sales charge, and a 12b-1 fee may not exceed .25%

57
Q

May an adviser or BD lend money to a client?

A

Yes, if the adviser or BD is in the business of lending money.

58
Q

Trading on material, non-public information is considered _________ __________.

A

Insider trading

59
Q

May an adviser borrow money from a client?

A

Yes, if the client is in the business of lending money, or if the client is an affiliate of the adviser, or is a BD

60
Q

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

A

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

61
Q

For how long may a not held order be maintained?

A

A not held order is considered a day order

62
Q

Is discretionary authorization required to enter a not held order?

A

No, since discretion is limited to time and/or price for not held orders

63
Q

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

A

Action (buy/sell), amount (quantity), and asset (security)

64
Q

T/F: An agent may trade a stock two days prior to a research report on the stock being released by his employer

A

F; this is an example of trading ahead and is prohibited

65
Q

T/F: Principals must approve discretionary orders prior to entry

A

F; the orders must be approved promptly afterward

66
Q

T/F: BDs may accept oral permission from clients to exercise discretion in their accounts

A

F; the clients prior written authorization is required

67
Q

An IA direct 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.

68
Q

T/F: All illegal activities are intentional.

A

F; some
Accidental or unintentional actions are considered unethical and, therefore, illegal

69
Q

T/F: An agent of a BD may loan money to his son in law.

A

T; in laws are considered immediate family members; therefore, the loan would be acceptable

70
Q

Define conversion.

A

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

71
Q

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

A

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

72
Q

T/F: Promoting the purchase of certain fund shares due to an impending dividend payment is acceptable.

A

F; selling dividends is prohibited. Since the dividend is imbedded in the share price, there is no monetary benefit.

73
Q

T/F: It is unethical for a BD to delay the delivery of securities purchased by a customer.

A

T

74
Q

What is needed for a BD to exercise discretion over a clients account?

A

BDs need the clients prior written authorization

75
Q

For any securities that are delivered to a BD, an agent must __________ provided the customer with a receipt.

A

Immediately

76
Q

What three details must a client provide for an agent to make a time and/or price decision without written authorization?

A

Action (buy/sell), asset, and amount. Time and/or price may remain the agents discretion without written authorization

77
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.

78
Q

Define selling away.

A

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

79
Q

May an IAR solicit both sides of an agency cross transaction?

A

No, one side must be unsolicited

80
Q

T/F: Access persons must file transactions reports annually.

A

F; Transactions reports are filed within 30 days of the end of each calendar quarter

81
Q

Is an agent allowed to recommend the sale of funds shares in order to buy another funds shares with the same objective?

A

No. This is a prohibited practice and is considered an unsuitable recommendation.

82
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.

83
Q

T/F: Agents of a BD must disclose all facts about a stock they are recommending.

A

F; agents only need disclose material facts, not all facts

84
Q

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

A

Yes, powers of attorney do not need to be renewed

85
Q

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

A

Written approval of the client and the BD and any sharing it’s be proportionate to each persons contribution.

86
Q

What are the two reports that an access person of an investment adviser must file?

A

The transaction report and the holding report

87
Q

What is selling away?

A

An agent executing securities transactions for compensation and not recording the trades on the BDs books and records.

88
Q

May a wife enter trades in a husbands account ?

A

Yes, with written third party authorization

89
Q

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

A

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

90
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

91
Q

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

A

No. Since discretion is limited to time and/or price, written authority is no required.

92
Q

It is a violation of the USA for an IA to act as a BD for a buyer of securities without _______ __________.

A

Written disclosure

93
Q

When must an access person file a holding report?

A

Within 10 days of becoming an access person and at least once every 12 months thereafter

94
Q

T/F: Agents of a BD must disclose material facts about a stock they are recommending.

A

T; agents should make a good faith effort to disclose all material facts to an investor.

95
Q

T/F: In certain cases, fraud may be unintentional

A

F

96
Q

An agent of a BD lends $5,000 to his brother, is this acceptable?

A

Yes, lending to immediate family members is permissible

97
Q

Define churning.

A

Excessive trading in a customers account for the primary purpose of generating commissions and other fees

98
Q

Define an agency cross transaction.

A

A trade executed by a financial firm that is acting as a broker for both the buyer and seller

99
Q

For an agent to exercise discretion over a clients account, the client must have signed a _______________.

A

Power of attorney

100
Q

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

A

An immediate supervisor

101
Q

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

A

No, this prohibited practice is referred to as “painting the tape”

102
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.

S 66 (12 decks)

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