Ch 7 Prohibited and Ethical Business Practices Under the USA Part II Flashcards
A firm promises a refund to all clients who invest in an IPO if shares fail to rise 20%. Is this permitted?
No. This is unethical since it is considered a guarantee against loss.
True or False: Charging an unreasonably high commission is acceptable if disclosure is made to the client.
False
Define commingling.
The prohibited act of mixing client funds with those of the BD
May an agent and a client share in an account?
Yes. However, client and firm approval is required and the sharing must be proportionate to each person’s investment.
When does a standard power of attorney become automatically cancelled?
At the time of either the grantor’s death or declaration of grantor’s incompetence
If an agent (RR) received a power of attorney seven years ago, could she still trade that customer’s account?
Yes, powers of attorney do not need to be renewed.
Define an agency cross transaction.
A trade executed by a financial firm that is acting as a broker for both the buyer and seller.
________ is the willful or intentional act of deceiving another person for gain or profit.
Fraud
To whom are written or electronically-sent grievances (complaints) forwarded?
An immediate supervisor
True or False: It is an unethical practice for a BD to delay the delivery of securities purchased by a customer.
True
May an adviser release account information to the spouse of a client?
No, not without the client’s written authorization.
If an agent has been given time and price discretion on a client order, is written power of attorney required?
No. If the client determines the action (buy/sell), amount, and asset, power of attorney is not required.
Is discretionary authorization required to enter a not held order?
No, since discretion is limited to time and/or price for not held orders.
True or False: Access persons must file transactions reports annually.
False. Transactions reports are filed within 30 days of the end of each calendar quarter.
An agent makes this statement to a client: “Go with us; we’re approved by the Administrator and SEC.” Is it acceptable?
No. Neither the SEC nor the Administrator provide approval for securities or securities professionals.
_____________ is the prohibited practice of a BD trading for its own account ahead of a customer’s block order.
Front-running
Define an insider.
Officers, directors, partners, greater than 10% owners, and immediate family members of all listed
__________ is a manipulative activity that is designed to keep the price of a stock from rising (and is prohibited).
Capping
Is an adviser required to disclose the source of raw data that is used to determine the recommendations to its customers?
No. Disclosure is not required if the IA’s recommendations are based on its own independent conclusions.
True or False: An agent may trade a stock two days prior to a research report on the stock being released by his employer.
False. This is an example of trading ahead and is prohibited.
True or False: If a BD receives a written complaint from a client, it may be ignored if the complaint seems baseless.
False. Failing to respond to a formal written complaint is prohibited.
Does this order require prior discretionary authorization? “Buy 500 shares of DMB sometime today.”
No, this is a not held order. The customer specified the action (buy), the amount (500 shares), and the asset (DMB).
Are advisory fees fixed and are they subject to administrative review?
Fees are not fixed, but must be in line with other advisers. Fees are subject to administrative review.
May an adviser or BD lend money to a client?
Yes, if the adviser or BD is in the business of lending money.
