Chapter 03: Customer Communications

Question 1

What are FINRAs 3 categories of communocation with the public?

Answer 1

correspondence, institutional communication, and retail communication

Question 2

communication sent by a member firm to 25 or fewer retail investors within a 30 day calenday period.

• including existing or prespective customers
• delivery includes; written letters, text messages, and e-mail

Answer 2

Correspondence

Question 3

written or electronic communication that’s distributed or made available only to institutional investors. But doesn’t include the member firm’s internal communications.

Answer 3

Institutional Communications

Question 4

All Considered?

• Banks, savings and loans, insurance companies, registered investment companies, and registed investment advisers
• Government entities and their subdivisions
• Employee benefit plans, such as 403(b) and 457 plans, and other qualified plans with at least 100 participants
• Broker-dealers and their registered representatives
• Individuals or entities with total assets of at last $50 million
• Persons acting solely on behalf of these insitutional investors

Answer 4

Insitutional Investors

Question 5

True or False. Correspondence and insitutional communications are not required to be filed with FINRA?

Answer 5

True

But they’re subject to spot-checking by FINRA

Question 6

this form of prospectus omits in part or summarizes the info that’s contained in the statutory prospectus.

• is the primary advertising tool for mutual funds
• may not contain an application to invest (As was true of tombstone advertisements

Answer 6

Motting Prospectus (Rule 482)

Question 7

Is defined as any communication that offers to sell or induces the Sale of shares in an investment company?

Answer 7

Sales literature.

As defined by SEC Rule 156

Question 8

True or false. Once an investment companies registration is declared effective,it may use written sales materials,provided the materials are accompanied by,or preceded by, a current prospectus.

Answer 8

True Any sales literature that’s used by an investment company must meet the standards of SEC rule 156.

Question 9

Is defined as an organization that provides the public with general information about an investment company? , is independent of the investment company and its affiliates and has not been hired by the investment company or its affiliates to sign the fund ranking.

Answer 9

Ranking entity

Question 10

Money markets are required to use a _________ standardized yield, while Bond funds are required to use a ______ standardized yield.

Answer 10

Money market funds are required to use a seven day standardized yield and bond funds are required to use a 30-day standardized.

Question 11

Customers who withdraw funds from ________ products After a short.often incur significant surrender charges and or tax penalties; therefor, These products should never be described as short term, liquid Investments

Answer 11

Variable products.

Question 12

True or False. Options investors must be provided with a copy of the ODD either at or before their options account is opened.

Answer 12

True

Question 13

What are municipal securities investors required to receive?

Answer 13

required to receive a confirmation at or before the completion of the transaction (typically the settlement date)

confirmation must provide the portfolio allocation or fund designation for these securities.

Question 14

Must include the term _ within the name of the product and must disclose that any applicable government agency backing relates only to the face value of the securities, not to any premium paid.

Claims about; safety, guarantees, product simplicity, and predictability must be accurate and not misleading.

• may not be compared to any other type of investments

A statement must be included to indicate that a _ yield and average life (expected return of principal) will fluctuate depending on (1) actual rate which holders prepay the mortgages underlying the _ and (2) changes in current interest rates

Answer 14

Collateralized mortgage obligations

Question 15

Retail communications related to CMOs must be approved _ by a principal and filed with _ within _ business days of first use

Answer 15

Retail communications related to CMOs must be approved before initial use by a principal and filed with FINRA within 10 business days of first use

Question 16

True or False. The information barriers that seperate research and investment banking departments must be reinforced through the supervision of these areas, including a member’s written supervisory procedures.

Answer 16

True

Question 17

True or False. The supervision and approval of research reports must be conducted exclusively by supervisory personnel in the research department. These supervisors are required to hold a Supervisory Analyst (Series 16) designation and are responsible for approving research reports prior to their distribution.

Answer 17

True

Question 18

A _ research report is one that has been prepared by an affiliate of the broker-dealer. This form of research must be approved by a supervisory analyst or an approved supervisory person of the broker-dealer (general securities principal)

Answer 18

third-party research report

Question 19

Regarding research, which of the following statements is true

A. Third-party research is not required to be approved by a principal

B. Third-party research is prepared by another entity at the request of a broker-dealer

C. Broker-dealers have editorial control over independent third-party research

D. Independent Third-party research must be approved by a principal

Answer 19

B.

Independent third-party research is prepared by another entity, and the requesting broker dealer has no influence or editorial control.

This type of research is not required to be approved by thdistributingng broker dealer. If research is not prepared directly by a broker-dealer, but the broker-dealer requested it or the firm has editorial control, it’s considered third-party research and must be approved by a principal of the broker-dealer

Question 20

Performance information may be included in ___________ and _____________. Performance data must include the funds total return for the past 1 -, 5 -, and 10-year periods.

Answer 20

Performance information may be included in omitting prospectus ads and supplemental sales literature. Performance data must include the funds total return for the past 1 -, 5 -, and 10-year periods.

Question 21

A broker-dealer is NOT required to maintain a record of which of the following items?

A. Institutional communication
B. Final prospectus
C. Customer complaints
D. Research reports

Answer 21

B. Final Prospectus

According to finra rules, all retail communications, institutional communications, research reports, and correspondence that are used by a member for must be kept on file for a minimum of 3 years.

SEC registration statements i.e., form S-1, prospectuses, and other documents that are written by an issuer are not required to be kept on file by member firms.

Question 22

For not-held orders, you can use the acronym

Answer 22

“D-B-N-C-R”

(Discretion, Best Execution, No Guarantees, Client Understanding, Regulation)

Question 23

Investment companies include:

Answer 23

• variable insurance products
• mutual funds
• closed-end funds
• unit investment trusts (UITs)
• and exchange-traded funds (ETFs).

Question 24

The IPO of a new start-up company was registered on July 1, 20XX. If the co-manager of the offering wants to publish a research report on the issuing company, what’s the earliest date on which it could publish the report?

Answer 24

FINRA’s quiet period rules are as follows:

10 calendar days following the effective date for an initial public offering, which applies to any syndicate member or dealer
Three calendar days following the effective date for a secondary offering, which only applies to managers or co-managers.
Please note, when determining the earliest date that a research report may be published, the effective date is NOT counted. For example, if an IPO is registered on the 1st day of the month, the 10-calendar-day period is from the 2nd through the 11th, thereby making the12th as the earliest date for publishing a report.

If a secondary offering is registered on the 1st day of the month, the three-calendar-day period is from the 2nd through the 4th, thereby making the 5th as the earliest date for publishing a report.

Question 25

Prior to Use

there are three types of retail communications that will need to be filed with FINRA at least 10 business days prior to first use:

(1) communications concerning registered investment companies that include self-created rankings;
(2) communications regarding securities futures; and
(3) communications that include bond mutual fund volatility ratings.