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Series 10 > Chapter 05 : Sales Supervision - Secondary Market > Flashcards

Chapter 05 : Sales Supervision - Secondary Market Flashcards

1
Q

What forms of communication are required to be approved by a principal, but NOT filed with FINRA?

A

Email recommendations, telemarketing or sales scripts, independently prepared reprints, and ads promoting products

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2
Q

What retail communications are required to be filed with FINRA WITHIN 10 days of first use?

A

Those related to DPPs, CMOs, and ETNs, as well as templates for reports produced by investment analysis tools

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3
Q

When must retail communication concerning CMOs be filed with FINRA?
Within 10 business days of first use

A

Within 10 business days of first use

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4
Q

What ownership level triggers a disclosure requirement in a research report?

A

Greater than 1%

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5
Q

Name a type of transaction that is exempt from FINRA’s Debt Markup Policy.

A

Transactions in municipal securities

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6
Q

True or False: Retail communication related to mutual funds must be pre-filed with FINRA.

A

False. The rule specifically states that retail communication must be filed within 10 days of initial use.

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7
Q

Does the 5% policy apply when a BD is acting in an agency capacity, a principal capacity, or both?

A

Both

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8
Q

When may a registered representative be in charge of an office?

A

When it is a small office with three or fewer representatives

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9
Q

The Telephone Consumer Protection Act (TCPA), allows calls from ________ to ________ local time of the called party.

A

The Telephone Consumer Protection Act (TCPA), allows calls from 8:00 a.m. to 9:00 p.m. local time of the called party.

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10
Q

Does correspondence require the preapproval of a principal?

A

No. Correspondence does not require principal approval.

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11
Q

Under FINRA’s communication rules, form letters sent to 12 retail investors is considered ______________.

A

Under FINRA’s communication rules, form letters sent to 12 retail investors is considered correspondence.

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12
Q

True or False: Proceeds transactions are subject to the 5% Markup Policy.

A

True

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13
Q

What orders are exempt from the Limit Order Protection Rule?

A

Orders from institutional accounts and orders of 10,000 shares or more worth at least $100,000

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14
Q

According to the TCPA, what information must telephone solicitors provide to clients?

A

Their name, firm name, a telephone number, or address where they can be contacted, and the purpose of the call

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15
Q

An unlisted, non-Nasdaq stock priced below $5.00 per share is called a ____________________.

A

An unlisted, non-Nasdaq stock priced below $5.00 per share is called a penny stock.

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16
Q

When must a research report be approved?

A

Prior to first use by a Supervisory Analyst

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17
Q

What are some of the special standards that firms follow in regard to soliciting sales of penny stocks?

A

Determine suitability, principal approval, send risk disclosure, client’s written authorization for the first 3 trades

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18
Q

Is a research analyst allowed to buy shares while recommending that investors sell the shares?

A

No. Recommending a contrary trade is prohibited.

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19
Q

True or False: A 200-share trade of MSFT on Nasdaq is subject to the 5% policy.

A

True, the 5% Policy covers trades executed in the secondary market.

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20
Q

If a testimonial is used that relates to a technical aspect of investing, what is required of the provider?

A

The provider must have the knowledge and experience to form a valid opinion.

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21
Q

True or False: Firms failing to adhere to the Taping Rule requirements could be disciplined under the Code of Procedure.

A

True

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22
Q

List the three forms of communications with the public.

A

Retail communication, institutional communication, and correspondence

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23
Q

Under FINRA’s communication rules, what is meant by the term broadly disseminated?

A

That material has been created for generally accessible Web sites, print media, and television or radio

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24
Q

For accounts opened on the premises of a financial institution, what must BDs disclose regarding the products offered?

A

That the products are not insured by the FDIC and are subject to investment risk (potential loss)

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25
Q

For a firm’s first year as a FINRA member, when must its broadly disseminated retail communications be filed with FINRA?

A

10 business days prior to their first use

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26
Q

What are the rules about referring to past recommendations?

A

The period must cover at least one year and the firm must include all recommendations for the same type of security.

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27
Q

What factors could justify a larger markup than 5%?

A

The type of security, the availability of the security, or the total transaction amount

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28
Q

According to FINRA rules, list some of the persons that are considered institutional investors.

A

Banks, insurance companies, investment companies, investment advisers, FINRA members and their RRs

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29
Q

If retail communication has been pre-approved by a mutual fund wholesaler, must it be approved by a principal?

A

Yes. However, there is no need to re-file the retail communication with FINRA.

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30
Q

Retail communication for collateralized mortgage obligations (CMOs) must be filed within ____ business days of use.

A

Retail communication for collateralized mortgage obligations (CMOs) must be filed within 10 business days of use.

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31
Q

Retail communication related to mutual funds must be filed with FINRA within ____ business days of first use.

A

Retail communication related to mutual funds must be filed with FINRA within 10 business days of first use.

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32
Q

True or False: When referencing FINRA membership on a Web site, at least one hyperlink to the FINRA Web site is required.

A

If a member firm makes a recommendation to a client, what types of conflicts must be disclosed?

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33
Q

If a member firm makes a recommendation to a client, what types of conflicts must be disclosed?

A

Whether the member firm owns the security, makes a market in the security, or acted as an underwriter for that company

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34
Q

Under the communication rules, group e-mail sent to more than 25 retail investors is considered ____________________.

A

Under the communication rules, group e-mail sent to more than 25 retail investors is considered retail communication.

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35
Q

True or False: A 500-share trade of an NYSE stock executed in the OTC market is subject to the 5% Policy.

A

True, third market trades (exchange-listed securities traded OTC) are subject to the 5% Policy.

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36
Q

A small office is defined as one with ______ or fewer representatives.

A

A small office is defined as one with three or fewer representatives.

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37
Q

May an RR write a research report and not hold the title research analyst?

A

Yes

38
Q

What is required for a research analyst to effect a sale of a stock while currently making a buy recommendation on it?

A

Permission from her legal department and the sale must qualify under the financial hardship rules

39
Q

Is correspondence subject to principal approval?

A

No, but it must be reviewed by the firm.

40
Q

Who signs a BD’s annual compliance certification?

A

The firm’s CEO

41
Q

What are the permissible hours of operation for a customer help line?

A

24 hours a day/7 days a week. Client call-in lines are not bound by the Telephone Consumer Protection Act (TCPA).

42
Q

If a firm reduces its staff to avoid the Taping Rule, the individuals may not be rehired for ____ days.

A

If a firm reduces its staff to avoid the Taping Rule, the individuals may not be rehired for 180 days.

43
Q

True or False: Institutional communication must be preapproved by a principal and filed with FINRA.

A

False. Institutional communication is not required to be preapproved or filed with FINRA.

44
Q

How is the volume weighted average price (VWAP) calculated?

A

By dividing the total dollar value of all trades by the total trading volume over a set period

45
Q

True or False: A riskless or simultaneous transaction is subject to the 5% Policy.

A

True

46
Q

A trade is booked into a client’s account on the day after the trade date. How may the trade be designated?

A

According to FINRA, the guideline for determining commission or markup on transactions is ___%.

47
Q

According to FINRA, the guideline for determining commission or markup on transactions is ___%.

A

According to FINRA, the guideline for determining commission or markup on transactions is 5%.

48
Q

Under Penny Stock Rules, when does a customer become established?

A

When they have purchased 3 different penny stocks on 3 different occasions, or they have been a customer for one year

49
Q

According

A

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

50
Q

Name 3 factors that may be used when determining the markup of a security under the 5% Policy.

A

1) Type of security, 2) Price of security, 3) Availability of the security in the market

51
Q

If a firm owns ___% or more of a subject company, a disclosure must be made in a research report.

A

If a firm owns 1% or more of a subject company, a disclosure must be made in a research report.

52
Q

True or False: The 5% Policy is based on the dealer’s inventory cost on a security.

A

False, it is generally based on the inside market price.

53
Q

True or False: A firm may charge a safekeeping fee of up to 5% of the value of the securities held.

A

False. A reasonable fee may be charged, but not a specific percentage.

54
Q

Is a principal required to approve a BD’s publicly-available Web site?

A

Yes. The Web site is considered retail communication since it is available to the public.

55
Q

After the publication of a research report on ABC Inc., an analyst must wait _____ calendar days to trade ABC stock.

A

After the publication of a research report on ABC Inc., an analyst must wait five calendar days to trade ABC stock.

56
Q

Churning is described as _____________________ designed to _____________________.

A

Churning is described as excessive trading designed to generate commissions.

57
Q

What retail communications are required to be filed with FINRA at least 10 business days PRIOR to first use?

A

Those for investment companies with self-created rankings, bond funds including volatility ratings, and security futures

58
Q

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

A

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

59
Q

Define institutional communication.

A

Written or electronic communication that is distributed or made available only to institutional investors

60
Q

A client’s name and number must be kept on the Do Not Call List ____________.

A

A client’s name and number must be kept on the Do Not Call List indefinitely.

61
Q

Retail communication concerning an investment company must be filed with FINRA within ___________ days of use.

A

Retail communication concerning an investment company must be filed with FINRA within 10 business days of use.

62
Q

What trades would be covered by the 5% policy?

A

Secondary market trades of stocks, corporate bonds, and Treasuries

63
Q

Individual text messages and e-mails are considered _________________.

A

Individual text messages and e-mails are considered correspondence.

64
Q

Under the TCPA, how is an established customer defined?

A

One that has made an unsolicited inquiry or effected a transaction with the firm

65
Q

Retail communication generally requires __________ ____________.

A

Retail communication requires principal preapproval.

66
Q

True or False: On request, institutional communication may be provided to a retail client.

A

False. Institutional communication may never be provided to a retail investor.

67
Q

What is required of communication that is sent to more than 25 retail investors within any 30-calendar-day period?

A

What is required of communication that is sent to more than 25 retail investors within any 30-calendar-day period?

68
Q

Firms subject to the Taping Rule must commence taping phone calls within _____ days.

A

Firms subject to the Taping Rule must commence taping phone calls within 60 days.

69
Q

True or False: Firms writing research reports must disclose potential conflicts of interest.

A

True (e.g., firm makes a market in the stock or has had or will have an investment banking relationship with the issuer)

70
Q

If a BD’s investment company communications include self-created rankings, when must they be filed with FINRA?

A

At least 10 business days prior to use

71
Q

True or False: An email sent to 25 or more prospects must be approved by a principal.

A

True. This is an example of retail communication which must be preapproved by a principal.

72
Q

FINRA’s 5% policy addresses transactions executed in the ___________ market.

A

FINRA’s 5% policy addresses transactions executed in the secondary market.

73
Q

If a testimonial appears in retail communication, what must be disclosed?

A

Whether the provider was paid more than a nominal fee and the provider’s qualifications if an expert opinion is implied

74
Q

Once notified that taping is required, firms have ____ days to start taping and tapes are retained for ______ years.

A

Once notified that taping is required, firms have 60 days to start taping and tapes are retained for three years.

75
Q

True or False: The 5% Policy is a rule that may not be exceeded.

A

False, it’s a guideline, not a rule.

76
Q

Under FINRA rules, websites and pre-recorded telephone greetings are considered forms of ____________________.

A

Under FINRA rules, websites and pre-recorded telephone greetings are considered forms of retail communication.

77
Q

What forms of communication are NOT required to be approved by a principal or filed with FINRA?

A

Retail communications that do not recommend or promote a BD’s services, institutional communications, and correspondence

78
Q

What is required for a BD to share office space with another business?

A

Little or no customer traffic in either office, floor-to-ceiling walls, and specific signage

79
Q

Define correspondence.

A

Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.

80
Q

What is exempt from the 5% policy?

A

Trading of municipal bonds, new issues, registered secondary offerings, and mutual funds

81
Q

What two forms of communication are not subject to pre-use approval by a principal?

A

Institutional communication and correspondence

82
Q

After an analyst places a buy rating on a stock, he must wait _____ days before purchasing the security.

A

After an analyst places a buy rating on a stock, he must wait five days before purchasing the security.

83
Q

If a quantity error occurs when filing a trade, the client is obligated to accept the _________ quantity.

A

If an quantity error occurs when filing a trade, the client is only obligated to accept the desired quantity.

84
Q

Under the communication rules, a written letter or e-mails sent to 25 or fewer retail investors is called _____________.

A

Under the communication rules, a written letter or e-mail sent to 25 or fewer retail investors is called correspondence.

85
Q

True or False: FINRA’s 5% guideline applies to municipal bond transactions.

A

False. The MSRB has its own policy regarding the fairness of charges.

86
Q

Is the 5% policy based upon the current market value of the security or the dealer’s cost?

A

Generally, the current market value

87
Q

True or False: A broker-prepared, widely disseminated free writing prospectus (FWP) must be filed with FINRA before use.

A

False. Broker-prepared, widely disseminated FWPs must be filed WITHIN 10 business days of first use.

88
Q

If personnel are hired from disciplined firms, what percentage would require the firm to tape all phone calls?

A

20%

89
Q

What is the formula for determining the average cost per share?

A

Total dollars invested ÷ total shares purchased

90
Q

How must disclosures be made to clients when an account is opened on the premises of a financial institution?

A

They must be made both orally and in writing.

Series 10 (7 decks)

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