Chapter 1 - Seeking business for the BD from Customers and Potential Customers

Question 1

When must you include a prospectus?

Answer 1

With any solicitation, including giving out sales literature to retail customers

Question 2

Where must the SEC’s no-approval clause appear in a prospectus?

Answer 2

On the cover

Question 3

What must the prospectus of an open-end investment company (mutual fund) include?

Answer 3

an ‘enhanced disclosure’ in the form of a summary section

Question 4

What is the purpose of the Trust Indenture Act of 1939?

Answer 4

to protect the investors in corporate bonds should the issuing company default.

Question 5

When must you submit Options advertising to FINRA?

Answer 5

at least 10 business days prior to first use or publication for retail communications, regardless of how long the firm has existed for.

Question 6

Which exemption provision of the Act of 1933 may not be used for an IPO?

Answer 6

Rule 144 because it does not pertain to primary offerings. Rule 144 only affects secondary market transactions in restricted or control securities

Question 7

What is a research report?

Answer 7

It is prepared by an analyst and may focus on an individual stock or sector of the economy and generally recommends buying, selling, or holding an investment

Question 8

What does qualification registration mean?

Answer 8

That the issuer files with the state, independent of federal registration, and it must meet all state requirements. This can be done of the registration is just in one state

Question 9

Can an underwriter reserve the right to stabilize the price of a security in an IPO?

Answer 9

Yes but only if the SEC is notified in the registration statement adn the investing public is notified in the prospectus.

Question 10

What can be included on a tombstone ad?

Answer 10

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• name is the issuer
• type of security being offered
• number of shares to be sold
• public offering price (POP)
• names of the syndicate members
• effective date of sale

Question 11

What is a prime-brokerage account?

Answer 11

A prime brokerage account is when a customer, generally an institutional customer, selects one member firm (the prime broker) to provide custody and other services, while other firms, called executing brokers, handle all trades placed by the customer

Question 12

What are the requirements for opening up a discretionary account?

Answer 12

written authorization from the customer, a written acceptance by the principal of the firm, & close supervision to ensure that each transaction aligns with the customer’s objectives & financial situation