chapter 22

Question 1

May an RR and a client share in an account?

Answer 1

Yes, with firm approval and provided the sharing in gains and losses is proportionate to their investment.

Question 2

True or False: The findings of an arbitration panel may be appealed.

Answer 2

False

Question 3

Churning is described as _____________________ designed to _____________________.

Answer 3

excessive trading to generated commission

Question 4

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

Answer 4

Yes

Question 5

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

Answer 5

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

Question 6

Who must approve a research report?

Answer 6

Supervisory analyst

Question 7

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

Answer 7

5%

Question 8

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

Answer 8

Both

Question 9

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

Answer 9

False, it’s a guideline, not a rule

Question 10

What factors could justify a larger markup than 5%?

Answer 10

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

Question 11

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

Answer 11

current market value

Question 12

What trades would be covered by the 5% policy?

Answer 12

Secondary market trades of stocks, corporate bonds, and Treasuries

Question 13

What is exempt from the 5% policy?

Answer 13

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

Question 14

Is correspondence subject to principal approval?

Answer 14

not, but it must be reviewed by the firm

Question 15

Define research reports.

Answer 15

Written or electronic communication about equities, including information for a client to make an investment decision.

Question 16

When must a research report be approved?

Answer 16

Prior to first use by a Supervisory Analyst

Question 17

May firms allow for the free flow of information between their research department and investment banking department?

Answer 17

No

Question 18

May an RR in the research area be supervised by the investment banking department?

Answer 18

No

Question 19

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

Answer 19

8:00 AM to 9:00 PM

Question 20

What must be checked before a BD makes telephone solicitations?

Answer 20

the firm’s do not call list

Question 21

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

Answer 21

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

Question 22

Under the TCPA, how is an established customer defined?

Answer 22

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

Question 23

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

Answer 23

penny stock

Question 24

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

Answer 24

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

Question 25

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

Answer 25

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

Question 26

What actions may the hearing panel take regarding rule violations?

Answer 26

Censure, fine, suspension, request to requalify, or expulsion of the respondent

Question 27

The hearing panel may not impose a ___________________ due to rule violations.

Answer 27

prison sentence

Question 28

Hearing Panel findings may be appealed to the ___________________________,then the _____, and then ________________.

Answer 28

National Adjudicatory Council (NAC), then the SEC, and then federal court.

Question 29

Industry disputes are handled through ______________.

Answer 29

Arbitration

Question 30

May a customer be forced to use arbitration?

Answer 30

No, but signed pre-dispute arbitration agreements are binding.

Question 31

When arbitration involves public customers, __________ of arbitrators must be from outside the securities industry.

Answer 31

a majority

Question 32

When a minor dispute is handled through simplified arbitration, is the ruling final and binding?

Answer 32

yes

Question 33

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

Answer 33

10 business days

Question 34

Retail communication generally requires _______________________.

Answer 34

principal preapproval

Question 35

Define correspondence.

Answer 35

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

Question 36

List the three forms of communications with the public.

Answer 36

Retail communication, institutional communication, and correspondence

Question 37

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

Answer 37

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

Question 38

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

Answer 38

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

Question 39

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

Answer 39

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

Question 40

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

Answer 40

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

Question 41

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

Answer 41

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

Question 42

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

Answer 42

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

Question 43

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

Answer 43

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

Question 44

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

Answer 44

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

Question 45

Define institutional communication.

Answer 45

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

Question 46

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

Answer 46

10 business days prior to use

Question 47

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

Answer 47

10 business days prior to use

Question 48

For how long must retail communication, institutional communication, and correspondence be maintained?

Answer 48

for three years, easily accessible after 2 years

Question 49

All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.

Answer 49

3 years, 2 years

Question 50

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

Answer 50

indefinitely

Question 51

If an RR suspects that a client may be showing signs of dementia, what is the best course of action?

Answer 51

To request a meeting with both the client and a family member

Question 52

What action should be taken if a senior investor requests a meeting to make a significant change to her objectives?

Answer 52

Request that the client have a family member accompany her to the meeting

Question 53

True or False: For an RR, a good business practice is to meet with a confused elderly client alone.

Answer 53

False

Question 54

If a client seems confused and demands an unsuitable change of objective, what step should an RR take?

Answer 54

Confusion and/or dementia are concerns that may warrant an RR to request a meeting with the client and a family member.

Question 55

True or False: An RR may sell stock from a client's non-discretionary account if a negative report is released.

Answer 55

False