Exam 8 Incorrect

Question 1

Broker-dealers are permitted to advertise or promote the benefits of portfolio margin on their website, what are the rules regarding promotion?

Answer 1

This communication would be defined as a retail communication, subject to principal approval and filing with FINRA,

retention of a copy for three years.

he broker-dealer must notify and receive approval from FINRA to offer this type of account as well as deliver to customers a special written disclosure document

Portfolio margin is available to investors who are approved for uncovered options writing.

Question 2

Regarding the use of supplemental MPIDs?

Answer 2

A member firm that is registered as a market maker in a specific security must have its own two-sided firm quote.

A FINRA member firm may have additional displayable or non-displayable supplemental MPIDs. The non-displayable (nonattributable) quotes or orders are posted anonymously through Nasdaq’s NSDQ. Supplemental MPID quotes may be one-sided and are not subject to unexcused withdrawal penalties.

Trades should be reported using the same MPID as the quote. They may not be used for passive market makers or stabilizing bids.

Question 3

FINRA rules require members to report transactions in OTC equity securities (including foreign equities).

Answer 3

The rule excludes from reporting requirements transactions in foreign securities if executed on and reported through a foreign securities exchange, or executed OTC and reported to the regulator of a foreign securities market.

Since this equity is not listed on a U.S. national securities exchange, it must be reported to the ORF (OTC Reporting Facility). TRACE is a reporting system for debt transactions

Question 4

How often can Form 144 be filed with the SEC?

Answer 4

Form 144 is filed when restricted or control stock is to be sold

Once the form is filed, a person may sell the stock during a 90-day period. If the person wants to sell additional shares, he must wait until the initial 90-day period has ended before filing an additional Form 144

Question 5

Define an ineligible issuer:

What is the process to terminate ineligibility?

Answer 5

Filed for bankruptcy in last 3 years

Ineligibility terminates if issuer files a registration statement or annual report WITH audited financial statements

Can conduct either a best-efforts or firm-commitment underwriting

Question 6

Rule 10b-18 provides a safe harbor from liability for manipulation as long as the issuer satisfies all of the following conditions:

Answer 6

25% of ADTV, average of the preceding four weeks of trading volume.

issuer is permitted to use one broker-dealer during the normal trading day and another broker-dealer in the after-hours market.

the issuer may make one block purchase a week in the security. Rule 10b-18 defines a block trade as any trade with a value of $200,000 or more, or a trade of 5,000 shares or more with a value of at least $50,000

Question 7

Under Regulation T, customer payment for an equity trade executed in a cash account is due within:

Answer 7

Four business days

Regulation T (which covers customer payments) permits payment for or delivery of securities to be made within two business days of the UPC settlement cycle (T+4)

Remember, settlement involves firm obligations and Regulation T involves customer obligations. Reg. T payment is sometimes referred to as settlement plus two business days (S+2)

Question 8

What is the first day a syndicate member participating in an initial public offering with an effective date of June 3rd, may publish research on the company?

Answer 8

The quiet period for any participant (manager, syndicate member, selling group member) in an initial public offering is 10 calendar days from the effective date. Concerning this question, the firm’s research analyst could publish no sooner than June 14th.

Question 9

If a principal discovers that his firm is in possession of counterfeit securities, which of the following choices describes an appropriate action?

Answer 9

When a principal discovers that his broker-dealer is in possession of counterfeit securities, a report must be filed within one day of discovery with the agent of the issuer, the FBI, and the SIC (Securities Information Center).

Question 10

Broker-Dealers A and B have executed a transaction that requires Broker-Dealer A to report the transaction. Is Broker-Dealer B allowed to report the trade on behalf of Broker-Dealer A?

Answer 10

A member may, by agreement, permit another member to report and lock in trades on its behalf. This arrangement requires written documentation and is commonly known as a give-up agreement. Both firms may still be held responsible if the trade is not properly reported.

Question 11

A member firm is prohibited from allocating shares of a new issue to certain decision makers:

Answer 11

Such as executive officers and directors of former, current, or prospective customers and any person who is materially supported by the executives or directors, This activity is referred to as spinning.

The prohibition does not apply to all employees, only certain employees, even if the employing company is a current investment banking client. These restrictions apply to both public and nonpublic companies that may be considering an investment banking relationship with the member firm.

The company is currently an investment banking services client of the member firm or the member firm has received compensation from the company for investment banking services in the past 12 months.

The person responsible for making the allocation decision knows or has reason to know that the member firm intends to provide, or expects to be retained by the purchaser for, investment banking services within the next three months.

On behalf of the company they represent, the executive officers or directors make an expressed or implied condition that their company will use the member firm to provide future investment banking services.

Question 12

When an issuer is testing the waters under a Regulation A offering, there must be a minimum of how many days between the use of a solicitation statement and the first sale of securities?

Answer 12

20 days

Although general solicitation and advertising may be used prior to filing an offering statement with the SEC, there must be no fewer than 20 days between the use of solicitation material and the first sale of securities.

Question 13

Sponsored ADRs are created with: .

On the other hand, unsponsored ADRs are created

Answer 13

cooperation from the foreign issuer and trade on U.S. exchanges (e.g., NYSE or Nasdaq)

without cooperation from the foreign issuer and trade over-the-counter.

Question 14

The person against whom a complaint is filed must file a response to the complaint within how many days of first receiving it?

Answer 14

25 days

Once a respondent receives a copy of a complaint from the Department of Enforcement, a response must be provided within 25 days. If this response is not filed, a second notice will be sent and the respondent then has 14 days to answer. Failure to respond to the second notice may be treated as the respondent’s admission to the allegations in the complaint. (13535)

Question 15

A stock is sold short on the ex-dividend date. Which of the following would receive the cash dividend?

Answer 15

The lender of the stock

When an investor sells short, the broker-dealer executing the short sale borrows the stock on behalf of the investor. Since the stock was sold short on the ex-dividend date, the owner (lender) and not the buyer of the stock is entitled to the cash dividend. Remember, for the buyer of the stock to be entitled to the cash dividend, the purchase must be made prior to the ex-dividend date.

Question 16

SEC Rule 147 covers an exemption from registration for the sale of securities on an intrastate basis.

Answer 16

The issuer under Rule 147 is not allowed to sell the securities to a nonresident of the state.

00% of the purchasers must be residents of the state where the issuer is located.

The purchaser may be an individual (who is a resident of the state), or a corporation, partnership, trust, or other business organization that has its principal office in the state.

he business organization may not be formed for the specific purpose of purchasing the securities sold under this exemption.

Question 17

According to FINRA, all member broker-dealers must have an AML compliance program that includes:

Answer 17

an AML compliance program that includes policies and procedures reasonably designed to detect money laundering and to report suspicious transactions

designation of a compliance officer who is responsible for the program (there is no requirement that this person hold any FINRA designation)

an ongoing employee training program

an independent audit function to test (stress testing) the program’s effectiveness.

Question 18

In which of the following circumstances is a broker-dealer NOT required to make a best execution determination for a customer’s order?

Answer 18

The firm received unsolicited instructions from the customer regarding order routing

f a firm receives an unsolicited instruction from a customer to route that customer’s order to a particular market for execution, the member is not required to make a best-execution determination beyond the customer’s specific instruction.

Question 19

What must be in place for a FINRA member firm to receive a discount from the offering price when selling mutual fund shares?

Answer 19

A signed selling agreement

The signed selling agreement between the distributor and the retailer will indicate the percentage discount the retailing broker-dealer receives when selling to investors. The discount is conditioned upon the retail firm being a FINRA member, since non-members are not eligible for discounts

Question 20

When must a broker-dealer closeout a fail to deliver in a threshold security?

Answer 20

The morning of the 14th settlement day

Under Regulation SHO, if there is a fail to deliver in a threshold security by a broker-dealer, there is a mandatory close-out of the short position after 13 settlement days. Regulation SHO uses the term settlement days synonymously with business days. Generally, all fails to deliver of threshold securities that have existed for 13 settlement days must be closed out by the broker-dealer on the morning of the 14th settlement day.

Question 21

Which of the following persons is responsible for supervising an assistant representative?

Answer 21

At a non-OSJ branch, a principal or representative designated by the member

A member firm is required to designate one or more appropriately registered principals in each OSJ branch, including the main office, and one or more appropriately registered representatives or principals in each non-OSJ branch office, with authority to carry out the supervisory responsibilities assigned to that office by the member. All general securities representatives, limited securities representatives, and assistant representatives require supervision.

Question 22

A broker-dealer using the alternative standard of calculating its minimum net capital must maintain:

Answer 22

The greater of $250,000 or 2% of its aggregate debit items

Some broker-dealers may elect to be governed by an alternative net capital requirement. This requirement is based on the aggregate debit items and requires net capital of $250,000 or 2% of the aggregate debit items, whichever is greater.

Question 23

A broker-dealer is also a bank that serves as the paying agent for a corporation’s bonds. If the corporation intends to issue more bonds, the broker-dealer may use the information it possesses regarding the ownership of the bonds to solicit securities transactions:

Answer 23

In order to use confidential, non-public information obtained in the capacity of a fiduciary, to solicit securities transactions, a broker-dealer must first obtain the consent of the issuer.

Question 23

A due bill is used if a trade occurs:

Answer 23

Before the ex-dividend date with delivery after the record date

Question 23

In order for a business to qualify as a master limited partnership (also referred to as a publicly traded partnership), it must meet the following two tests:

Answer 23

the interests in the partnership must be traded on an established exchange (e.g., the NYSE or Nasdaq) or readily tradable in the secondary market, and

at least 90% of its gross income must be derived from qualified income, such as investments in real property, mineral or natural resources, commodities, interest, and dividends.

Question 24

If a customer wishes to open an account as a guardian, the member firm would need:

Answer 24

A copy of the court appointment

A guardian is a court-appointed fiduciary who is instructed by the court to handle the affairs of a person who is legally disabled based on age, or physical or mental incapacity.

Question 25

the SEC typically considers the note to be a security, If the maturity:

Answer 25

exceeds 270 days (nine months)

Question 26

The donor may use two methods to transfer the securities to a charity:

Answer 26

If the stock is held by a broker-dealer and is registered in street name, the client would provide written instructions to indicate his intention to transfer the securities to the charity

If the stock is held in the name of the donor, the stock certificate may be endorsed or the donor will deliver the certificates with a signed stock power.

Question 27

the compliance department has a significant role when communications are necessary between the research and investment banking departments, or between the research department and subject companies. Compliance must act as an intermediary when:

Answer 27

members of the research department communicate with investment banking personnel regarding the factual accuracy of a report.

the research department personnel contact an issuer to check on the factual accuracy of a research report,

compliance must receive a complete draft of the report

Question 28

Under Regulation M, which of the following are the minimum standards for a stock to be classified as actively traded?

Answer 28

ADTV of at least $1 million and public float of at least $150 million

Question 29

A registered representative (RR) has lost an arbitration decision and has been ordered to pay a $500,000 award. FINRA reports this event on Form:

Answer 29

U6

Regulators, states, and/or jurisdictions use Form U6 to report disciplinary actions against RRs and/or firms

Question 30

The Consolidated Tape aggregates data from Network A and Network B. What does the information from Network A represent?

Answer 30

The data included on Network A is for trades involving stocks that are listed on the New York Stock Exchange (NYSE) regardless of where the trades occur.

Network B is trading data from the NYSE American (formerly AMEX) and the regional exchanges.

Question 31

According to the SEC, all stock or cash dividends, rights offering, or forward or reverse splits must be disclosed to FINRA

Answer 31

10 days prior to the record date, not the ex-date.

Question 32

An account opened under the Uniform Gifts to Minors Act will contain the Social Security number of:

Answer 32

The Social Security number of the minor, who is responsible for any taxes due on the account, is used. (98437)

Question 33

A customer has a margin account with a $600,000 long market value and a $240,000 debit. SIPC will cover:

Answer 33

The margin account would be covered for the equity of $360,000, not the long market value.

Question 34

On an annual basis, a corporation will be considered a Real Estate Investment Trust (REIT) if it meets the following test.

Answer 34

At least 95% of its gross income must be derived from real-estate-related activities (such as rental income), interest received on mortgages, or dividends and interest.

Of that 95%, at least 75% must be derived solely from real-estate-related activities. This means no more than 5% of a REIT’s income may be derived from non-real estate business.

Question 36

A Nasdaq market maker’s registration will be terminated if the market maker:

Answer 36

Fails to enter a quote within five business days after the market maker’s registration becomes effective

A Nasdaq market maker’s registration will be terminated if the market maker fails to enter a quote within five business days after the market maker’s registration becomes effective. There’s no requirement for a broker-dealer to become a passive market

Question 37

When a broker-dealer is required to deposit payments in an escrow account associated with a contingency underwriting, the funds

Answer 37

Must be deposited in an account established with a bank

The purchase payments associated with a contingency offering must be transmitted promptly to a bank that has agreed in writing to hold all such funds in escrow.

Question 38

Direct participation programs come in many different forms, including S Corporations, general partnerships, and limited partnerships.

Answer 38

However, C Corporations do not offer flow through taxation. Instead, income is taxed first at the corporate level and taxed again if it’s distributed to shareholders as a dividend.

Question 39

If a member of a syndicate (other than the manager) effects a stabilizing bid:

Answer 39

The firm is required to notify the manager within three business days of any stabilizing transaction

Question 40

A customer enters an order for 250 shares of a Nasdaq-listed stock. The order is a(n):

Answer 40

Mixed-lot, and may be accepted

The Nasdaq system accepts round-lot orders (100 share increments), odd-lot orders (less than 100 shares), and mixed-lots (a round-and odd-lot order combined)

Question 41

For what period of time is a member firm required to keep on file the written preapproval of the borrowing or lending arrangement between a registered representative (RR) and a customer?

Answer 41

Under certain conditions, an RR may enter into an arrangement to borrow or lend funds to a customer. The firm is required to preapprove these arrangements in writing. The firm is also required to retain the written preapproval for at least three years after the date of the arrangement or for at least three years after the RR has been terminated from the member firm.

Question 42

A broker-dealer with a net capital exceeding $12,000,000 must have a minimum fidelity bond coverage of

Answer 42

For member firms whose net capital exceeds $250,000, FINRA has a table of required coverage, with a maximum of $5,000,000 for member firms whose net capital requirement exceeds $12,000,000.

Question 43

Which of the following features is a requirement of an arbitration hearing?

Answer 43

Requirements for arbitration include that records pertaining to the case or issue are at hand and filing fees are paid by the party that initiates the claim. There’s no requirement to have pertinent records submitted prior to the hearing. Depositions are not a part of the arbitration procedure. Also there’s no requirement for a broker-dealer to provide all of its trading/customer records.

Question 44

A stock is quoted on the Nasdaq system by four market makers as follows.
MM#1 15.35 - 16.00
MM#2 15.00 - 16.55
MM#3 15.25 - 15.80
MM#4 14.99 - 15.60

A client of MM#3 enters an order to buy stock at $15.65. The Nasdaq Market Center Execution System will take which of the follow actions?

Answer 44

The inside market in this question is 15.35 - 15.60. All quotations and orders entered into the Nasdaq Market Center Execution System are automatically executable for their displayed and non-displayed size, and any quote or order entered into the system that would lock or cross the market will be executed. Since the client of MM#3 wants to buy the shares at $15.65, and there is a lower offer of 15.60, the order will be automatically executed by the system. The client would receive five cents of price improvement. (11757)