Incorrect Test Questions

Question 1

When transacting business with clients in penny stocks, a broker-dealer is required to ____________will receive for the transaction and ____________ for the transaction. There is no requirement to disclose previous compensation from penny stock transactions with customers or the amount of compensation the execution system will receive from the transaction. (71149)

Answer 1

disclose both the compensation the broker-dealer
the compensation the registered representative will receive

Question 2

The Nasdaq system operates on Eastern Time from:

Answer 2

The Nasdaq system operates from 4:00 a.m. to 8:00 p.m. each business day

Question 3

A Nasdaq market maker must be open for business from

Answer 3

9:30 to 4:00

The market maker may voluntarily open for business prior to 9:30, or stay open for business after 4:00 p.m. If the market maker elects to stay open during these hours, it must comply with all applicable Nasdaq trading rules

Question 4

A manager is reviewing the trading activities of one of her registered representatives (RRs) who has many clients with discretionary accounts. One client contends that the RR has been churning his account. To investigate the possibility of excessive trading in the account, the manager’s primary focus should be the:

Answer 4

The investment objectives of the client

the most important element in the process is to examine the investment objectives of the customer. Investment objectives are highly instrumental in guiding a registered representative and should always be considered prior to making any recommendations to the customer. Frequent trades may be acceptable in the account of a day trader, but are inappropriate for many other investors.

Question 5

Initial Insiders must File Form 3 with the _____ within ______ calendar days

Changes in position, Insiders must file form 4 to report:

Answer 5

SEC within 10

Purchases and sales within 2 business days, not needed if within a 401(k) plan

Question 6

Insiders are prohibited from

Answer 6

-engaging in short sales of their company shares
-selling uncovered calls
-retain short swing profits (<6months)

Question 7

Insiders can buy

Answer 7

-calls
-protective puts
-covered calls

Question 8

Rule 504 of Regulation D allows an issuer to offer securities of up to $____ in a 12-month period. Provided the issuer complies with all of the provisions of Regulation D, this private placement is ____ from SEC registration. The issuer is still required to file Form D with the SEC by no later than ____after the first sale of securities.

Answer 8

$10 million
exempt
15 days

Question 9

Under Regulation D Rule 506, if the issuer offers securities exceeding $_____ and non-accredited investors are solicited, ________ must be provided.

Answer 9

10 million
a disclosure document

Question 10

If an issuer of securities is required to file reports with the SEC, but is not eligible to use Form S-3, which of the following statements is TRUE?

Answer 10

The firm is permitted to use a free writing prospectus after the filing of a registration statement and the issuer must include a statutory prospectus.

A free writing prospectus (FWP) is any communication that does not meet the standards of a statutory prospectus.

Question 11

Tender Offers:

Shareholders must be notified no later than ___ from the date the tender is made:

Mgt of subject company must advise its shareholders of their bias toward the tender no later than:

Must be held open for at least:

If adjusted, must remain open for another.

Answer 11

10 business days

10 business days

20 business days

10 business days

Question 12

13d is filed within ____ after an acquistion

Answer 12

10 calendar days

Question 13

To be considered a regulated investment company, a mutual fund must:

Answer 13

Must distribute a minimum of 90% of its investment income to its shareholders.

-allows the investment company to pass on distributions to shareholders without the company having to first pay taxes on the income distributed

Question 14

A registered representative (RR) has full power of attorney for her father, but the RR’s father receives no material support from the RR. When the RR executes trades in her father’s account, who will receive copies of the trade confirmations?

Answer 14

When a representative has discretion in a customer’s account, trade confirmations are sent to both the account owner (i.e., the RR’s father) and the person who executed the trade

Question 15

A broker-dealer’s Firm Element plan is _____ to be submitted for regulatory review

Answer 15

not required

Question 16

To impose disciplinary action on a registered representative for breakpoint sales is regulated by

Answer 16

Code of Procedure

Question 17

A Regulation A Tier 2 offering cannot exceed _______ and, of that ____, no more than _____ million may be for the benefit of selling shareholders. Regulation A Tier 1 offerings may not exceed $20 million and, of that $20 million, no more than $6 million may be for the benefit of selling shareholders.

Answer 17

$75 million over a 12-month period
that $75 million, no more than $22.5 million

Question 18

Regulation A Tier 1 offerings may not exceed ____- and, of that ______, no more than _____ may be for the benefit of selling shareholders.

Answer 18

$20 million

$20 million

$6 million

Question 19

Under current insider trading regulations, the SEC is allowed to pay bounties to informants on insider trading cases. The bounty can range from _____ of the violator’s penalty

Answer 19

10% to 30%

Question 20

Market Maker A had an order to buy 500 shares at 32.10 on the Nasdaq Market Center Execution System book. The order was executed against Market Maker B, but was cancelled within 30 minutes of the execution. Which of the following statements is TRUE?

Answer 20

Market Maker B must cancel the trade report for the cancelled execution (broken trade). The cancellation of a trade report must be done by the firm that reported or was obligated to report the trade if an automated lock-in has been done (the executing firm or Market Maker B). In this instance, the trade report was automatically locked-in since the execution took place in the Nasdaq Market Center.

Outside of the Nasdaq Market Center, the party that would have been responsible for entering the trade report for the execution would be the market maker on the sell side (Market Maker B); therefore, it’s also responsible for canceling the trade report.

Question 21

A Nasdaq-listed company is selling additional shares of stock that will be priced on Wednesday, July 15. A person who is purchasing the additional shares is NOT in violation of Rule 105 of Regulation M if she sold short the stock on which of the following dates?

Answer 21

July 7th

Rule 105 of Regulation M stipulates that it’s a violation for any person to sell short the security that’s the subject of an offering, and purchase the offered security from the underwriter if the short sale was executed during the period beginning five business days prior to the pricing of the offering and ending with the pricing of the issue. The five-business-day period begins on Wednesday, July 8.

Question 22

A promissory note is:

Answer 22

A debt security that’s used by companies to raise capital

Promissory notes are debt securities that are used by companies to raise capital and they may be either registered or unregistered. Promissory notes are often sold by unregistered sellers which raises significant regulatory concerns, including promises of high and guaranteed returns, schemes that target the elderly, and selling away violations.

Question 23

A customer gave an order to buy 400 shares of stock at $37 in his margin account. In error, the order was executed for 4,000 shares. The stock is currently trading @ 37.25. The RR should:

Answer 23

Inform a principal of the error.

The customer is not required to accept more than 400 shares. Canceling the entire order is not the right course since the client is entitled to 400 shares @ 37 or better.

Liquidating the additional 3,600 shares may expose the client to a free-riding situation.

Question 24

According to Regulation M, during the restricted period of a distribution:

Answer 24

Underwriting participants may purchase the subject security if it’s actively traded.

Question 25

If a trading halt has been initiated on an OTC equity security, a member firm is:

Answer 25

Not permitted to publish a quotation or trade until the halt has been lifted

The rule applies to any ADR that’s trading in the United States.

Question 26

A broker-dealer just received notification that a registered representative of the firm is resigning. As a result, the firm:

Answer 26

member firm is required to notify FINRA within 30 days on Form U5 which will include the applicable details. It must also provide the former employee with a copy of the form.

Question 27

A registered representative (RR) is about to receive a large block order from an institutional client. The RR has also begun to notify other representatives about this order and is advising them not to enter buy orders. The RR wants to avoid bidding up the price before executing the institution’s order. Which of the following statements regarding the registered representative’s actions is TRUE?

Answer 27

This is a prohibited action since a registered representative should not disclose details about customer orders to other representatives.

This is not an example of front-running since the representative is advising other representatives to avoid buying, rather than entering new orders.

Question 28

LLCs location, tax status, and employee count?

Answer 28

Limited liability companies may be established in any state by filing the appropriate documents with the secretary of state or other appropriate state authority.

LLC’s tax status is similar to partnerships in that both gains and losses flow through to individual owners’ tax returns. The owners of an LLC are not liable for the debts of the business.

Another benefit of LLCs’ is that these businesses have management structures which are more flexible than traditional C corporations. S corporations are limited to 100 shareholders or fewer. LLCs are permitted to have an unlimited number of participants.

Question 29

SEC notification is not required if the amount being sold under Rule 144 does not exceed _____ and the dollar amount does not exceed ____.

Answer 29

5,000 shares

$50,000

Question 30

A firm’s compliance certification must state that the CEO has conducted a meeting with which of the following persons?

Answer 30

The certification requires the CEO to state that a meeting has been conducted with the firm’s chief compliance officer (CCO) in the last 12 months.

Question 31

A broker-dealer executes a customer’s order on Friday at 10:30 a.m. This transaction must be reported through the Consolidated Audit Trail system:

Answer 31

By 8:00 a.m. ET on Monday

CAT reports must be made by 8:00 a.m. ET on the next trading day. A trading day starts after 4:15:00 p.m. ET and ends at 4:15:00 p.m. ET on the next trading day

Question 32

Concerning a customer account transfer, upon validation when must the carrying firm transfer the account to the receiving firm?

Answer 32

Within three business days

Question 33

A brokerage firm is attempting to liquidate a block of distressed debt for a customer. The firm typically executes corporate bond trades as agent, but decides to send the trade to another firm that specializes in non-investment grade debt. This activity is viewed by the regulators as:

Answer 33

Interpositioning and potentially acceptable

Interpositioning is the insertion of a third party between the customer and the best market. The practice is specifically prohibited if it’s to the detriment of the customer. However, the restriction doesn’t apply if the broker-dealer can demonstrate that an execution was advantageous to the customer because of the intervention of a third party.

Question 34

A firm’s business continuity plan must be:

Answer 34

Provided to clients when they open an account

must provide it to FINRA’s staff promptly upon request

It must also be posted on the firm’s Web site

The firm is not required to mail this disclosure to all clients annually.

Question 35

A member firm has received a large order from a customer to purchase a listed stock. The firm may execute a transaction for its own account in the same stock:

Answer 35

After the customer’s transaction is reported on the Tape

A broker-dealer is not allowed to trade based on information that it has about a large pending order from a client. This practice is called frontrunning and is prohibited by the Securities Exchange Act of 1934. Before trading the same security, information about the customer’s transaction would need to appear on the Tape.

Question 36

As an alternative to a customer’s signature, what (if anything) may be used as proper endorsement of a certificate?

Answer 36

A stock or bond power may be used.

Question 37

A broker-dealer must file a written report with FINRA within _____of the end of ______to describe each open or completed internal investigation concerning insider trading and manipulation. Additionally, at the completion of the internal investigation, the firm must file a written report within

Answer 37

10 business days

each quarter

five business days to detail the results of the internal investigation.

Question 38

Client X executes trades through Firm Y but clears through Firm Z. This is a(n):

Answer 38

Prime relationship

Question 39

A selling group member that’s participating in a secondary offering on August 6 may begin publishing research on the company on:

Answer 39

August 6

For secondary offerings, the restriction for a member firm preparing a research report on a security it recently managed or co-managed (i.e., the quiet period) is three calendar days. Other distributions participants are permitted to publish research on a follow-on or secondary offering immediately. (

Question 40

In judging the fairness of a firm’s markup, industry rules would NOT consider:

Answer 40

Whether the client was a retail or institutional customer

Question 41

A broker-dealer may be defined as a qualified third-market maker if it has a net capital of

Answer 41

$500k

Question 42

If a member firm receives an execution that it believes is clearly erroneous, a written complaint must be submitted within:

Answer 42

30 minutes

Question 43

If a broker-dealer is going to use an electronic means of storing its records, the SEC must be able to review the records:

Answer 43

Immediately

Firms that store their records electronically must have electronic backup, as well as a location at which the SEC can review these records immediately.

Question 44

A Suspicious Activity Report (SAR) must be filed within how many days?

Answer 44

30 days

It is filed by a financial institution if a transaction has involved at least $5,000, and the member firm knows or has reason to believe the funds are derived from an illegal activity designed to avoid filing of other forms, or has no legitimate lawful purpose. It must be filed no later than the 30th day after the member firm discovers the activity.

Question 45

Where must the SIPC logo be displayed?

Answer 45

At each branch office

a broker-dealer must display the SIPC logo in a prominent place at its principal office and at each branch office. The SIPC logo may be displayed (but this is not a requirement) on customer statements, confirmations, annual reports, office supplies (e.g., stationery), checks, direct mail brochures, telephone market reports, and promotional items.

Question 46

Broker-dealers are normally required to make the computation under Rule 15c3-3______ and to maintain 100% of the difference between credits and debits on deposit in the Reserve Bank Account. However, in instances where the ratio of aggregate indebtedness to net capital does not exceed 800% AND the free customer credit balances held by the firm do not exceed $1,000,000, the firm has the option of computing its reserve requirement on a_________, rather than every week

Answer 46

weekly

monthly basis

Question 47

A well-known seasoned issuer is permitted to use a free writing prospectus:

Answer 47

Either prior to or after the filing of a registration statement

Under the Securities Act of 1933, a free writing prospectus is defined as any written communication that constitutes an offer to sell or a solicitation to buy the securities relating to a registered offering of securities.