Penny Stocks

Question 1

Customers must be given a copy of a ______ document prior to their first penny stock transaction.

Answer 1

Risk disclosure

Question 2

The risk disclosure document was created by

Answer 2

the SEC

Question 3

Broker-dealer disclosures.

Answer 3

The broker-dealer must provide customers with the current market bid and offer, if any, for the penny stock. This is to prevent broker-dealers from quoting prices that are far from the current market for the security.

*The broker-dealer must provide customers with information on the amount of compensation that the firm and its broker(s) will receive from the trade. The firm must also send customers monthly account statements showing the market value of each penny stock held in the customer’s account.

Question 4

Suitability analysis

Answer 4

Before selling a penny stock to a new customer, a broker-dealer must conduct a suitability analysis, obtaining from the customer her financial situation, investment experience, and financial objectives. The firm must then give the customer a detailed, written report on why it has determined that the penny stock is suitable for her. The customer must sign the suitability report before the transaction is confirmed.

Question 5

This suitability requirement is waived for ________. An ________ is one who has had her assets with the firm for at least one year or has purchased unsolicited penny stocks from at least three different issuers on three separate days.

Answer 5

established customers