Practice Final #4

Question 1

Which statement is False about COD Accounts?

A. Before accepting the order, the member firm must receive written assurance from the bank that the funds are available to pay upon delivery

B. Before accepting the order, the member firm must receive an agreement from the customer that the depository has been instructed to pay upon delivery

C. The securities must be delivered by the broker-dealer within 35 calendar days after trade date

D. If delivery is not made within 35 calendar days, the broker-dealer must apply to the self-regulatory organization for an extension

Answer 1

The best answer is A. In a DVP transaction, the customer must agree to notify the bank receiving the delivery to pay upon delivery. There is no requirement for the broker-dealer to contact that bank directly. The customer must deposit the funds to pay for the securities under normal Regulation T time frames - that is promptly, but no later than 2 business days after settlement date. The broker-dealer is obligated to deliver the securities to the bank against payment as soon as they are issued, but not later than 35 calendar days after trade date. If the securities have not been issued by this date, or the broker-dealer cannot effect delivery, it must request an extension from its self-regulatory organization.

Question 2

What must filed with the SEC, FINRA and the Issuer of a Nasdaq registered security when a 5% or more equity ownership obtained? In how many days?

Answer 2

A 13D filing must be made with the SEC within 10 business days of the date that the 5% threshold was exceeded, with copies sent to the self-regulatory organization and the issuer.

Question 3

Under the Circuit-Breaker Rule, which of the following will trigger a market halt?

A. Decrease of 10% in the Dow Jones Industrial Average

B. Decrease of 10% in the Standard and Poor’s 500 Index

Answer 3

The best answer is B. The circuit-breaker rule shuts the markets for 15 minutes if the S&P 500’s index drops by 7%, and shuts them again if it drops by 13% from the prior days’ closing value. After reopening, if the index drops by 20%, the markets are closed for the remainder of the day.

Question 4

A municipal dealer is reoffering 7% bonds which he purchased at par. All of the following quotes would be considered “fair and reasonable” EXCEPT:

A. 6.90 less ½

B. 100 ½

C. 108

D. 6.75 net

Answer 4

The best answer is C. The MSRB does not impose a fixed percentage mark-up that it considers to be “fair and reasonable.” The dealer is supposed to use his judgment about the size of the trade; dollar amount involved; the difficulty of the trade; etc., to determine a fair and reasonable mark-up. In this example, the bond has a 7% coupon rate and was purchased by the dealer at par. If the bond is reoffered at 100 ½, the dealer is taking a ½% mark-up. If the bond is reoffered at 108, the dealer is taking an 8% mark-up. If the bond is reoffered at 6.75%, the dealer is reducing the yield by .25 from the stated 7.00 yield. .25/7.00 = 3.6% reduction in yield, which approximates the percentage mark - up. The quote of 6.90 less ½, means the dealer is pricing the bond to yield 6.90% and is then deducting ½ point from the price. This bond will be priced at a slight premium less ½ point. Of all the quotes, it appears that 108 is by far the most expensive.

Question 5

In an inactive competitive market, the prevailing market price for mark-up purposes is:

Answer 5

contemporaneous sales to other dealers. Under the 5% Policy, if there is an inactive competitive market for a security, the prevailing market price to be used for mark-ups is contemporaneous sales to other dealers and for mark-downs is contemporaneous purchases from other dealers.

Question 6

All of the following are requirements for good delivery under MSRB rules EXCEPT:

A. unless identified as being “ex legal,” delivered bonds must include a legal opinion

B. insured bonds must be delivered with proof of insurance

C. unless otherwise agreed, where bonds have been issued in both registered and bearer form, delivery of bearer bonds is required

D. all deliveries must be accompanied by a delivery ticket

Answer 6

The best answer is C. Municipal bonds must be delivered with a legal opinion attached, unless one was never issued (the bonds then come “ex legal”). Insured bonds must be delivered with proof of insurance. If securities are interchangeable, delivery may be made in registered form, bearer form, or any combination. There is no requirement that delivery be made in bearer form. Finally, all deliveries must be accompanied by a delivery ticket.

Question 7

The required verification of applicant information provided on Form U4can be conducted by whom and what type of records are reviewed?

Answer 7

Can be conducted by either the member firm or a third-party service provider utilizing a national search of all reasonably available public records.

Question 8

A client tells her representative to sell her entire holding of ABCD shares, which the client had purchased 2 years ago and had transferred and shipped. The representative sells the customer’s holding, but on settlement, the shares do not arrive from the customer. The customer should be told that:

Answer 8

If the shares are not delivered on settlement, the position must be bought-in by the firm in 3 business days.

If a client sells securities that are in the client’s possession and fails to deliver on settlement, Regulation SHO Rule 204 requires the broker-dealer to close out the “fail” by purchasing those securities in the market on T+5 (which is the same as the morning of S+3). The broker can then chase the customer for any loss that it incurred on the mandatory buy-in.

Question 9

A municipal securities representative has been convicted of a felony. Who should this be reported to?

Answer 9

This event must be reported to FINRA.

Conviction of any felony is a reportable event. However, since the MSRB has no enforcement capability, the report is not made to the MSRB. FINRA enforces MSRB rules, so FINRA gets the report promptly, but no later than 30 days after the event.

Question 10

A customer purchases $20,000 par value of 13 year municipal bonds with a 6% coupon through your firm. The firm purchases the bonds at 7.20 - ½ from another dealer, and confirms the trade to the customer at 7.20 Net. On the confirmation, the concession would be shown as:

A. $100 in aggregate

B. $5 per bond

C. $720 in aggregate

D. $7.20 per bond

Answer 10

The best answer is A. On customer confirmations, concessions must be disclosed and are always shown in the aggregate dollar amount (½ point = $5 x 20 bonds = $100). Compare this to the disclosure required for dealer-to-dealer confirmations, where the disclosure is required on a per bond basis (e.g., ½ point).

Question 11

Which of the following is NOT affected when securities are sold in a restricted margin account?

A. Long Market Value

B. Equity

C. SMA

D. Debit Balance

Answer 11

The best answer is B.

When securities are sold in a restricted margin account, the long market value drops by the sale amount, with the entire sale proceeds credited against the customer’s debit balance. Thus, equity is unaffected. When securities are sold in a restricted account, 50% of the proceeds are credited to SMA, and the customer may borrow this amount from the account if he or she wishes.

Question 12

Under FINRA rules, confirmations for regular way stock trades are sent to customers:

Answer 12

FINRA states that trade confirmations must be sent to customers “at, or prior to, the completion of the transaction.” Since transactions are complete on settlement, this gives the firm up to 2 business days to get the customer the trade confirm for a regular way stock trade. Also note that in the real world, firms send out confirmations the business day after trade date

Question 13

A registered representative in your firm is about to retire and has asked a younger representative in the same branch office if she wants to buy his book of business. The younger representative is very interested and the two RRs have negotiated a sale price and have agreed in a written contract that continuing commissions will be paid to the retiring representative for a period of 5 years following retirement, based on the clients named as of the date of retirement. Which statement is TRUE about such an arrangement?

A. The retired representative is only permitted to be paid continuing commissions if the firm maintains the registration of that individual for the 5-year life of the agreement

B. Such an arrangement is a permitted private contract as long as the contract is executed prior to the retirement date

C. The written agreement must be filed with the FINRA District office at least 10 business days prior to its effective date

D. Such an arrangement is prohibited because commissions cannot be paid to unregistered individuals

Answer 13

The best answer is B.

Even though FINRA does not permit commissions to be shared with unregistered individuals, it gives an exception to this under Rule 2040. The intent is to allow a retiring representative to get income in retirement by selling his or her book of business. The rule allows continuing commissions to be paid to a “RRR” (Retired Registered Representative) from accounts held for continuing customers, regardless of whether funds or securities are added during the period of retirement, provided that:

a bona-fide contract is entered into between the member firm and the RRR prior to retirement providing for the payments; and

the contract prohibits the RRR from soliciting new business, new accounts or servicing those accounts that generate the continuing commission payments.

Also note that the contract can permit the payments to continue to a beneficiary designated in the contract upon the RRR’s death (a nice thing for widow(er)s).

There is no notice to FINRA or FINRA approval. Note, however, that the member firm must approve such an arrangement.

Question 14

Which statement about numbered accounts is TRUE?

A. All correspondence relating to the account must be sent in plain generic envelopes with no member firm identification on the outside

B. The record of actual ownership of the account must be verified using a 3rd party database

C. The account record must include a suitability determination including income, objectives, and net worth

D. The account must be sent a negative consent letter verifying actual ownership

Answer 14

The best answer is C. The only unique “rule” on a numbered account being held at a brokerage firm is that the firm must maintain a record of the true owner of the account. The standard account opening process is used, so Choice C is true. All correspondence, confirms and statements will be sent to the alias that the customer gives. Internally at the broker-dealer, all trades and positions will be coded only with the alias and not the customer’s real name (this is big with celebrities). The other choices are basically garbage.

Question 15

A customer moves from the state of New York to the state of Massachusetts. The customer has $32,000 invested in the state of New York’s 529 Plan. The customer’s daughter is going to college in Massachusetts and the customer wishes to move the $32,000 from the state of New York 529 Plan to the state of Massachusetts 529 Plan. To avoid a penalty tax, what time frame should this rollover be completed in?

Answer 15

Rollovers are permitted between one state’s 529 plan and another state’s 529 plan - but like any plan rollover, it must be completed within 60 days of taking the money out of the “old” plan. Otherwise, the distribution becomes taxable.

Question 16

What MUST be available at each branch office location and given to a customer upon request?

Answer 16

Customers must be given a copy of a broker-dealer’s latest balance sheet and computed amount of Net Capital upon request. There is no requirement to give the customer a copy of the firm’s income statement. Also, the customer must be given a copy of the FINRA manual upon request. There is no requirement for a firm to disclose its inventory positions to customers.

Question 17

A PIPE investor has engaged an underwriter to handle the registration and public sale of shares that it obtained in XXX Corp when it made its private equity investment. The underwriter intends to price the shares at $20, which is the current market price of the company’s stock. Just prior to the effective date, the underwriter believes that the issuance of the additional public shares will have a negative effect on the stock’s price and wants to short the stock for its proprietary account. Is the underwriter permitted to do this?

Answer 17

No, because any short position established within 5 days of the effective date cannot be covered.

Rule 105 of Regulation M effectively prohibits shorting a stock being underwritten in the 5-day window prior to the effective date for a secondary share offering (which could be manipulative, pushing the stock price down), since any such short positions cannot be covered by purchasing the shares in the market.

Question 18

Under FINRA rules, a registered representative must receive prior employer approval to:

I. take a second job as a taxi driver outside of normal working hours

II. be a general partner in an oil and gas private placement offering

III. take a 4% equity position in a publicly traded corporation

IV. volunteer to teach a class at a non-for-profit organization

Answer 18

I and II only

FINRA requires that registered representatives obtain prior approval from the employing member firm to engage in ab “OBA” (Outside Business Activities). Being compensated is not the sole determinate. If the individual works for deferred compensation or has the ability to directly generate business income from the activity, this must be reported. If a registered person goes on the board of directors of a charity, the regulatory view is that this individual has the ability to direct the investments of the charity, so this is an OBA that must be reported. In contrast, if an individual volunteers to work for a charity unpaid, this is not an OBA is not required to be reported.

Question 19

The minimum maintenance margin requirement for a short stock position valued at $10 per share is?

Answer 19

$5.00 per share

The minimum maintenance margin requirement for short positions in “cheap stocks” is:

• Stocks priced at $5 or under: 100% or $2.50 per share, whichever is higher
• Stocks priced over $5: 30% or $5.00 per share, whichever is higher

For a stock priced at $10 per share, the minimum is the greater of 30% of $10 = $3.00 per share, or $5.00. Since $5 is greater, this is the minimum maintenance margin.

Question 20

All of the following are permitted soft dollar payments made to a mutual fund sponsor by an executing broker-dealer EXCEPT:

A. Bloomberg terminal rental

B. Research reports only made available to institutional investors

C. Asset allocation software

D. Attendance cost of a conference hosted by issuers looking to broaden their investor base

Answer 20

The best answer is A.

One of the few places left in the industry where “full commission” rates are paid is mutual fund sponsors who send out their portfolio trades to different executing brokers. In return for paying a commission rate that is not heavily discounted, the executing broker-dealer “gives back” services to the mutual fund sponsor. These are called “soft dollar” payments and the SEC permits this, as long as the payment benefits the shareholders of the sponsor’s funds.

Examples of permitted “soft dollar” givebacks from an executing broker to a mutual fund sponsor are stock selection software; asset allocation software; trading algorithms; research reports; and reimbursement for attendance at institutional investor conferences.

What is not permitted is payment of auto leases for fund sponsor employees (does not benefit fund shareholders!); payment of office rent for the fund sponsor (ditto!); payment for the purchase of computers (these are general use) and payment for Bloomberg terminals (which cost $20,000 a year each and are general use).

Question 21

FINRA permits member firms to conduct a bulk exchange of all of their customers’ money market fund assets for those of another fund sponsor. The most recent situation where this happened was in the aftermath of the Lehman bankruptcy that took the NAV of The Reserve Fund (which was heavily invested in Lehman Brothers commercial paper) below $1 per share. The rules regarding such bulk transfers are:

Answer 21

• The bulk exchange is limited to situations involving mergers and acquisitions of funds, changes of clearing members, exchanges of funds used in sweep accounts, and was also permitted by FINRA for funds in “trouble” (e.g., the Reserve fund);
• A negative response letter may be used (meaning that if the customer does not respond, the exchange will occur) and must include a tabular comparison of the fees charged by each fund;
• The letter must contain a comparative description of the investment objectives of each fund and a prospectus of the fund to be purchased;
• The negative consent feature cannot be activated until at least 30 days after the letter is mailed.

Question 22

Generally, what is TRUE regarding non-qualified retirement plans that cover key employees (“top hat”) plans?

Answer 22

The plan is not subject to ERISA funding, reporting and disclosure regulations.

Question 23

An uncle helps his nephew start a new business by investing $50,000. After 9 years, the company goes public. If the uncle wishes to sell his shares:

Answer 23

he can sell the entire holding, if there were no restrictions attached to the shares.

This question is a little vague, but that is not unusual with “exam-type” questions. The uncle invested in the company when it was privately held, so the shares that the uncle received are restricted and can only be resold in the public markets if the shares are registered with the SEC or if the uncle sells using Rule 144 to register the shares.

Registering the shares with the SEC is way too costly - the uncle only has $50,000 of stock to sell. Rule 144 permits the sale of the shares if the company has gone public (which is the case); if the shares have been held fully paid for at least 6 months (which is the case); and if limited amounts are being sold. Furthermore, Rule 144 permits 5,000 shares worth no more than $50,000 to be sold every 3 months without restrictions. The uncle is selling $50,000 worth of stock, so he can sell publicly under Rule 144. The transfer agent will cancel the old restricted private placement shares and issue new registered shares to the purchaser in this transaction.

Question 24

Existing customers must be provided with written information regarding the availability of BrokerCheck:

Answer 24

FINRA, under Rule 2267, requires that each member shall once every calendar year provide in writing (which may be electronic) to each customer the following items of information:

1. FINRA BrokerCheck Hotline Number;
2. FINRA Web site address; and
3. A statement as to the availability to the customer of an investor brochure that includes information describing FINRA BrokerCheck.

Question 25

Two Series 7 licensed registered representatives want to open a small branch office closer to where they live. In order to do so:

Answer 25

one of them must be appointed as the BOM.

FINRA’s Supervision Rule states that there must be the “designation of 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.” So there need not be a resident Series 9/10 in each branch office. Small offices, with only 1 or 2 Series 7 - registered individuals can have supervision within that office performed by one of the Series 7 registered persons, with a non-resident Series 9/10 in a regional office or main office of the firm responsible for overall supervision. Once there is a larger number of representatives in an office, then a resident BOM who has passed the Series 9/10 is required. (However, only the CBOE has a numerical rule here, stating that if there are 4 or more representatives in an office, one of them must have passed the Series 9/10).

Question 26

The cost of registering a PIPE securities issue is typically paid by the:

Answer 26

issuer after the issuer receives any proceeds of the sale.

“PIPE” is the acronym for Private Investment in Public Equity. PIPEs are most often used by small public companies (typically OTC) that need to raise additional capital quickly. Filing a registration statement with the SEC for a “follow-on registration” of new securities to raise capital takes time and is “public information” that often depresses the price of the outstanding stock (since additional shares are being issued).

Instead, the company can arrange with a private equity firm to give it a quick capital infusion (at a discount price) by doing a Regulation D private placement of restricted shares. This is conditioned on that company subsequently filing a “shelf” registration statement with the SEC to provide for public resale of those shares. The private investors profit from the difference between the discounted price they paid for the private placement shares and the POP, while the issuer gets funds quickly and in advance of the registration statement filing.

As part of the agreement, the issuer will typically pay the expenses of the investors in connection with both the transaction and the subsequent registration. Finally, remember that a PIPE only works for an “add-on” offering; it cannot be used for an IPO.

Question 27

A client is placing a sell order for XYZ stock with her registered representative and asks what the commission charge will be. This must be disclosed to the client:

Answer 27

Because commission charges vary greatly from firm to firm and transaction to transaction, and are subject to negotiation, there is no requirement for the representative to disclose the commission verbally at the time of the transaction, because it may not be known yet. The actual commission charge is determined “after the fact” based on the circumstances of the transaction and is only be required to be disclosed in writing on the confirmation. Note, however, that from a customer service standpoint, if a customer asks the commission charge at the time of the trade, the representative should make his or her best attempt to get the information for the client.

Question 28

A prospective customer comes into your branch office to open an account. When documenting the account, the customer informs you that he is a foreign citizen who is in the export/import business, mainly importing rugs and textiles from Pakistan and Afghanistan. The customer tells you that he wishes to put most of his funds into municipal bearer bonds and will be drawing at least 10 checks a month to pay for various business expenses. Based on this information, you should:

Answer 28

open the account using regular firm procedures and file a Suspicious Activities Report with FinCEN without making mention of this to the customer

Suspicious, suspicious, suspicious! Bells go off here - import/export business in Pakistan and Afghanistan; municipal bearer bonds; multiple monthly check requests (maybe to send money to the Taliban in Tora Bora?) File an SAR (Suspicious Activities Report) with FinCEN within 30 days and do not tell him that you are doing this - after all, we don’t want to tip him off!

Question 29

Under MSRB rules, defaulted municipal coupon bonds MUST be delivered:

Answer 29

Municipal coupon bonds must be delivered with all unpaid coupons attached. If a bond has defaulted, those interest coupons representing missed payments, plus all future coupons, must be attached.

Question 30

A client files a complaint with FINRA about his registered representative at Acme BD. FINRA conducts an investigation and finds that the representative has been recommending the same security to all clients during the same time window. You are the BOM of the branch where the registered representative conducts business. What action is LEAST likely to be taken by FINRA?

A. FINRA will suspend you, the BOM, from acting as a principal for 90 days

B. FINRA will require the firm to amend its supervisory procedures to detect patterns of similar recommendations across customers of different risk profiles

C. FINRA will require the representative to be placed under heightened training and supervision

D. FINRA will require you, the BOM, to undergo training in additional supervision procedures adopted by the firm to address this finding

Answer 30

The best answer is A.

FINRA has found in its sweeps of broker-dealers that firms often do not have procedures in place to adequately detect and prevent “blanket recommendations” of the same security to all accounts, which violates FINRA suitability rules. While FINRA can take all of the actions offered in the choices, suspension for 90 days as a principal for failing to supervise is very specific - it might happen, it might not.

What will definitely happen is FINRA requiring the firm to amend its Written Supervisory Procedures (WSPs) to detect blanket recommendations; the representative involved might be suspended, fined, and required to be placed under heightened training and supervision to continue employment at that firm; and you, the BOM, will be trained in all the additional supervision procedures adopted by the firm as a result of this finding.

Question 31

A woman wishes to open her own brokerage account at your firm and wants to give her husband the ability to trade the account and wants to allow her husband to write an occasional check from the account. How should the account be opened?

Answer 31

A full power of attorney gives the named person both the right to trade and draw checks on the account. Whether the power of attorney is durable or non-durable has no bearing here. A durable power of attorney continues on the account owner’s mental incapacitation while a non-durable power of attorney ceases on the account owner’s mental incapacitation.

Question 32

Under FINRA rules, which of the following records must be filed for stated time periods?

I Records of gratuities paid by the member firm or its associated persons

II Records of each customer complaint

III Records of each communication with the public

IV Records of each order memorandum, whether executed or unexecuted

Answer 32

All of the above.
I, II, III, IV

FINRA requires that all of the records stated be kept for stated time periods - records of gratuities paid to associated persons (keep 3 years); records of customer complaints (keep 4 years); records of each communication with the public (keep 3 years); and records of each customer order, whether executed or not (keep 3 years).

Question 33

True or False: An Associated person who wishes to engage in an Outside Business Activity (OBA) must give written notice to FINRA of the proposed activity.

Answer 33

False.

• The associated person must give written notice to the member firm - not to Finra.
• The member must consider whether the proposed activity will interfere with the representative’s responsibilities to the member and its customers;
• The member must consider whether the proposed activity will be viewed by the firm’s customers as part of the member’s business; and
• The member must evaluate the advisability of imposing limitations on the representative’s outside business activity or of prohibiting such activity.

If the firm approves, the OBA must be disclosed on the representative’s Form U4 and this information flows into the representative’s BrokerCheck file, allowing a public viewer to assess how much of the rep’s time is spent on the OBA versus how much time is spent being a representative of the member firm.

Question 34

An issuer files a post-effective amendment to its registration statement with the SEC. The amendment becomes effective:

Answer 34

Post-effective amendments to an SEC-registration occur after the effective date and are usually technical amendments. Such amendments are effective immediately upon filing - they do not restart another 20-day cooling off period.

Question 35

All of the following statements are true regarding documentation requirements to open a margin account for a customer EXCEPT the customer must:

A. sign a hypothecation agreement

B. sign a loan consent agreement

C. be provided with a credit disclosure document

D. be provided with a margin risk disclosure document

Answer 35

The best answer is B.

Customers must sign a margin (hypothecation) agreement when opening a new margin account, pledging the securities in the account as collateral for the margin loan. It is customary, but not mandatory, that the customer also signs a loan consent agreement, allowing his or her securities to be lent out on short sales. When opening a margin account for a new customer, the customer must be provided with a credit agreement that explains how the debit balance is computed and interest is charged; and the customer must be provided with a margin risk disclosure document.

Question 36

A written request is received from a customer for information about a trade that settled 6 days ago. Under MSRB rules, the dealer must furnish the information:

Answer 36

Any additional information requested by a customer after receiving a confirmation (such as, the time of the trade, or name of the other party to the trade, since these must be made available to the customer) must be provided within 5 business days of the request. However, if the request is made more than 30 calendar days after the trade date, the firm has 15 business days to dig out the records and provide them to the customer.

Question 37

True or False: A broker-dealer is obligated to inform customers as to their rights with regards to errors found in their accounts on each account statement.

Answer 37

TRUE

Each customer statement must include a notice that the customer must notify the member firm immediately if any errors are found on the account statement, with the broker-dealer contact information being the firm’s compliance department (not the registered representative servicing the account; not the firm’s operations department).

Question 38

A no-load mutual fund compensates registered representatives who sell the fund with a “trailing commission” that is paid annually for as long as the customer stays in the fund. This commission would be paid:

I out of the fund’s management fees

II out of the fund’s 12b-1 fees

III by the new shareholders in the fund

IV by all shareholders in the fund

Answer 38

II and IV

No load funds do not impose a sales charge, so compensation to sales people selling these funds does not come from this item. If these funds impose an annual 12b-1 fee (as most do), this is the source of the sales person’s remuneration.

12b-1 fees are assessed against all shareholders, not just the new shareholders to the fund.

Question 39

Under MSRB rules, which of the following are TRUE regarding yield disclosure on customer confirmations?

I For trades effected on a dollar price basis, the lower of yield to maturity or yield to call is shown

II For trades effected on a yield price basis, the lower of price to maturity or price to call is shown

III For trades effected at par, no yield disclosure is required

Answer 39

I, II, III

Basically, MSRB rules require that the customer always get the “best” price, hence the yield shown on a confirmation will always be the lowest possible yield and the price will always be the lowest price (which ensures that the yield will at least be the minimum amount). For trades effected at par, no yield is shown, since it cannot be any different than the nominal (stated) rate of interest that also must be shown on a trade confirmation.

Question 40

Which of the following MUST be disclosed on a municipal bond trade confirmation under MSRB Rule G-15?

I The name of the issuer

II The name of any obligor(s) other than the issuer

III The name of the bond counsel for these securities

IV The name(s) of the underwriter(s) of the original offering of these securities

Answer 40

I and II only

MSRB confirmation disclosure rules require that the name of the issuer, and the names of any obligors aside from the issuer be disclosed on the confirmation (e.g., on an industrial development bond issue, the name of the corporate guarantor would be shown). There is no requirement to show the name of the bond counsel, nor the name of the issue’s original underwriters on the confirmation.

Question 41

True or False: Municipal bond unit trust investments are NOT actively managed.

Answer 41

True.

Unit trusts are non-managed. Once the portfolio is selected, it is transferred into trust and is not changed - hence there is no management (nor are there management fees). In contrast, mutual funds and hedge funds are actively managed - the manager is actively choosing investments and reallocating investments. For these services, a management fee is charged.

Question 42

A written request is received from a customer for information about a trade that settled 6 weeks ago. Under MSRB rules, the dealer must furnish the information:

Answer 42

Any additional information requested by a customer after receiving a confirmation (such as, the time of the trade, or name of the other party to the trade, since these must be made available to the customer) must be provided within 5 business days of the request. However, if the request is made more than 30 calendar days after the trade date (as in this case), the firm has 15 business days to dig out the records and provide them to the customer.

Question 43

Under MSRB Rule G-3, an associated person subject to the Regulatory Element of the Continuing Education requirement, must complete the training session within how many days of an anniversary date?

Answer 43

120 Days

Failure to complete the CE Regulatory Element within 120 days of the appropriate anniversary date will result in that person’s registration becoming inactive.