Practice Final #6 Flashcards
The retired uncle of an officer of a start-up company invested in 5,000 shares a few years ago. 11 months ago, the company went public. The stock has moved up in the market and the uncle wishes to sell. Which statement is TRUE?
A. The uncle cannot sell the shares because they are restricted
B. The uncle can only sell the shares according to the limits set under Rule 144
C. The uncle can sell the shares without restriction
D. The uncle can only sell the shares with the permission of the company
The best answer is C. The uncle is retired and is not an employee or affiliate of the company. Anyone who has not been affiliated with the issuer for at least 3 months, and who has held the stock for at least 1 year, can sell without limitation. This is not a commonly known provision of Rule 144, because most often the owners are affiliates of the company, who must file a Form 144 to sell and adhere to the rule’s volume limitations when selling.
An issuer will qualify for a Rule 147 (Intrastate) exemption if any one of the following tests is met EXCEPT:
A. 80% of the issuer’s revenue must be in the state
B. 80% of the issuer’s assets must be in the state
C. 80% of the proceeds of the issue must be used in the state
D. 80% of the issuer’s employees must be based in the state
The best answer is D. To qualify for an intrastate exemption, any one of the following tests must be met:
80% of the assets of the issuer are located in the state.
80% of the gross revenue of the issuer is derived in the state.
80% of the proceeds of the offering will be used in the state.
A majority of the issuer’s employees are based in the state.
Regarding the last choice, only the majority of the issuers employees (not 80%) must be based in the state.
Form CTR is filed with:
FinCEN
A broker-dealer holds a limit order to buy 100 shares of ABC stock at $20.00 for a customer. All the following trades are acceptable EXCEPT:
A. The purchase of 100 shares of ABC for the firm’s trading account at $19.90 prior to executing the customer’s order
B. The purchase of 100 shares of ABC for the firm’s trading account at $20.10 prior to executing the customer’s order
C. The long sale of 100 shares of ABC out of the firm’s trading account to the customer at $20.00
D. The short sale of 100 shares of ABC out of the firm’s trading account to the customer at $20.00
The best answer is A.
If a dealer holds a customer order, it cannot execute an order for the firm account that competes with that order - unless the customer order is executed first. The customer has placed an order to buy 100 shares of ABC stock at $20. It is OK for the firm to buy the stock for its own account at $20.10 prior to executing the customer order, since the customer’s limit price has not been met. However, the firm cannot buy for its own account at $19.50 until the customer order has been executed, since $19.90 is within the customer’s limit. It is perfectly acceptable for the firm to sell the customer the stock at $20 out of its inventory account. It makes no difference whether the firm sells this stock long to the customer or if it sells the stock short to the customer. In trading accounts, firms routinely maintain both long and short positions.
True or False: Stabilizing bids may only be entered at or below the Public Offering Price, but never higher than the highest current independent bid.
TRUE.
Under the SEC’s rules relating to stabilization, stabilizing bids may only be entered at or below the Public Offering Price, if no current independent bid exists for that issue. If a current independent bid exists, then a stabilizing bid can only be placed at or below this third-party quote (but never above the POP). For example, if the POP is set at $20, and there is an independent Bid - Ask of $15 - $16, then the stabilizing bid could be placed no higher than $15.
For most new issues, there is no current independent bid because the NASDAQ screen is “blacked out” until the syndicate manager closes the syndicate books and notifies NASDAQ operations that the security is free to trade. When the screen is “turned on,” it opens showing the stabilizing bid placed by the manager. At that point, any other independent market makers may enter quotes.
Personnel applications (U4) must contain records of any convictions of the applicant for securities fraud, bribery, perjury, etc. for the preceding:
10 years.
Retail communications distributed by an established broker-dealer concerning all the following are subject to post-use filing with FINRA EXCEPT:
A. registered Collateralized Mortgage Obligations
B. registered Direct Participation Programs
C. registered Structured Products
D. registered Security Futures
The best answer is D.
These ads must be filed with FINRA 10 business days prior to use, always. These are ads for:
Options (Securities Futures for the exam);
Investment Companies, where member-prepared performance rankings are shown.
FINRA has different filing requirements for advertisements relating to:
Collateralized Mortgage Obligations;
Investment Companies (where member-prepared performance rankings are not shown);
Registered Structured Products; and
Registered Direct Participation Programs (DPP - Limited Partnerships).
These retail communications must be filed with FINRA 10 business days after first use, always. (These are handled by a different department of FINRA that has its own filing rules.)
When an order is received from a customer, a written record of the order MUST be prepared:
Order tickets must be written before they are presented to the trading desk. Verbal orders are not acceptable. The written ticket is needed to ensure that the order is filled as actually stated, and to have a physical record of the order and its execution.
Securities Investors Protection Corporation coverage applies to each:
separate customer.
Under Regulation SP, financial institutions are prohibited from disclosing non-public personal information about a customer without customer approval to:
non-affiliated third Parties.
If a registered representative hears a rumor about an NYSE-listed issue, the “RR” should:
FINRA requires that all rumors heard where the intent is to influence securities prices in the market, be reported to FINRA.
