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S24 > Q&A1 > Flashcards

Q&A1 Flashcards

1
Q

Account has long MV of $100k and debit balance of $40k. To what level may MV decline before account becomes restricted?

A

A restricted account has equity < 50% of current MV. So if MV declined to $80k, equity and debit balance would each = 50%. If MV fell < $80k, account would be restricted.

If equity fell < 25% of current MV, account would be undermargined.

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2
Q

Are stabilizing bids permitted for exchange-listed securities and OTC equity securities?

A

Stabilizing bids permitted for all exchange-listed securities, but not for OTC equity securities.

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3
Q
  1. Net basis tx:
    1a) Dealer holding customer order to buy acquires stock on a ___ basis and executes customer’s order at [same / different?] price as compared to dealer’s acquisition price.
    1b) Does markup need to be disclosed?
    1c) Reported as 1 or 2 tx’s?
  2. Riskless principal basis tx:
    2a) Dealer executes the customer’s tx at [same / different?] price and [does / doesn’t?] charge markup.
    2b) Does markup need to be disclosed?
    2c) Reported as 1 or 2 tx’s?
A

1a) principal…different
1b) no
1c) 2

2a) same…does
2b) yes
2c) 1

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4
Q

Reverse convertible securities are ___ notes issued by ___ that usually pay a coupon rate [at / above / below?] mkt rates.

A

short-term notes issued by banks or BDs…above

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5
Q

When is ex-dividend date?

Which orders are reduced on ex-date?

What does DNR mean?

A

2 biz days before record date

buy limits, sell stops, and (if mkt permits) sell stop limits

DNR = do not reduce (if attached to order, then original order price remains valid)

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6
Q

Aggregate indebtedness (AI) includes liabilities [secured / not secured?] by BD’s own assets. Examples?

What effect does cash in a firm’s Special Reserve Bank Account have on its AI?

A

not secured
Ex: cash balances owed to customers; accounts payable; unsecured loan

decreases AI, to extent funds were req’d to be on deposit by Rule 15c3-3

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7
Q

Stopping stock = guarantee by the ___ that an order rec’d will be executed at no worse than contra-side price at time order was stopped

Ex: If stock is quoted at 18.50 bid, 18.60 ask, and market order to buy is stopped at 18.60, the buyer will pay no more than ___. A seller whose order has been stopped at 18.50 will receive at least ___.

A

specialist / DMM (Designated Mkt Maker)

buyer pays no more than 18.60

seller receives at least 18.50

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8
Q

BD must furnish an audited annual report to its customers no more than ___ days after the date of the audit.

Audit report contains a Statement of ___.

A

105 days

Statement of Financial Condition (not the same as an income statement)

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9
Q

Buy-in may not be executed sooner than T+__.

A

T+6 (i.e., SD+3)

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10
Q

The requirement that a registrant maintain effective internal controls re its financial reporting is found under Reg __ and requires ___ to attest to the statement.

A

Reg S-X….independent public accountant

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11
Q

Form __ is used to notify FINRA as to status of a branch location.

Amendments must be filed promptly whenever info becomes inaccurate or incomplete – typically within __ days.

A

Form BR

30 days

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12
Q

Retail comms must be filed w/ FINRA at least 10 biz days before first use for ALL of firm’s 1st yr as member – and thereafter for following products:

  1. Registered ICs (if comms include ___)
  2. Security ___
  3. Bond mutual funds (if comms include ___)

Retail comms re the following must be filed w/ FINRA w/in 10 biz days of being published:

  1. Registered ICs (except as noted above)
  2. Publicly traded ___
  3. SEC-registered ___
  4. Any security registered w/ SEC and derived from / based on ___
A
  1. (fund-created rankings or comparisons)
  2. security futures
  3. (volatility ratings)
  4. Includes mutual funds, closed-end funds, ETFs, unit investment trusts, variable products
  5. DPPs
  6. CMOs
  7. a single security, basket of securities, index, commodity, debt issuance, or foreign ccy (includes structured products like ETNs)
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13
Q

Fidelity bond

  1. Covers officers, employees to protect against such things as ___.
  2. Amount is based on the firm’s ___.
  3. Firm must review its fidelity bond coverage [how often?] based on its net capital req for the previous [how long?].
  4. If change to fidelity bond coverage is substantial (or coverage is cxl’d by carrier), firm must notify FINRA how soon?
A
  1. forgery, loss of securities, fraudulent trading
  2. net capital requirement
  3. annually….12 months
  4. immediately
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14
Q

SEC Rule __ requires BD to obtain written agmt from a customer for a trade in low-priced securities.

Does NOT apply to:

  1. Existing customers who have maintained an account for over ___
  2. Customers who have made __ or more purchases in low-priced securities on ___ days involving ___
  3. ____ securities
  4. Securities w/ bid price > $__
  5. Trades not _____ by the BD
A

SEC Rule 15g-9

  1. 1 year
  2. 3 or more…separate days…different issuers
  3. Listed
  4. $5
  5. not recommended
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15
Q

BDs are not permitted to execute third-market (aka ___) transactions in a security that is the subject of an IPO until ____.

A

CQS…the security has begun trading on its primary exchange (evidenced by report of an opening tx)

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16
Q

How to calculate value of a customer’s variable annuity?

A

of accumulation units x NAV

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17
Q

Free credit balance refers to ___.

Rule __ provides that customers receive notification of their free credit balances at least [how often?].

Notice must state that the funds [have / haven’t?] been segregated and [can’t / can?] be used by the BD.

A

cash the customer may withdraw on demand

Rule 15c3-3….quarterly

haven’t…can

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18
Q

Order Audit Trail System (OATS):

BDs req’d to report info on receipt or origination of orders in [listed / OTC / both?] securities when trading on [agency / principal / either?] basis.

OATS reporting does not apply to ___.

A

both….either

does not apply to marketing-making

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19
Q

If BD has a fail to deliver position at a clearing firm in a threshold security for __ consecutive settlement days, the BD must close out (cover) the fail to deliver by __.

A

13 consecutive SDs

morning of 14th SD

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20
Q

A notice sent no later than [date?] each year concerning carrying agreement reports must be sent to both the __ and __.

A

July 1

CEO and CCO

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21
Q

If a regular-way settlement trade occurs before the ex-dividend date, who will receive the dividend?

If regular-way trade occurs on/after ex-date, who receives dividend?

If seller fails to deliver stock by the record date, seller will be listed as holder of record and must attach a ___ when delivering the stock after record date.

A

buyer

seller

due bill (indicating that the dividend is due to the buyer and will be transmitted to buyer when paid by the issuer)

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22
Q

BD’s net capital requirement based on markets made depends on price / qty of securities:

  1. shares > $5: qty x $___
  2. shares <= $5: qty x $__
  3. max net capital req = $__
A
  1. $2,500
  2. $1,000
  3. $1mm
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23
Q

While traveling in the US, can an associated (registered) person of a foreign BD make sales calls / visits to potential and existing clients who reside in the US?

Who must book the sale, if any?

A

Yes, if accompanied by a registered rep of a US BD.

US BD

24
Q

If a member firm promotes / advertises day-trading to retail customers:

  1. When must it furnish a risk disclosure doc?
  2. Who must approve the ads?
A
  1. Prior to opening the account for trading

2. Principal

25
Q

Trades that are automatically sent to a clearing co for clearance and settlement according to agreed terms b/w parties are referred to as ___.

Such trades are executed through the ___, also referred to as the ___.

A member may (under written docs) permit another member to report and lock in trades on its behalf; this is called a ___.

A

locked-in

Nasdaq Market Center Execution System (NMCES), aka the Single Book (since allows for trading of all Nasdaq, NYSE, AMEX securities)

give-up agreement

26
Q

Net Capital Requirements

BDs must meet the greatest of 3 net capital requirements:

  1. Net capital >= __ of AI (or __ of AI in 1st yr of operation)
  2. Min __ requirement
  3. __ requirement
  4. If clearing BD has:
    a) AI > __ x net capital, or
    b) net capital < $___, then
    c) BD must file what? With whom? By when?
A
  1. 1/15 (or 1/8)
  2. dollar
    - $250k for carrying firm that holds funds/securities
    - $1.5mm for PB
    - $1mm for self-clearing BD acting as executing broker in a PB relationship
    - $50k for introducing firm if receives securities for immediate transfer to clearing firm, or if makes market in enough issues (otherwise $100k)
    - $5k for introducing BD that does not receive securities or funds
  3. market-maker
  4. If clearing BD has:
    a) AI > 12 x net capital
    b) net capital < $300k (120% of $250k min)
    c) Early Warning Notice with its examining authority and the SEC w/in 24 hrs
27
Q

What is a free writing prospectus (FWP)?

When is a WKSI permitted to use a FWP?

When are other issuers (e.g. seasoned issuer) permitted to use a FWP?

A

FWP = any written comm that constitutes an offer to sell or solicitation to buy securities related to a registered offering

WKSI: anytime

Others: only after the filing of a registration stmt

28
Q

When must a member / broker / dealer notify its Designated Examining Authority if employing electronic storage for its records?

A

At least 90 days prior to employing such storage media (other than optical disk technology)

29
Q

After loss of WKSI status, can issuer continue to sell securities registered under an S-3 ASR (filed while a WKSI)?

A

Yes, until date on which its next Form 10-K is req’d to be filed.

30
Q

A customer has accepted a BD’s rec to buy a stock. The member sells the security short to the customer. When is the BD req’d to make a covering purchase to effect delivery to the customer?

A

Promptly

31
Q
  1. An instant message from an RR to client suggesting the client consider changing her portfolio based on RR’s analysis would be deemed ___ subject to ___.
  2. Instant messaging to prospective customers re an upcoming issue may be deemed ___ subject to ___ and retention for __.
  3. RR postings to an online interactive social media website (blog, chat room, etc) would be deemed ___ subject to ___.
A
  1. correspondence….review by a principal (but not pre-approval)
  2. retail communication…pre-approval by a principal…3 yrs
  3. retail communications…monitoring and supervision similar to correspondence (but not pre-approval)
32
Q

DMM (specialist) must buy / sell for his own account (acting as a dealer) to make market fair and orderly.

Cannot compete with a __ on his book.

Must always bid __ and offer __ than orders on his book.

Ex: There is a bid of 42.25 and offer of 42.36 on his book for ABC shares. What is lowest price DMM could bid for his own account?

A

public order

bid higher and offer lower

42.26

33
Q

Syndicate members are req’d to maintain the public offering price and may not sell the issue at a lower price unless/until ____.

A

the syndicate manager releases them to do so

34
Q

Nasdaq Global Select listing allows use of any of 3 standards:

  1. Min bid price of $__
  2. __ market makers
  3. subject to ____

Following 4 requirements may not apply, depending on which of the 3 standards is used:

  1. Pretax ____
  2. ___ flow
  3. market ___
  4. ___
A
  1. $4
  2. 3 or 4
  3. corporate governance
  4. earnings
  5. cash
  6. capitalization
  7. revenue
35
Q

How does FINRA define ‘clearly erroneous’ for purposes of complaints filed and corrections wrt errors?

A

As an obvious error in any term, such as price, # of shares, or ID of security

36
Q

Mutual fund exchange
- considered by IRS to be the sale of first fund and purchase of second

  1. Is sale of first fund a taxable event?
  2. Is an additional sales charge imposed?
  3. Purchase of second fund establishes a new ___.
  4. Exchange privileges usually allowed b/w funds w/in ___.
A
  1. Yes, taxable
  2. No, but a small fee may be assessed
  3. Basis for tax purposes
  4. Same family
37
Q

Anti-Intimidation/Coordination Interpretation

  • A member firm or associated person CANNOT:
    1. Threaten, harass, coerce, intimidate or improperly influence another firm/person
    2. Attempt to influence another to ___ or ___ a price or quote
    3. Refuse to ___ or ___ another mkt maker engaged in competitive activities
    4. ___ prices, trades, or reports with another
  • But a mkt maker CAN:
    5. Unilaterally set its own __ and __
    6. Unilaterally set its own dealer __, quote __, or __ of shares for its quotations
    7. Communicate to anyone the __ or __ at which it is willing to trade a Nasdaq security, for purpose of ___ a transaction
    8. Engage in any ___ of securities to extent permitted by law
A

CANNOT:

  1. adjust or maintain
  2. trade with or retaliate against
  3. coordinate

CAN:

  1. bid and ask
  2. dealer spread, quote increment, or qty of shares
  3. price or size…negotiating
  4. underwriting
38
Q

TRACE-eligible securities

  1. Who must report a transaction?
A
  1. Both buyer and seller
39
Q

When giving notice of a distribution, an issuer should provide the following to FINRA:

  1. ____ of the security
  2. ____ date
  3. ____ date
  4. ____ date
A
  1. name
  2. declaration
  3. record
  4. payment
40
Q

A penalty bid is an arrangement that permits the ___ to reclaim a ___ from a syndicate member when securities originally sold are repurchased by the syndicate in ___ transactions.

A

managing underwriter….selling concession….stabilizing

41
Q

At-the-market offering

  1. Issuers may use a __ registration to initiate.
  2. Only issuers registering under Form __ or __ may engage in this type of offering.
A
  1. shelf

2. S-3 or F-3

42
Q

According to the Investment Company Act of 1940, a pooled account does not have to register as an investment company if it does not make a ___ and has <= ___.

A

public offering…100 investors

43
Q
  1. Soft dollars are products and services an investment adviser receives from a BD in exchange for ____.
  2. BD may provide IA with services and info that assist the IA in making ___ on behalf of ___.
  3. Examples of permissible soft dollars?
  4. Examples NOT permitted?
A
  1. customer order flow
  2. investment decisions on behalf of clients
  3. research reports, financial newsletters, trade journals, tuition for seminars/conf, portfolio analysis software
  4. NOT travel expenses, computer hardware, office overhead, professional licensing fees
44
Q

Arbitration

  1. The time limitation for submitting disputes to arbitration is __ yrs from the time the act ____.

Disputes involving public customers

  1. Majority of panelists will be [affiliated/unaffiliated] with securities industry.
  2. Customer has right to reject selection of [how many?] arbitrators on peremptory basis.
  3. Customer has right to [how many] challenges for cause.
  4. All decisions final and binding. Awards must be paid w/in __ of determination or penalties may be assessed.
A
  1. 6 yrs from the time the act occurred
  2. unaffiliated
  3. one
  4. unlimited
  5. 30 biz days
45
Q

Anyone who acquires > 5% of an issuer’s equity securities must notify:

  1. whom?
  2. w/in how many days of acquisition?
  3. how?
A
  1. issuer, each exchange where traded, and SEC
  2. w/in 10 days
  3. by filing a Schedule 13D
46
Q
  1. DVP = dealer ___ securities, bank ___ cash

2. RVP = dealer ___ securities, bank ___ cash

A
  1. DVP = dealer delivers securities, bank delivers cash

2. RVP = dealer receives securities, bank receives cash

47
Q

TIF = transfer instruction form

  1. New firm must send to carrying firm ___ after receiving from customer
  2. Carrying firm must either validate or take exception w/in __. Examples of valid reason for carrying firm to protest a transfer?
  3. Following validation, carrying firm must complete transfer w/in __
A
  1. immediately
  2. one biz day
    Ex: mismatch of account title, tax ID, account number
  3. three days
48
Q

Holding mail

  1. BD may hold mail for a customer who will not be receiving at usual address provided BD receives ___ instructions that include the time-period.
  2. If time-period exceeds __, instructions must also include __.
A
  1. written

2. three consecutive months….a valid reason

49
Q

Rule ___ exempts registration for sale of securities on an intrastate basis.

Acquirer prohibited from selling to nonresident of the state for a period of __ months following last date of sale by issuer.

A business (e.g., BD) is defined as a resident of the state if its ____ is in that state.

A

Rule 147

9 months

principal office

50
Q

Trading pauses
If security enters limit state and fails to move back inside price bands w/in 15 secs, exchange will pause trading for ___. Can orders still be accepted?

Halts
Marketwide trading halts are based on the SP500. A halt on one exchange applies to all exchanges that trade the same security.
- Level 1 (__%) and Level 2 (__%): halt for ___
- Level 3 (__%): halt for ___

A

Trading pauses
5 mins. Yes, but no executions.

Halts

  • Level 1 (7%) and Level 2 (13%): 15 mins
  • Level 3 (20%): remainder of day
51
Q
  1. A Nasdaq market maker may become registered in a newly authorized issue by contacting ___.
  2. The registration becomes effective [when?].
A
  1. Nasdaq Market Operations

2. on the day the request is entered

52
Q

Road shows

  1. Can be delivered __ or __
  2. May be made to __ or __
A
  1. live or electronically

2. groups of investors or one-on-one (generally to institutions)

53
Q

Statute of limitations under ‘34 Act

  1. Price fixing, stabilizing, pegging: Must bring action w/in __ of discovery and w/in __ after the violation
A
  1. one yr of discovery and three yrs after violation
54
Q

Insiders may only sell short stock in their company in a ____ transaction.

Must make delivery w/in __ days.

A

short-against-the-box

20 days

55
Q

Qualified independent underwriter

  1. Must participate in preparation of offering docs for the sale of ____
  2. Must have served as mgr/co in at least __ public offerings of similar size/type during preceding __ yrs
A
  1. a member’s own securities

2. three offerings…three years

56
Q

Contemporaneous cost/proceeds

  1. Defined as the prevailing ___ of a debt security; forms basis for dealer’s __
  2. Occurs when dealer’s inventory purchase and resale to customer are in close __
  3. FINRA specifies 3 instances when contemporaneous cost/proceeds may be obsolete:
    - significant change in ___
    - significant change in ___
    - ___ issued or known to mkt
A
  1. mkt price; markup
  2. time proximity
  3. interest rates; credit quality; news

S24 (10 decks)

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