Q&A1 Flashcards
Account has long MV of $100k and debit balance of $40k. To what level may MV decline before account becomes restricted?
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.
Are stabilizing bids permitted for exchange-listed securities and OTC equity securities?
Stabilizing bids permitted for all exchange-listed securities, but not for OTC equity securities.
- 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? - 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?
1a) principal…different
1b) no
1c) 2
2a) same…does
2b) yes
2c) 1
Reverse convertible securities are ___ notes issued by ___ that usually pay a coupon rate [at / above / below?] mkt rates.
short-term notes issued by banks or BDs…above
When is ex-dividend date?
Which orders are reduced on ex-date?
What does DNR mean?
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)
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?
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
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 ___.
specialist / DMM (Designated Mkt Maker)
buyer pays no more than 18.60
seller receives at least 18.50
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 ___.
105 days
Statement of Financial Condition (not the same as an income statement)
Buy-in may not be executed sooner than T+__.
T+6 (i.e., SD+3)
The requirement that a registrant maintain effective internal controls re its financial reporting is found under Reg __ and requires ___ to attest to the statement.
Reg S-X….independent public accountant
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.
Form BR
30 days
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:
- Registered ICs (if comms include ___)
- Security ___
- Bond mutual funds (if comms include ___)
Retail comms re the following must be filed w/ FINRA w/in 10 biz days of being published:
- Registered ICs (except as noted above)
- Publicly traded ___
- SEC-registered ___
- Any security registered w/ SEC and derived from / based on ___
- (fund-created rankings or comparisons)
- security futures
- (volatility ratings)
- Includes mutual funds, closed-end funds, ETFs, unit investment trusts, variable products
- DPPs
- CMOs
- a single security, basket of securities, index, commodity, debt issuance, or foreign ccy (includes structured products like ETNs)
Fidelity bond
- Covers officers, employees to protect against such things as ___.
- Amount is based on the firm’s ___.
- Firm must review its fidelity bond coverage [how often?] based on its net capital req for the previous [how long?].
- If change to fidelity bond coverage is substantial (or coverage is cxl’d by carrier), firm must notify FINRA how soon?
- forgery, loss of securities, fraudulent trading
- net capital requirement
- annually….12 months
- immediately
SEC Rule __ requires BD to obtain written agmt from a customer for a trade in low-priced securities.
Does NOT apply to:
- Existing customers who have maintained an account for over ___
- Customers who have made __ or more purchases in low-priced securities on ___ days involving ___
- ____ securities
- Securities w/ bid price > $__
- Trades not _____ by the BD
SEC Rule 15g-9
- 1 year
- 3 or more…separate days…different issuers
- Listed
- $5
- not recommended
BDs are not permitted to execute third-market (aka ___) transactions in a security that is the subject of an IPO until ____.
CQS…the security has begun trading on its primary exchange (evidenced by report of an opening tx)
How to calculate value of a customer’s variable annuity?
of accumulation units x NAV
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.
cash the customer may withdraw on demand
Rule 15c3-3….quarterly
haven’t…can
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 ___.
both….either
does not apply to marketing-making
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 __.
13 consecutive SDs
morning of 14th SD
A notice sent no later than [date?] each year concerning carrying agreement reports must be sent to both the __ and __.
July 1
CEO and CCO
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.
buyer
seller
due bill (indicating that the dividend is due to the buyer and will be transmitted to buyer when paid by the issuer)
BD’s net capital requirement based on markets made depends on price / qty of securities:
- shares > $5: qty x $___
- shares <= $5: qty x $__
- max net capital req = $__
- $2,500
- $1,000
- $1mm
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?
Yes, if accompanied by a registered rep of a US BD.
US BD
If a member firm promotes / advertises day-trading to retail customers:
- When must it furnish a risk disclosure doc?
- Who must approve the ads?
- Prior to opening the account for trading
2. Principal
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 ___.
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
Net Capital Requirements
BDs must meet the greatest of 3 net capital requirements:
- Net capital >= __ of AI (or __ of AI in 1st yr of operation)
- Min __ requirement
- __ requirement
- If clearing BD has:
a) AI > __ x net capital, or
b) net capital < $___, then
c) BD must file what? With whom? By when?
- 1/15 (or 1/8)
- 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 - market-maker
- 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
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?
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
When must a member / broker / dealer notify its Designated Examining Authority if employing electronic storage for its records?
At least 90 days prior to employing such storage media (other than optical disk technology)
After loss of WKSI status, can issuer continue to sell securities registered under an S-3 ASR (filed while a WKSI)?
Yes, until date on which its next Form 10-K is req’d to be filed.
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?
Promptly
- 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 ___.
- Instant messaging to prospective customers re an upcoming issue may be deemed ___ subject to ___ and retention for __.
- RR postings to an online interactive social media website (blog, chat room, etc) would be deemed ___ subject to ___.
- correspondence….review by a principal (but not pre-approval)
- retail communication…pre-approval by a principal…3 yrs
- retail communications…monitoring and supervision similar to correspondence (but not pre-approval)
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?
public order
bid higher and offer lower
42.26
Syndicate members are req’d to maintain the public offering price and may not sell the issue at a lower price unless/until ____.
the syndicate manager releases them to do so
Nasdaq Global Select listing allows use of any of 3 standards:
- Min bid price of $__
- __ market makers
- subject to ____
Following 4 requirements may not apply, depending on which of the 3 standards is used:
- Pretax ____
- ___ flow
- market ___
- ___
- $4
- 3 or 4
- corporate governance
- earnings
- cash
- capitalization
- revenue
How does FINRA define ‘clearly erroneous’ for purposes of complaints filed and corrections wrt errors?
As an obvious error in any term, such as price, # of shares, or ID of security
Mutual fund exchange
- considered by IRS to be the sale of first fund and purchase of second
- Is sale of first fund a taxable event?
- Is an additional sales charge imposed?
- Purchase of second fund establishes a new ___.
- Exchange privileges usually allowed b/w funds w/in ___.
- Yes, taxable
- No, but a small fee may be assessed
- Basis for tax purposes
- Same family
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
CANNOT:
- adjust or maintain
- trade with or retaliate against
- coordinate
CAN:
- bid and ask
- dealer spread, quote increment, or qty of shares
- price or size…negotiating
- underwriting
TRACE-eligible securities
- Who must report a transaction?
- Both buyer and seller
When giving notice of a distribution, an issuer should provide the following to FINRA:
- ____ of the security
- ____ date
- ____ date
- ____ date
- name
- declaration
- record
- payment
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.
managing underwriter….selling concession….stabilizing
At-the-market offering
- Issuers may use a __ registration to initiate.
- Only issuers registering under Form __ or __ may engage in this type of offering.
- shelf
2. S-3 or F-3
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 <= ___.
public offering…100 investors
- Soft dollars are products and services an investment adviser receives from a BD in exchange for ____.
- BD may provide IA with services and info that assist the IA in making ___ on behalf of ___.
- Examples of permissible soft dollars?
- Examples NOT permitted?
- customer order flow
- investment decisions on behalf of clients
- research reports, financial newsletters, trade journals, tuition for seminars/conf, portfolio analysis software
- NOT travel expenses, computer hardware, office overhead, professional licensing fees
Arbitration
- The time limitation for submitting disputes to arbitration is __ yrs from the time the act ____.
Disputes involving public customers
- Majority of panelists will be [affiliated/unaffiliated] with securities industry.
- Customer has right to reject selection of [how many?] arbitrators on peremptory basis.
- Customer has right to [how many] challenges for cause.
- All decisions final and binding. Awards must be paid w/in __ of determination or penalties may be assessed.
- 6 yrs from the time the act occurred
- unaffiliated
- one
- unlimited
- 30 biz days
Anyone who acquires > 5% of an issuer’s equity securities must notify:
- whom?
- w/in how many days of acquisition?
- how?
- issuer, each exchange where traded, and SEC
- w/in 10 days
- by filing a Schedule 13D
- DVP = dealer ___ securities, bank ___ cash
2. RVP = dealer ___ securities, bank ___ cash
- DVP = dealer delivers securities, bank delivers cash
2. RVP = dealer receives securities, bank receives cash
TIF = transfer instruction form
- New firm must send to carrying firm ___ after receiving from customer
- Carrying firm must either validate or take exception w/in __. Examples of valid reason for carrying firm to protest a transfer?
- Following validation, carrying firm must complete transfer w/in __
- immediately
- one biz day
Ex: mismatch of account title, tax ID, account number - three days
Holding mail
- BD may hold mail for a customer who will not be receiving at usual address provided BD receives ___ instructions that include the time-period.
- If time-period exceeds __, instructions must also include __.
- written
2. three consecutive months….a valid reason
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.
Rule 147
9 months
principal office
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 ___
Trading pauses
5 mins. Yes, but no executions.
Halts
- Level 1 (7%) and Level 2 (13%): 15 mins
- Level 3 (20%): remainder of day
- A Nasdaq market maker may become registered in a newly authorized issue by contacting ___.
- The registration becomes effective [when?].
- Nasdaq Market Operations
2. on the day the request is entered
Road shows
- Can be delivered __ or __
- May be made to __ or __
- live or electronically
2. groups of investors or one-on-one (generally to institutions)
Statute of limitations under ‘34 Act
- Price fixing, stabilizing, pegging: Must bring action w/in __ of discovery and w/in __ after the violation
- one yr of discovery and three yrs after violation
Insiders may only sell short stock in their company in a ____ transaction.
Must make delivery w/in __ days.
short-against-the-box
20 days
Qualified independent underwriter
- Must participate in preparation of offering docs for the sale of ____
- Must have served as mgr/co in at least __ public offerings of similar size/type during preceding __ yrs
- a member’s own securities
2. three offerings…three years
Contemporaneous cost/proceeds
- Defined as the prevailing ___ of a debt security; forms basis for dealer’s __
- Occurs when dealer’s inventory purchase and resale to customer are in close __
- FINRA specifies 3 instances when contemporaneous cost/proceeds may be obsolete:
- significant change in ___
- significant change in ___
- ___ issued or known to mkt
- mkt price; markup
- time proximity
- interest rates; credit quality; news
