Questions From Quizzes/Exams Flashcards
True or False
The intent of MSRB rule G-37 is to stop large campaign contributions at the county level and lower.
False.
The intent of MSRB rule G-37 is to stop large campaign contributions at the State level and lower.
True or False
Under MSRB rules, discretionary authority must be renewed with the client annually.
False.
There is no requirement to renew discretionary powers annually.
Principals are required to approve each discretionary order “promptly” and must review the accounts frequently to detect abuses.
Under MSRB rule G-31, a municipal firm is permitted to solicit municipal securities transactions from a mutual fund in return for all of the following except:
A. Research advice
B. Sales of the fund’s shares
C. Financial advice
D. Execution capability
B. Sales of fund’s shares
Rule G-31 - the “anti-reciprocal” rule: prohibits municipal dealers from soliciting brokerage business from a mutual fund in return for sales by such dealer of the shares of that fund.
True or False
The following are investments which are allowed in a KEOGH plan (HR10):
CDs Securities US minted gold coins Gold and silver bullion Cash Value of life insurance Term life insurance
False.
All of the above are allowed except for term life insurance.
True or False
The following are investments which are allowed in a KEOGH plan (HR10):
CDs Securities US minted gold coins Gold and silver bullion Cash Value of life insurance
True
True or False
Term life insurance policies are allowed to be held in an HR10 (KEOGH) plan.
False.
The cash portion of life insurance policies may be held in a KEOGH.
Cash and Whole life insurance policies have cash values and may be held in a KEOGH.
Variable annuities may be held in a Keogh because they are considered securities.
True or False
Variable annuities may be held in a KEOGH (HR10) plan.
True - because they are considered securities.
The following statements regarding stabilizing bids on the NASDAQ are true EXCEPT:
A. Only one market maker may enter a stabilizing bid
B. Notification must be given to NASDAQ in writing prior to the first day that the stabilizing bid will appear on the system.
C. Market makers are prohibited from maintaining a regular bid and offer at the same time that a stabilizing bid is entered.
D. No identification is given on NASDAQ that a bid is a stabilizing bid.
D.
When a stabilizing bid is entered into the NASDAQ system, it must be identified as such.
How many days must elapse before the certificate of incumbency appointing a guardian over an incompetent becomes void, if no action is taken by the guardian?
60 days.
If a guardian doesn’t take control over an account within 60 days, the court must appoint a successor guardian.
True or False
Under the “cheap stock” rule, the minimum margin to short a stock that sells for less than $5 per share is: 100% or $2.50 per share, whichever is greater.
True
True or False
Under the “cheap stock” rule, the minimum margin to short a stock that sells for less than $5 per share is: 100% or $2.50 per share, whichever is lesser.
False.
Under the “cheap stock” rule, the minimum margin to short a stock that sells for less than $5 per share is: 100% or $2.50 per share, whichever is greater.
True or False
An unregistered sales assistant may accept unsolicited orders from customers.
False.
Unregistered sales assistants may not accept unsolicited orders. They cannot give advice or recommend any securities either.
Which document gives the names of the individuals authorized to trade in a corporate account?
The corporate resolution
To open a corporate account, a corporate resolution must be completed and signed by who?
The Corporate Secretary
For customer identification procedures, a copy of the _________ must be obtained to determine that the company is real.
Corporate Charter
If a customer deposits cash that totals over $10,000 over a 2-week time period, or withdraws cash of more than $10,000 in a two-week window, this must be reported to FinCEN within 15 days on a ____________.
CTR - Currency Transaction Report
If a customer deposits $10,000 or more within a two week time period, how long does a firm have to report this information to FinCEN on a Currency Transaction Report?
15 days
Suspicious Activities Reports (SARs) are filed with FinCEN within 30 days.
Withdrawal of funds from all of the following retirement accounts must begin at age 70.5 EXCEPT:
A. Traditional IRA
B. Roth IRA
C. KEOGH Plan
D. SEP IRA
B. Roth IRAs have no mandatory distribution age
Under the supervision rule, customer account activity of producing managers must be supervised by a person who is senior to, or is otherwise independent of the producing manager. To be such requires the following 4 tests to be met:
- This person can’t report to the producing manager.
- This person must be located in a different office than the producing manager
- The person cannot have supervisory responsibility for the activity being reviewed (the person’s comp can’t be based on the producing managers sales)
- This person must alternate responsibility every ___ years or less
Every 2 years or less
True or False
Rule 144 can only be used to sell unregistered stock if a public trading market already exists.
True.
Selling in compliance with the rule registers those shares.
It cannot be used for an IPO.
True or False
A home office is not a “branch” as long as:
- The location is not advertised as a branch.
- Customers are not met at the home office
And
- The rep doesn’t accept cash or securities at the home office
True
True or False
A research analyst may not place trades which are contrary to his recommendation under any circumstances under FINRA rules.
False.
Analysts are prohibited from trading counter to his recommendation. However, there could be a legitimate reason why he needs to sell, and to do so requires compliance knowledge and approval.
Records of all advertising my must be retained by FINRA member firms for how long?
3 years
As a general rule, solicitation to buy rule 144 stock is prohibited. Under which two circumstances may a broker-dealer solicit a customer to buy Rule 144 stock?
- If a customer has indicated an unsolicited bona fide interest within the preceding 10 days.
- If a broker-dealer has indicated an unsolicited bona fide interest within the preceding 60 days.
All of the following associated persons must be fingerprinted EXCEPT a person who solely:
A. Solicits customer orders
B. Transfers securities
C. Processes customer transactions
D. Handles customer securities and funds
C
All officers and employees of a broker-dealer must be fingerprinted except for those persons not engaged in the sale of securities AND those persons who do not regularly have access to the keeping, handling, or processing of monies, securities, or the records of original entry.
Thus, a person who solely processes customer transactions (e.g. Preparing confirmations) need not be fingerprinted.
True or False
If a person is on the National “Do-Not-Call” registry, if they have done business with your firm in the preceding 18 months, you are permitted to call them.
However, if that customer tells you to put him on your firm’s Do-Not-Call list, then you must do so and not call the person.
True
True or False
Under MSRB rules, a repurchase agreement between a municipal dealer and a customer may be in written or verbal form.
False.
The agreement must be written.
Verbal repurchase agreements are prohibited as they are considered guarantees.
Under MSRB rules, when must a client be delivered the “Official Statement” for a municipal fund?
- Anytime a change or amendment is made to the OS - or
2. Any time a new purchase is made - periodic of non-periodic.
True or False
The Office of Supervisory Jurisdiction must inspect customer account records annually to detect and prevent irregularities or abuses.
False
The Office of Supervisory Jurisdiction must inspect customer account records “periodically” to detect and prevent irregularities or abuses.
In addition, the member firm must inspect each OSJ at least annually, to ascertain that these procedures are, in fact, being carried out.
True or False
The Office of Supervisory Jurisdiction must inspect customer account records periodically to detect and prevent irregularities or abuses.
True.
In addition, the member firm must inspect each OSJ at least annually, to ascertain that these procedures are, in fact, being carried out.
True or False
Member firms must inspect each OSJ at least annually, to ascertain that procedures to periodically review customer account records are, in fact, being carried out.
True
True or False
Regulation FD (Fair Disclosure) requires that when an individual that is associated with a company is going to divulge any information that might have a market impact to a group of individuals, simultaneous disclosure must also be made to the general public.
True
Why would an issuer sell securities under the terms of an “investment letter” ?
it does not wish to go through the cost and time of registering the issue with the SEC.
So-called “letter stock” is private placement stock sold under Regulation D. An “investment letter” that accompanies these issues explains that the securities are not SEC registered and cannot be resold in the public markets unless they are either registered or sold under an exemption such as Rule 144.
Any purchaser of an Initial Public Offering of a “Pink Sheet” stock:
A must be provided with a copy of the prospectus if the purchase occurs within 25 days of the effective date
B must be provided with a copy of the prospectus if the purchase occurs within 40 days of the effective date
C must be provided with a copy of the prospectus if the purchase occurs within 90 days of the effective date
D is not required to be provided with the prospectus
C.
The prospectus delivery rules following the effective date are as follows:
IPO of the security that is NOT exchange listed (e.g., OTCBB and Pink Sheets): 90 days
Add on Offering of a security that is NOT exchange listed: 40 days
Security that is exchange listed: 25 days
True or False
If a customer receives a maintenance call in a pattern day trading margin account, the customer may “cross guarantee” and use the equity in any other accounts that the customer maintains at the same firm.
False
If a customer receives a maintenance call, the customer may “cross guarantee” and use the equity in any other accounts that the customer maintains at the same firm, with the exception of a pattern day trading account.
Pattern day trading margin requirements are kept independent, and the customer can only use the financial resources available in the pattern day trading account to meet any maintenance calls.
After returning from active military duty, how long does a registered representative have to return to work before the special inactive status ceases?
90 days
True or False
The practice of soft dollar remuneration is permitted under FINRA and SEC rules.
True
How frequently must supervisory branches be inspected?
Supervisory branches must be inspected at least annually;
non-supervisory branches must be inspected at least every 3 years.
How frequently must non-supervisory branches be inspected?
supervisory branches must be inspected at least annually;
non-supervisory branches must be inspected at least every 3 years.
True or False
Notification to FINRA is required if a registered employee of a FINRA member firm is arrested, indicted, or suspended or expelled by any other regulator (including insurance and commodities regulators).
True
The notice must be given promptly, but no later than 30 days after the event
Once an individual fails a licensing test 3 times, how many days must elapse between each successive retake.
180 days.
The “threshold list,” prepared daily by the exchanges under Regulation SHO, are those securities that are what?
Hard to borrow
True or False
In an agency trade, the name of the other party to the trade and the time of the trade; or a statement that such information is available upon request, must be included on the trade confirmation,
True
True or False
In a principal transaction, firms must disclose the amount of the mark-up for NASDAQ and OTC stocks.
False.
There is no requirement to disclose the mark-up in a principal transaction unless the security is included in the NASDAQ System.
True or False
The amount of any commission charged in an agency trade must be included on the trade confirmation.
True
True or False
The capacity in which the firm acted (agency or principal) must be included on the trade confirmation.
True
True or False
In a negotiated offering, under MSRB Rule G-32, the following must be disclosed to customers:
- underwriting spread
- amount of any fees received in connection with the underwriting
- initial offering price of each maturity
- names of syndicate members
False
There is no requirement under this rule to disclose the names of the syndicate members, nor their participation percentages.
True or False
Margin transactions may not be placed in discretionary accounts.
False
There is no prohibition on margin transactions in discretionary accounts; nor is there a prohibition on a customer entering an order of his or her own choice in a discretionary account.
True or False
Discretionary accounts may be approved by a municipal principal or a municipal sales principal.
True
True or False
A trade confirmation must disclose whether a trade is solicited or unsolicited.
False
There is no requirement to disclose on a customer confirmation if the order was solicited or unsolicited.
Which of the following actions is allowed when a new issue is “in registration”?
I The publication of an advertisement meeting the requirements for a tombstone announcement
II The mailing of a preliminary prospectus to interested individuals
III The acceptance of indications of interest
IV The acceptance of deposits on the new issue
I, II, and III
When a new issue is “in registration,” an offer or sale of the issue cannot be made. This is allowed only when the registration becomes effective. Prior to the effective date, the following are not legally considered to be offers: the mailing of a preliminary prospectus (red herring); the acceptance of an indication of interest (which is completely non-binding); and the publication of a “tombstone announcement” - which is so limited in nature that it is not considered an advertisement. The acceptance of a deposit is prohibited, since this is considered to be a binding contract of sale. This cannot occur until the effective date.
The FINRA 5% Policy applies to all of the following transactions EXCEPT:
A agency trades of over-the-counter securities
B principal trades of over-the-counter securities
C trades of exchange listed securities effected over-the-counter
D IPO of a security that is NASDAQ listed
D.
The FINRA 5% Policy applies to over-the-counter and exchange transactions in all securities except municipals. It does not apply to prospectus offerings (new issues).
True or False
Any person that requests to be placed on either a firm’s internal, or the national, “Do Not Call” list, stays on that list indefinitely.
True
If 5 years is an option on the test - that is the answer.
The Manning Rule covers:
A market orders
B limit orders
C stop orders
D GTC orders
B. The “Manning Rule” is another name for the Limit Order Protection Rule, which prohibits member firms from trading ahead of customer limit orders.
All of the following would be topics of discussion at the annual compliance review conducted with a registered representative EXCEPT:
A Front running
B Communications over the Internet
C Holding periods on control stock
D Product knowledge
D. The annual compliance review is supposed to cover rules and regulations - not product knowledge.
Under Rule 144, control stock that is purchased in the open market can be sold:
A immediately
B after a 6 month holding period has elapsed
C after a 1 year holding period has elapsed
D after a 2 year holding period has elapsed
A.
Under Rule 144, control stock that is purchased in the open market can be sold immediately (if they are bought in the open market, the shares must be registered). However, the 1% and 4 week trading average limits on sale must still be met. Restricted stock (unregistered stock acquired through a private placement) can only be sold under Rule 144 after having been held for 6 months, fully paid.
When are VWAP transactions typically used?
VWAP (Volume Weighted Average Price) transactions, which are typically large institutional orders, that when executed, could move the price of the stock that is the subject of the order.
True or False
All of the following documents can be used to verify customer identity EXCEPT:
A Passport
B Military ID
C Driver’s License
D Birth Certificate
D.
When opening a customer account, the customer’s identity must be verified promptly after account opening. This is done by matching the customer information to a valid government issued photo ID. A birth certificate does not have a photo (but it does have a footprint!).
How frequently may a rollover be made in a 529 plan for a beneficiary?
The 529 rollover rules only allow 1 rollover per beneficiary per year. It makes no difference how many 529 plans are set up for the same beneficiary.
Subscribers to the Consolidated Quotations Service receive listings of:
A bid and ask quotes with their sizes for over-the-counter stocks
B bid and ask quotes with their size for exchange listed stocks
C real time reports of actual trades in over-the-counter stocks
D real time reports of actual trades in exchange listed stocks
B.
The Consolidated Quotations Service provides bid and ask quotes with sizes for all market makers in exchange listed stocks. These market makers are the Specialists/DMMs on the New York Stock Exchange, Specialists on regional exchanges where the stock may also be listed (e.g., the Philadelphia Exchange), and Third Market Makers such as Weeden and Jefferies and Co.
A customer holds a mutual fund and receives a dividend distribution of $1,000 that is automatically reinvested. Which statement is TRUE regarding the tax treatment of the dividend?
A The cash dividend of $1,000 is not taxed because it has been reinvested
B The cash dividend of $1,000 is taxable at a maximum rate of 15%
C The cash dividend of $1,000 is taxable at a maximum rate of 35%
D The cash dividend of $1,000 is taxable when it is taken as a distribution by the customer
B.
It makes no difference if mutual fund dividends are reinvested or not - they are taxable. The maximum tax rate on cash dividends is currently 15%.
Under which underwriting style (competitive bid / negotiated) are underwriters required to disclose the spread to customers?
There is no requirement to disclose the spread to customers in competitive bid offerings; this is only required for negotiated offerings.
True or False
Funds in a 529 Plan that are not used to pay for qualified higher education expenses become taxable, plus are subject to a 10% penalty tax (on earnings in the account).
True.
Any non-qualified withdrawal is also subject to these taxes. The tax does not apply if the beneficiary received a scholarship and thus the funds were no longer needed to pay for school; if the funds are rolled-over into the plan of another state; or if any unexpended funds are rolled into a 529 plan for a relative that will be a college student.
Under MSRB rules, how long must copies of complaints, as well as actions taken to resolve the complaints be retained for?
6 years
True or False
Under MSRB rules, principals must handle the complaint personally.
False.
The principal does not have to personally handle customer complaints - this work can be delegated to someone else. However, the principal is responsible for the complaint’s handling and resolution
True or False
Tombstone advertisements and prospectuses do not fall under the FINRA Communications Rule.
True
These are tightly regulated by the Securities Act of 1933, so FINRA does not need to perform further oversight.
Announcement of changes (such as change of address, phone numbers, new office, new employees, employee promotions) also are not covered by the Interpretation since they are not promotional.
Under Rule 204 of Regulation SHO, if a security that is sold short is not delivered on settlement, mandatory buy-in must occur at the market:
A opening on T+4
B closing on T+4
C opening on T+6
D closing on T+6
A
Rule 204 of Regulation SHO mandates the buy in of all short sales where there is a fail to deliver on “T+4” (the morning of the business day after settlement), which is the same as S+1.
The responsibilities of the BOM include:
I Approval of new accounts and transactions in accounts
II Ascertainment of the good character of applicants for registration
III Maintenance of personnel files for branch employees
IV Review of securities business related incoming correspondence directed to registered representatives
I, II, III, IV
The BOM has responsibility for account approval and transaction approval in customer accounts; for ascertaining the good character, business repute, qualifications, and experience of each applicant for registration in the branch; and for reviewing incoming correspondence directed to representatives in the branch and outgoing correspondence from representatives to their customers. As far as having responsibility for maintaining personnel files of branch employees, this one is “debatable,” but we think that the answer is “yes” to this one as well. Most personnel record information originates in the branch, and the records are usually kept at both the branch location and a central HR location.
True or False
MSRB Rule G-27 (Supervision) requires that order tickets be approved by the principal “promptly”; and that customer accounts be reviewed “frequently.”
True
True or False
MSRB Rule G-27 (Supervision) requires that order tickets be approved by the principal “daily”; and that customer accounts be reviewed “annually.”
False.
MSRB Rule G-27 (Supervision) requires that order tickets be approved by the principal “promptly”; and that customer accounts be reviewed “frequently.”
Under MSRB rules, an order ticket for an agency transaction must include all of the following EXCEPT:
A time of order receipt
B time of order entry
C time of order execution
D time of order cancellation
B - There is no requirement to note the time of order entry.
The following are required to be on agency order tickets:
Terms and conditions of the order.
Date and time of receipt of the order.
The price at which the trade was executed.
The date of execution, and to the extent feasible, the time of execution.
If the account is that of a partnership, corporation, a joint account, or an order entered pursuant to a power of attorney, the name and address (if other than the account address) of the person entering the order.
If the order is canceled by a customer, the record must show the terms, conditions and date of cancellation, and to the extent feasible, the time of cancellation.
If the trade is discretionary, the ticket must be designated as such.
Which of the following orders are permitted to be entered into the NASDAQ System?
I Riskless principal trade
II Marketable limit order
III Proprietary orders
IV Agency orders
I, II, III, and IV
The NASDAQ System accepts market, marketable limit, and limit orders. It allows proprietary trades and agency trades.
True or False
A municipal principal does not have to be physically located at each branch office where municipal business is conducted.
True
The FINRA 5% Policy applies to transactions in which of the following securities?
I Open end investment companies
II Closed end investment companies
III Unit investment trusts
IV Real estate investment trusts
II and IV
The FINRA 5% Policy applies to over-the-counter and exchange transactions that take place in the secondary market - the trading market. It does not apply to “redeemable securities” such as mutual funds (open end investment companies) and unit investment trusts. It does apply to securities that are traded, such as closed end funds and Real Estate Investment Trusts.
True or False
In order to recommend a variable annuity to a customer, the selling representative must sign a statement that all required representations and suitability determinations were completed.
True
The representative must have a reasonable basis to believe that:
the customer has been informed, in general terms, of the material features of the product;
the customer would benefit from one or more of the product’s features; and
the particular variable product as a whole, the underlying separate accounts to which funds are allocated, and riders to the policy are suitable.
True or False
In a 529 plan, there is no limit on the frequency of rollovers where there is a change of beneficiary designation, as long as the new beneficiary is a qualifying family member.
True
True or False
In a 529 plan, there is no limit on the frequency of rollovers where there is no change of beneficiary designation.
False…
There may only be one rollover in any 12 month period for the same beneficiary.
There is no limit on the frequency of rollovers where there is a change of beneficiary designation, as long as the new beneficiary is a qualifying family member.
True or False
During a trading halt, a member can still accept orders from clients. The orders are entered once trading resumes.
True
True or False
Funds can be withdrawn prematurely (before age 59 ½) without incurring the 10% penalty tax if that person dies or is permanently disabled.
Becoming impoverished is not a valid reason to avoid the penalty tax for premature withdrawal.
True
True or False
Corporate profit sharing plans are qualified plans. Contributions are made solely at the employer’s discretion. Unlike other qualified plans, there is no required annual contribution.
True
True or False
Current yield must be shown on customer confirmations.
False
There is no requirement to disclose current yield on a confirmation.
True or False
Since mutual funds do not trade, the ex-date set by the Fund’s Board of Directors is not reported to FINRA.
True
True or False
For a mutual fund, the Board sets the ex-date on the same day as the record date.
True
Which transactions does the 5% policy apply to?
The 5% Policy applies to all over-the-counter and exchange transactions that take place in the secondary market except for those in municipal securities.
It applies to over-the-counter riskless transactions (a dealer buying a security for a customer after receiving a sell order in the same security from another customer - since the dealer is “matching” the orders and is not taking the position into inventory, it is a riskless trade).
It applies to proceeds transactions (where a customer directs a dealer to sell one position and use the proceeds to buy another position). The 5% Policy does not apply to prospectus offerings, so it does not apply to registered primary distributions or registered secondary distributions.
True or False
The 5% Policy does not apply to prospectus offerings, so it does not apply to registered primary distributions or registered secondary distributions.
True
True or False
Contributions to Coverdell accounts must stop once the beneficiary reaches age 21.
Distributions must be completed upon reaching age 30.
False
Contributions to Coverdell accounts must stop once the beneficiary reaches age 18.
Distributions must be completed upon reaching age 30.
True or False
Contributions to Coverdell accounts must stop once the beneficiary reaches age 18.
Distributions must be completed upon reaching age 30.
True
Which of the following will change the SMA balance in a long margin account?
I Cash dividends received
II Stock dividends received
III Interest charged on the debit balance
IV Decline in the value of the securities
I only.
Cash dividends are credited to SMA, increasing the balance that can be borrowed, for 30 days. At the same time, they reduce the debit balance. If the customer borrows the dividends within the 30-day time limit, then SMA is reduced and the debit increases to its previous balance. Interest charged on the debit is added to the debit balance, but has no effect on SMA. Stock dividends received have no effect on the debit, nor on SMA. The number of shares increase, but the aggregate market value in the account would theoretically be unchanged for the stock dividend. A decline in the market value of securities has no effect on SMA. SMA “locks” at its existing level if the market value declines.
Deposits or withdrawals of over $10,000 of cash are reported to FinCEN on a Currency Transaction Report (“CTR”) within how many days?
15 days
In order to be included in a KEOGH plan, employees must work in excess of how many hours per year?
1000 hours
Which statements are TRUE regarding TRACE?
I TRACE reports trades in corporate stocks
II TRACE reports trades in corporate bonds
III TRACE reports must be made within 10 seconds of each trade
IV TRACE reports must be made as soon as practicable after execution
II and IV
TRACE stands for “Trade Reporting And Compliance Engine” and is FINRA’s system for collecting trade reports on corporate and agency bond issues traded OTC. Both investment grade and non-investment grade bond trades are reported, and both convertible and non-convertible issues are reported through TRACE. The time frame for required TRACE trade reports is not the usual 10 seconds. TRACE reports must be made “as soon as practicable” after execution.
True or False
NASDAQ MarketWatch has the authority to declare a transaction as “null and void” on its own motion, or as the result of an investigation that it makes after receiving a complaint from either the buying dealer or selling dealer.
True
Under MSRB rules, employee records must be retained for ___ years after an employee leaves or is terminated.
4 years
True or False
The MSRB defines as “quotes,” which must be bona fide, as any bid for a security or offer of a security. A publication of a “bids wanted” notice; or publication of an “offers wanted” notice are not considered “quotes”.
False
The MSRB defines as “quotes,” which must be bona fide, as any bid for a security; offer of a security; publication of a “bids wanted” notice; or publication of an “offers wanted” notice.
The registered principal must;
I. Approve and endorse, in writing, the opening of each customer account
II. Review and endorse, in writing, each customer transaction.
III. Review and endorse in writing, all correspondence of registered reps relating to the solicitation of securities transactions.
I, II, and III
Regulation SHO applies to short sales of securities effected in:
I. NYSE listed issues
II. NASDAQ listed issues
III. OTCBB listed issues
IV. Pink Sheet listed issues
I, II, III, and IV
Under NYSE rules, what is the latest time that a “MOC” order can be entered or cancelled?
3:45pm ET.
Note: NASDAQ allows such orders to be placed/cancelled til 3:50pm
Under NASDAQ rules, what is the latest time that a “MOC” order can be entered or cancelled?
3: 50pm
note: NYSE allows these orders only until 3:45pm
The steps for opening a customer account are performed in what sequence?
I Registered representative completes the new account information
II Initial order is entered
III Registered representative who performs the suitability determination signs the new account form
IV Manager signs the new account form
I, III, IV, II
True or False
In an agency trade, the name of the other party to the trade and the time of the trade must be “made available” on the confirmation.
True
After an ACAT form is received, how many days does a firm have to validate the positions under FINRA rules?
1 day for validation. The firm then has 3 days from the validation date to complete the transfer of the securities.
(Under MSRB rules, a firm has 3 days to validate the positions. After validation, a firm has another 4 days to xfer the securities)
After an ACAT form is received, how many days does a firm have to validate the positions under MSRB rules?
Under MSRB rules, a firm has 3 days to validate the positions, then 4 days after validation to complete the xfer.
(Under FINRA rules, a firm has 1 day to validate the securities then 3 more days to complete the xfer)
Municipal bonds held in margin accounts may be registered in all of the following names EXCEPT:
A. Bearer
B. Nominee
C. Member firm
D. Customer
D
Margin securities are pledged as collateral by the customer to the brokerage firm in return for the margin loan. These securities are never registered in customer name. If this were done, then the firm would need the customer’s signature on the securities to sell them, in the event of the customer failing to meet a margin call. Margin securities can be held in bearer name, member firm name, or nominee name (e.g. Depository Trust Corp.). Thus, if the securities need to be liquidated, they can be sold without any hold-ups.
A member firm may use a third party to execute over-the-counter agency transactions for customer orders:
A under no circumstances
B if the resultant price is reasonably related to the inside market at that time
C if the resultant price is equal to the best available market at the time
D if the resultant price is better than the best available market at the time
D.
As a general rule, interpositioning a third firm between the customer and the market maker is prohibited unless it can be demonstrated that the use of the “middleman” firm will result in a better execution for the customer.
True or False
Stabilizing bids can be placed at or above (typically just above) the Public Offering Price. They can never be placed below the Public Offering Price.
False
Stabilizing bids can be placed at or below (typically just below) the Public Offering Price. They can never be placed above the Public Offering Price.
True or False
Stabilizing bids can be placed at or below (typically just below) the Public Offering Price. They can never be placed above the Public Offering Price.
True
Under MSRB rules, which of the following are defined as advertisements?
I Official Statements
II Abstracts of Official Statements
III Offering Circulars
IV Summaries of Offering Circulars
II and IV only
While the MSRB does not define Official Statements and Offering Circulars as “advertising,” it does define abstracts of these as advertising, subject to review and approval by a municipal securities principal. This makes sense, because an abstract prepared by a municipal firm might contain inaccurate statements or might omit important information. The actual Official Statements or Offering Circulars are prepared in conjunction with the Bond Counsel, and must meet rigid legal disclosure requirements and State disclosure requirements.
True or False
The 5% Policy does not apply to prospectus offerings (primary distributions and registered secondary distributions).
True
True or False
The 5% Policy applies to all over-the-counter and exchange transactions in the secondary market.
False.
The 5% Policy applies to all over-the-counter and exchange transactions in the secondary market EXCEPT for those in municipal securities.
True or False
Control relationships must be disclosed verbally when the order is taken (legally, when the contract to buy or sell is entered into); and must be disclosed in writing on the trade confirmation.
True
Under SEC Rule 145, which of the following corporate reorganizations will typically require the filing of a registration statement?
I Stock split
II Change in the par value of common stock
III Merger of two issuing corporations
IV Exchange of securities between a new issuer and an existing issuer
III and IV
SEC Rule 145 requires the registration of securities issued in connection with mergers and acquisitions, liquidations, or exchanges.
This rule has no effect on stock splits or changes in par value.
True or False
Reasons for a higher than normal mark-up include:
- a thin trading market
- making the transaction more difficult to effect; an odd lot
- making the settlement charges more expensive;
- a very small dollar amount for the transaction, making the clearing costs a larger portion of the overall transaction cost, or
- disclosure of the mark-up to the client.
False.
All of the reasons above are true except #5.
Disclosing a mark-up is not a reason for a higher mark-up than normal on a trade.
Under MSRB Rule G-3, which of the following municipal firms would be subject to the Continuing Education requirements?
I Bank dealer
II Non-bank dealer
III Municipal broker’s broker
I, II, and III
All municipal firms are subject to the CE requirements of MSRB Rule G-3.
True or False
A member firm must give customers 90 days notice prior to changing its “in-house” maintenance requirements from 30% to 35%.
False.
Member firms are free to change their minimum maintenance margins at will.
There is no requirement to give the customer advance notice of a change.
When executing a transaction for a client, MSRB rules require the firm to:
A obtain at least 3 competitive quotes for that security before effecting the transaction
B obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions
C use a municipal broker’s broker to find the best available price in the market
D effect any trade at the fair market value of that security at that moment
B.
MSRB rules require that when executing a transaction for a client, the firm must obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions.
Which of the following usually acts as the stabilizing market maker?
A Issuer
B Managing underwriter
C Any member of the syndicate
D Any member of the selling group
B.
The managing underwriter will act as the stabilizing underwriter in a new issue offering. At any time, only one firm (the manager) can maintain a stabilizing bid.
Portfolio margining is NOT available for:
A Listed common stocks
B Listed bonds
C Listed options
D Unlisted derivatives
B.
Portfolio margin, which is risk-based as opposed to strategy-based, reduces margins for hedged stock positions and hedged stock portfolios.
To hedge stock positions, both listed options and unlisted derivatives may be used. Portfolio margins cannot be used for bond positions. This is the case because they already have very low margins (for example, the margin on corporate bonds is the greater of 7% of face or 20% of market value).
True or False
Portfolio margins cannot be used for bond positions.
True
True or False
Investment Advisers must operate on a fiduciary standard while Broker-Dealers must operate on a suitability standard
True.
True or False
Investment Advisers must operate on a suitability standard while Broker-Dealers must operate on a fiduciary standard
False.
Investment Advisers must operate on a fiduciary standard while Broker-Dealers must operate on a suitability standard
True or False
Under FINRA rules, if a person associated with a member firm wishes to open an account at another member, the executing member must notify the person opening the account that the employer will be notified
True
Under Rule 17a-4, customer statements must be posted no later than:
A - T
B - T+2
C - S
D - S+2
C.
To be considered “current” under SEC rules, customer statements must be posted no later than settlement date.
The managing underwriter of a public offering of securities may publish a research report or make a public appearance about the underwritten security:
A after 90 days have elapsed for an initial public offering and after 40 days have elapsed for a secondary offering
B after 20 days have elapsed for an initial public offering and after 10 days have elapsed for a secondary offering
C after 10 days have elapsed for an initial public offering and after 3 days have elapsed for a secondary offering
D under no circumstances
C.
To stop managing underwriters from “hyping” an underwriting once sale of the issue commences, the managing underwriter is prohibited from issuing a research report on that company, or from making public appearances where it comments on that company, for the 10 days following the effective date for an initial public offering; and for the 3 days following the effective date for a secondary (add-on) offering.
During the order period, an order submitted for the account of all syndicate members in proportion to their percentage participation, is known as a:
A
member at the takedown order
B
group order
C
pre-sale order
D
designated order
B.
Prior to the sale date of a competitive bid issue, the syndicate accepts “pre-sale” orders to build a “book” of customer orders. The credit for these orders is shared among all syndicate members based on their participation percentage. Immediately following the sale date, if the issue is not completely “pre-sold,” the manager establishes an order period, and will accept Group Net; Designated; and Member Takedown orders. The orders that benefit the most syndicate members get highest priority. Group Net Orders are credited to the syndicate account as a whole (similar to Pre-Sale Orders); while the credit for a Designated Order has been directed to be split among designated syndicate members (say 2 or 3 specific members); while the credit for a Member Order only goes to that single syndicate member. Thus, Group Net Orders benefit the syndicate as a whole; while designated orders benefit some members of the syndicate; and Member orders only benefit one syndicate member.
True or False
Prepaid tuition plans, can be established by both colleges and universities, but not by States.
False.
Section 529 plans can only be established by States. Prepaid tuition plans, however, can be established by both colleges and universities, as well as States.
An “assignment and power of substitution” is the legal document that does what?
transfers a personal interest in a security to a third party, giving that party the right to substitute another name in the company’s records
Under MSRB rules, when must the identity of a customer who places a Group Net order be disclosed?
A
At the time of taking the order
B
At the time of order submission
C
At the time of order confirm
D
At the time of trade settlement
B.
The MSRB requires that syndicate members who place Group Net orders with the manager for new issue allocations must disclose the identity of the customer for whom the order is being placed at the “time of order submission.”
A municipal dealer must provide a customer with a copy of the Investor Brochure:
A
at, or prior to, the opening of the account
B
upon receipt of a written complaint
C
upon purchase of a new municipal issue
D
prior to the completion of the first transaction in the account
B.
Upon receiving a written customer complaint, the municipal firm must promptly send to the customer a copy of the “Investor Brochure” which details how complaints may be resolved
The cost of distributing a mutual fund to customers can be paid via:
i. front-end loads
iI, contingent deferred sales charges (CDSC)
iii. 12b-1 fees
i, ii, & iii
The cost of distributing a mutual fund (that is, the cost of compensating a sales force) can be paid from up-front sales charges, contingent deferred sales charges, and from annual 12b-1 distribution fees
Any appeal to the Market Operations Review Committee must be made within ____ minutes of the trade; and all decisions of the Committee are binding and final.
30
A FINRA member is a market maker in ABC Corporation common stock. The broker-dealer is handling a firm commitment underwriting of ABC Corporation non-convertible subordinated debentures. Prior to the effective date, which of the following actions by the member are permitted?
I Recommending the purchase of ABC common stock
II Soliciting orders to buy ABC common stock
III Accepting unsolicited orders to buy ABC common stock
IV Distributing research reports on ABC Corp. common stock
I, II, III, IV
The key to this situation is that the broker-dealer is underwriting the non-convertible bonds of the company. Since these cannot be converted into the common stock, there are no prohibitions on the broker-dealer from recommending the purchase of the common stock; from soliciting orders to buy the common stock; from accepting unsolicited orders to buy the common stock; or from distributing research reports on the common stock prior to the effective date. Please note that if the underwriting was for a convertible issue, all of these activities would be prohibited
Under FINRA rules, a When, As and If Issued transaction settles:
A 1 business day after the seller gives written notice of intention to deliver
B 3 business days after the seller gives written notice of intention to deliver
C on a date set by the Uniform Practice Code Committee
D on a date set by the Market Operations Review Committee
C.
A “When, As and If Issued” security is a new issue that has not yet been issued for trading. These are most often exempt bond offerings that are “presold” to investors before the actual issuance date of the securities. When the securities are actually issued, the FINRA Uniform Practice Code Committee sets a settlement date - typically 3 business days from, issue date.
Which of the following documentation is REQUIRED to open a margin account for a customer? I Hypothecation Agreement II Interest Charge Disclosure Form III Loan Consent Agreement IV New Account Form
I, II, and IV
To open a new margin account, a new account form must be completed; the customer must sign a hypothecation agreement (margin agreement); and the customer must receive a credit disclosure form. There is no legal requirement for the customer to sign a loan consent form, though very few firms will open a margin account without one. If the customer signs a loan consent form, the firm is permitted to loan out that customer’s securities on short sales
True or False
Under Rule G-13, quotes given by municipal dealers must have a “reasonable relationship” to the fair market value, taking into account all relevant factors, including:
- the firm’s overall inventory position in that security
- anticipation of the direction of the movement of the market for the securities
- knowledge of facts about the issuer (such as the fact that the security has been called or that the issuer has announced a default)
True
A registered investment company that does not have a Board of Directors, but which issues redeemable securities is a:
A
unit investment trust
B
face amount certificate company
C
management company
D
real estate mortgage investment conduit
A.
Unit Investment Trusts issue securities that represent an undivided interest in a fixed portfolio that are redeemable with the Sponsor at the current market value of the unit. There is no management of the portfolio, as is the case in a Management Company. Trusts do not have a Board of Directors. They are run by a Board of Trustees.
A municipal dealer may describe its relationship with the MSRB on its website or in its advertising:
A
under no circumstances
B
as a “MSRB Member”
C
as “MSRB Registered”
D
as “MSRB Affiliated”
C.
The MSRB permits the use of the MSRB name on a broker-dealer’s advertising and website, but only by stating “MSRB Registered.” The firm is not an MSRB member - FINRA is a membership organization and a firm can state that it is a FINRA member. The MSRB is simply a rulemaking board with which any broker-dealer that effects municipal transactions or engages in municipal securities business must be registered
True or False
The Code of Procedure is used to handle customer disputes with member firms, also known as trade practice disputes.
True
note: The Code of Arbitration is used to handle disputes from member to member, such as settlement problems.
True or False
The Code of Arbitration is used to handle disputes from member to member, such as settlement problems.
True
An older customer has inquired about a qualified annuity contract. The customer should be informed that:
I qualified annuities have contribution limits
II qualified annuities do not have contribution limits
III contributions to qualified annuities are made with pre-tax dollars and earnings build tax deferred
IV contributions to qualified annuities are made with after-tax dollars and earnings build tax deferred
I and III
A newer variation on a salary reduction plan such as a Keogh or SEP permits investments in annuity contracts. The annual contribution amount is limited as with all qualified plans, and the contribution reduces reported income for that year, so the contribution is made with “pre-tax” dollars. Earnings build tax deferred and when distributions commence (which must occur by age 70 ½), 100% of the distribution is taxable.
All of the following transactions fall under the 5% Policy EXCEPT:
A
over-the-counter agency transactions
B
proceeds transactions
C
third market transactions
D
municipal bond transaction
D.
The 5% Policy only applies to transactions that take place in the secondary market - either on an exchange or over-the-counter. The 5% Policy applies to over-the-counter principal and agency transactions; riskless or simultaneous transactions; proceeds transactions; and third market transactions. A third market trade is an over-the-counter trade of an exchange listed security. The policy does not apply to trades of municipal securities; nor does it apply to new issue prospectus offerings
Records of municipal agency and principal transactions:
I must be segregated
II may be combined
III must be retained for 4 years
IV must be retained for 6 years
I and III
Under MSRB Rule G-8, copies of agency and principal order tickets must be maintained separately and must be retained for 4 years.
Note, in contrast, that the SEC rule for retention of records is 3 years.
Which statement is TRUE regarding disclosure of municipal concessions on confirmations?
A
Customer confirmations show concessions as an aggregate dollar amount
B
Customer confirmations show concessions on a per-bond basis
C
Customer confirmations show concessions as a percentage of face value per bond
D
Customer confirmations are not required to show concessions
A. Rule G-15 requires disclosures of concessions on customer confirmations as an aggregate dollar amount.
True or False
Any person who owns restricted (unregistered) shares of a company’s stock must hold the stock fully paid for 12 months before the securities can be sold under a Rule 144 exemption.
False
Any person who owns restricted (unregistered) shares of a company’s stock must hold the stock fully paid for 6 months before the securities can be sold under a Rule 144 exemption.
True or False
There is no time limitation on the period that a stabilizing bid can be maintained. However, stabilization must cease when the syndicate is broken by the manager.
True
The information available on the non-NASDAQ OTC Bulletin Board includes:
I. firm quotes
II. workout quotes
III. unpriced indications of interest
I, II and III
The Non-NASDAQ OTC Bulletin Board is FINRA’s electronic version of the printed “Pink Sheets.” It includes stocks that do not qualify for NASDAQ listing (usually because the price of the issue is too low). In the Bulletin Board would be found any type of quote for these securities - as long as the quote is identified. In addition, “BW” - Bid Wanted or “OW” Offer Wanted listings would be found for these securities. Such listings do not have a price.
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
C
Increase of 10% in the Dow Jones Industrial Average
D
Increase of 10% in the Standard and Poor’s 500 Index
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.
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 ___%, the markets are closed for the remainder of the day.
20%
After the U-5 Form has been filed for a terminated representative, information is discovered that should have been disclosed on the form. Which statement is TRUE?
A
No amendment of the U-5 is required
B
An amendment must be filed promptly by the employer member
C
An amendment must be filed promptly by the terminated person
D
An amendment must be filed within 30 days by the employer member
D.
If information is discovered by a member firm about a terminated registered representative that has not been disclosed on the U-5 filing made with FINRA within 30 days of the termination of that individual, an amendment must be filed with FINRA by the member firm within 30 days of discovery of the new information.
The information available on the non-NASDAQ OTC Bulletin Board includes:
I. firm quotes
II. workout quotes
III. unpriced indications of interest
I, II and III
The Non-NASDAQ OTC Bulletin Board is FINRA’s electronic version of the printed “Pink Sheets.” It includes stocks that do not qualify for NASDAQ listing (usually because the price of the issue is too low). In the Bulletin Board would be found any type of quote for these securities - as long as the quote is identified. In addition, “BW” - Bid Wanted or “OW” Offer Wanted listings would be found for these securities. Such listings do not have a price.
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
C
Increase of 10% in the Dow Jones Industrial Average
D
Increase of 10% in the Standard and Poor’s 500 Index
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.
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 ___%, the markets are closed for the remainder of the day.
20%
After the U-5 Form has been filed for a terminated representative, information is discovered that should have been disclosed on the form. Which statement is TRUE?
A
No amendment of the U-5 is required
B
An amendment must be filed promptly by the employer member
C
An amendment must be filed promptly by the terminated person
D
An amendment must be filed within 30 days by the employer member
D.
If information is discovered by a member firm about a terminated registered representative that has not been disclosed on the U-5 filing made with FINRA within 30 days of the termination of that individual, an amendment must be filed with FINRA by the member firm within 30 days of discovery of the new information.
True or False
529’s are state sponsored education savings plans. Coverdells are federal plans.
True
True or False
Coverdells are state sponsored education savings plans. 529s are federal plans.
False
529’s are state sponsored education savings plans. Coverdells are federal plans.
For a firm’s first year of operations, the maximum permitted ratio of Aggregate Indebtedness to Net Capital is what?
8:1
During the first year, aggregate indebtedness cannot exceed 8 times the firm’s net capital.
After the first year, they can’t exceed 15:1.
True or False
The distribution of a preliminary prospectus (red herring) during the 20-day cooling off period is not considered to be an offer to sell.
True
True or False
The distribution of a preliminary prospectus (red herring) during the 20-day cooling off period is considered to be an offer to sell.
False.
It is NOT considered to be an offer to sell.
Which of the following quotes for non-NASDAQ stocks may be shown on the “OTC Bulletin Board”?
I Firm Quotes and Sizes
II Bids Wanted
III Offers Wanted
IV Unpriced Indications of Interest
I, II, III, IV
The non-NASDAQ “OTC Bulletin Board” is an electronic version of the Pink Sheets. It shows quotes for securities that do not qualify for NASDAQ listing. On the OTC Bulletin Board can be found firm quotes with size for these non-NASDAQ securities.
In addition, dealers can place “BW” and “OW” entries for positions (Bids Wanted and Offers Wanted), and can place unpriced indications of interest in securities positions.
True or False
Credit agreements on margin accounts do not give a stated rate of interest, since it varies based on the current broker loan rate.
True
Under MSRB rules, a municipal representative can perform all of the following activities EXCEPT:
A
acting as financial advisor
B
training of other representatives
C
trading for institutional customers
D
submitting offerings into Bloomberg
B.
To train other municipal representatives, a person must have a Series 53 - Municipal Principal license.
The Series 52 Municipal Representative license is needed by those persons who trade, sell, underwrite, and do research on municipal securities, as well as those who act as financial advisors.
True or False
If a bond is callable, the blanket disclaimer that “Call features exist that can affect the yield” must be included on the confirmation.
True
True or False
There is no requirement to disclose “extraordinary” calls on trade confirmations.
True
Because there is such a high degree of uncertainty surrounding these calls.
For how many years must a firm keep the Articles of Incorporation on file?
For the life of the firm.
Customer account records and the general ledger must be kept on file for how many years?
6 years.
For how many years must communications sent to customers be kept on file?
3 years
True or False
Munifacts provides information on the municipal primary and secondary market
True
True or False
The Bond Buyer is an electronic reporting service used by professional bond traders to analyze the details of bond offerings
False.
Munifacts is an electronic reporting service used by professional bond traders to analyze the details of bond offerings
True or False
Munifacts is a daily newspaper about the municipal bond industry covering municipal bond new issue offerings, news, trends and analysis
False.
The Bond Buyer is a daily newspaper about the municipal bond industry covering municipal bond new issue offerings, news, trends and analysis
True or False
The Bond Buyer is available in newsprint and on the web, and is used by the general public more than industry professionals.
False
The Bond Buyer is available in newsprint and on the web, and is used by industry professionals - not by the general public.
True or False
UIT’s and management companies are trusts and face amount certificate companies are not.
False.
UITs and face amount certificate companies are trusts.
Management companies are not. Thus, management companies have a Board of Directors.
UITs and face amount certificate companies have a Board of Managers.
FINRA allows an exception to the rule requiring registered reps to get approval for trades with another firm if they limit their purchases to which two types of securities?
- Variable annuities
2. Mutual funds
The Securities Investors Protection Corporation logo is required to appear on which of the following written communications by a broker-dealer? I Advertising II Stationery III Research Report IV Market Letter
I only.
The SIPC logo is required on all broker-dealer advertising that is larger than 10 square inches.
It is not required to be placed on firm stationery, research reports, or market letters (though the firm may choose to do so).
Under SEC rules, issuers are obligated to declare dividends at least:
A
5 days in advance of the record date
B
10 days in advance of the record date
C
15 days in advance of the record date
D
20 days in advance of the record date.
B.
The SEC requires that the issuer give the exchange enough advance notice of a Record Date for a distribution such as a dividend, so that the exchange can set an appropriate ex date.
The SEC rule requires that issuers declare dividends at least 10 days in advance of the proposed Record Date.
Balance sheets must be sent to customers by the clearing broker-dealer how frequently?
Semi-annually
True or False
If a bona fide customer requests, or another member requests, the firm must send its latest balance sheet.
True
True or False
Customers must receive an audited balance sheet semi-annually.
False.
The annual balance sheet must be audited, while the semi-annual balance sheet is unaudited.
True or False
Any person who has “earned income” may contribute to an IRA.
True
Market letters must contain all of the following EXCEPT:
A
name of the member firm sponsoring the material
B
name of the firm preparing the material, if not the member firm
C
name of the person at the member firm who prepared the material
D
date of publication
C.
The name of the person at the member firm who prepared a market letter is not required to be disclosed; just the name of the firm is required on the market letter as well as the date of publication. If another firm or person has prepared the market letter, this must also be disclosed.
Under MSRB rules, which of the following are defined as “advertising”?
I Market letters
II Form letters
III Letters of an individual nature to a customer
IV Internal memos made available to the public
I, II, and IV
Included in the MSRB’s definition of advertising are market letters, research reports, seminar texts, and speeches relating to investing.
Internal memos made available to the public would also fall into the definition.
If these memos were only distributed within the firm, they would be excluded. Also excluded are letters of an individual nature to customers.
A coupon bond pays interest on May 1st and November 1st. In which of the following circumstances could the bond be delivered without the May 1st coupon attached?
I If the trade settles on, or after, May 1st
II If delivery is made after April 1st, but before May 1st
III If the bond is in default
I and II
If a coupon bond is in default, it must be delivered with all unpaid coupons attached, thus Choice III is incorrect. If the trade settles on, or after, the interest payment date, the seller has earned the interest for the entire preceding 6-month interest period, and claims the interest due by detaching and cashing that coupon. Thus, Choice I is correct. If it is within 30 days of an upcoming interest payment, the MSRB permits the seller to detach the upcoming coupon and substitute a bank check, making Choice II correct as well.
Registered bonds must be delivered in denominations of:
A
$1,000, or multiples, up to $100,000 par value per bond
B
$1,000 or $5,000 denominations per certificate
C
$1,000, or multiples, up to $1,000,000 par value per bond
D
$5,000 or $10,000 denominations per certificate
A.
Registered bonds are issued in $1,000 denominations of multiples of $1,000, up to $100,000 per bond.
The Supervision rule states that the 3-year inspection cycle for non-supervisory branches should be made more frequent based on which of the following:
I - The nature and complexity of the securities business conducted at that location;
II - The volume of business conducted at that location; and
III - The number of associated persons at that location.
I, II and III
True or False
The MSRB defines a “customer” as any person other than a municipal securities broker-dealer acting in its capacity as such; or an issuer in transactions involving the sale of a new issue of its securities.
True
Under Uniform Practice Rules, what is the time limit for reclaiming securities that have minor irregularities?
A
5 days
B
15 days
C
21 days
D
28 days
B.
FINRA Uniform Practice Rules allow reclamation of securities for minor irregularities within 15 days of the date of the original delivery. If the irregularity is severe - such as the wrong certificate delivered, or an over-delivery, the reclamation period is 30 months.
BrokerCheck information is available for:
I currently registered representatives that are active in the securities industry
II previously registered representatives no longer active in the securities industry
III currently registered broker- dealer firms that are active in the securities industry
IV previously registered broker-dealer firms that no longer active in the securities industry
I, II, III, and IV
If one of the tenants in a joint account dies, which of the following documentation is required to transfer securities registered in the name of the joint account to that person’s estate?
I Affidavit of Domicile
II Inheritance Tax Waivers
III Certified Copy of Death Certificate
IV Full Power of Attorney
I, II, and III
Which of the following persons is/are prohibited from buying a new common stock issue from the underwriter under FINRA Rule 5130?
I Brother of a registered representative
II Husband or wife of registered representative
III Uncle of a registered representative who is supported by the representative
IV Grandfather of a registered representative who lives in another state
I, II, and III
Under FINRA Rule 5130, all officers and employees of FINRA member firms and their “immediate family” are prohibited from buying new issues from underwriters. Immediate family includes spouses, siblings, parents, children, and anyone who is supported to a material extent.
It does not include uncles, aunts, grandparents and grandchildren (unless they are supported by the employee).
Which securities are DTCC-eligible? I Registered issues II Regulation D issues III Rule 144 issues IV Rule 144A issues
I and IV
DTCC (Depository Trust and Clearing Corporation) holds securities positions for its member firms and, as the clearing agent, transfers ownership as trades occur between these firms. All securities deposited to DTCC must be “eligible” for automated clearance and settlement. This means that they must be held at DTCC in street name and can either be physical certificates in street name or can be book-entry shares held in DRS (the Direct Registration System). DTCC will not hold securities that cannot be readily transferred. These are securities with resale restrictions and include private placement securities and Rule 144 issues (since they can only be transferred by meeting all of the Rule 144 requirements, such as the minimum 6 month holding period and sales only permitted every 3 months in limited amounts). Rule 144A issues are private placements that trade between QIBs on PORTAL - and DTCC will accept these.
Which of the following is a private investment? A PIPE offering B SHELF offering C Rule 147 offering D Rule 144 offering
A.
PIPE stands for a Private Investment in Public Equity. It is a fast injection of capital into a publicly traded company, where the company issues private placement unregistered shares at a discount to the private institutional investor. As a condition of the capital injection, the private equity firm requires that the company file a shelf registration for those shares, which allows the private equity firm to “cash out” its holding, if it so chooses, over the upcoming 3 years.
A customer requests information about a trade that settled 2 weeks earlier. The municipal firm must respond no later than: A 5 business days after receipt B 10 business days after receipt C 15 business days after receipt D 20 business days after receipt
A.
Under Rule G-15, if a customer requests information relating to a trade that occurred within the past 30 calendar days, the firm must provide the information within 5 business days of request. If the request relates to a trade that occurred more than 30 days ago, the response period is extended to 15 business days.
The ex date for a stock split is: A 2 business days prior to record date B the record date C the payable date D the business day following the payable date
D.
The ex-date for a stock dividend or stock split is different than that for a cash dividend. The ex-date for a stock split or stock dividend is set at the day after the Payable Date. This creates a problem. Assume that the company sets the Record Date at March 1st; and the Payable Date at March 31st. Anyone who buys the stock and settles on the Record Date of March 1st or before will be on the shareholder list to receive the additional shares on the Payable Date. There is no impact on these people. But anyone who buys the stock, settling anywhere from March 2nd (day after Record Date) through March 31st (Payable Date) will pay the full unadjusted price for the stock, but will not be on the record books to receive the additional shares when the stock split or stock dividend is paid (on March 31st). This isn’t fair, and these customers can claim the additional shares with a due bill. Anyone who buys, settling on the ex date of April 1st or later, will pay the reduced price, for the proper number of shares and a due bill is no longer required. The additional length of time between Record Date and Payable Date gives the transfer agent and paying agent plenty of time to handle the complex and tedious process of issuing new shares and distributing them to the existing shareholders.
The information to be completed on a new account questionnaire can be:
I recorded in writing by the customer
II given verbally by the customer and recorded in writing by the registered representative
III recorded in writing by a third party for the customer
IV given verbally by a third party for the customer and recorded in writing by the registered representative
I and II
A customer wishes to have her mailing address changed. The account file must be updated: A promptly B within 10 days C within 20 days D within 30 days
D. The SEC rule on any changes in account information (17a-3) is that the change must be reflected in the account within 30 days. Of course, most firms would make this change faster, but the rule gives 30 days to complete changes in account information.
Under the Securities Exchange Act of 1934, the penalty for insider trading violations by controlling persons is the greater of treble damages or: A $250,000 B $1,000,000 C $5,000,000 D $25,000,000
D.
The penalty for a controlling person being convicted of insider trading violations is the greater of 3 times the profit made or loss avoided; or $25,000,000.
Which of the following coupons would be considered to be mutilated and is NOT a good delivery?
I Name of issuer is not discernible
II Certificate number is not discernible
III Coupon number is not discernible
IV Payment date is not discernible
I, II, III, IV
A security is considered to be mutilated if the following cannot be ascertained: Name of issuer Par value Signature Coupon rate Maturity date Payment Date for a coupon Certificate number or coupon number Seal of issuer
True or False
A security is considered to be mutilated if the following cannot be ascertained: Name of issuer Par value Signature Coupon rate Maturity date Payment Date for a coupon Certificate number or coupon number Seal of issuer
True
A Municipal Finance Professional (MFP) and her spouse draw a $500 check from their joint checking account and submit it to a local mayoral campaign. Which statement is TRUE?
A
The contribution can be made without subjecting the member firm to a 2-year ban only if the MFP can prove that she and her husband wanted to equally contribute $250 each to the candidate
B
The contribution can be made without subjecting the member firm to a 2-year ban if both the MFP and spouse sign the check
C
The contribution can be made without subjecting the member firm to a 2-year ban regardless of whose signature is on the check
D
The contribution will cause the member firm to be subject to a 2- year ban prohibiting the firm from engaging in municipal securities business with that issuer
B.
If a Municipal Finance Professional and any other person sign a check for a campaign contribution drawn on their joint account and submit it to an issuer official as a contribution, each person is deemed to have made ½ the contribution under an MSRB interpretation. Thus, ½ of the $500 contribution = $250 - the maximum that can be contributed without subjecting the member firm to a ban.
If a broker-dealer terminates a registered employee, a copy of the U-5 Form must be given, or made available, by that broker-dealer to:
I FINRA
II the ex-employee
III any new broker-dealer with whom the ex-employee associates
I and II
If a broker-dealer terminates a registered employee, a U-5 must be filed with FINRA within 30 days; and a copy of the U-5 must be given to the employee by that broker-dealer. If the employee associates with another firm, it is not the responsibility of the ex broker-dealer to provide a U-5 copy to the new firm. However, the new firm may request a copy from the employee and can also retrieve a copy of the U-5 from Web-CRD (Central Registration Depository).
True or False
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.
True
A registered representative at a FINRA firm that only handles equities wishes to sell variable annuities for another member firm. Which statements are true?
I Notification must be given to his current employer that he wishes to sell for another broker-dealer
II Notification must be given to FINRA that he will be dual registered
III Notification must be given to the SEC that he will be dual registered
IV Notification must be given to the public that he is dual registered whenever a transaction is effected
I and II only
Currently, dual registration is technically permitted, though many states do not allow this. The requirements are that the current employer (broker-dealer) be notified of the registration with the new broker-dealer and that FINRA be notified. This is accomplished by noting, and disclosing, the dual registration on the U-4 Form that is filed with the new broker-dealer. There is no notification required to the SEC directly - the U-4 filing with FINRA meets the disclosure requirement. Nor is there any requirement to inform the public that a person is dual registered.
True or False
There is no requirement to disclose the source of income backing a general obligation issue because it must be taxing power.
True
True or False
There is no requirement to disclose the source of income backing a revenue bond issue because it must be taxing power.
False.
No requirement for disclosure in general obligation bonds.
Source of income must be disclosed on revenue bonds.
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
I, II, and 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.
A customer signature is required to open which of the following accounts?
I Cash Account
II Margin Account
III Arbitrage Account
II and III only
No requirement for signature on cash accounts
A broker-dealer is obligated to inform customers as to their rights with regards to errors found in their accounts on
A
the reverse side of each customer confirmation
B
each customer account statement
C
the account verification statement
D
Form 1099-B
B.
True or False
FINRA states that trade confirmations must be sent to customers “at, or prior to, the completion of the transaction.”
True.
Since transactions are complete on settlement, this gives the firm up to 3 business days to get the customer the trade confirm for a regular way stock trade.
True or False
When opening a new account for a customer, the customer’s identity must be verified promptly after account opening. There is no requirement for verification prior to entering the first trade.
True
True or False
The 5% Policy only applies to over-the-counter and exchange transactions that do not involve a prospectus. Thus, it does not apply to new issue offerings.
True
The cost of registering a PIPE securities issue is paid:
I by the issuer
II by the private investor group
III before the issuer receives any proceeds of the sale
IV after the issuer receives any proceeds of the sale
I and IV
True or False
Disclosure of the dated date is only required for secondary issues.
False.
Disclosure of the dated date is only required for new issues, since this is the date from which interest accrues on the issue.
True or False
Seminar texts must be approved in advance of use by the General Principal
True
If a broker-dealer terminates a registered employee, a copy of the U-5 Form must be given, or made available, by that broker-dealer to:
I FINRA
II the ex-employee
III any new broker-dealer with whom the ex-employee associates
I and II
If a broker-dealer terminates a registered employee, a U-5 must be filed with FINRA within 30 days; and a copy of the U-5 must be given to the employee by that broker-dealer. If the employee associates with another firm, it is not the responsibility of the ex broker-dealer to provide a U-5 copy to the new firm. However, the new firm may request a copy from the employee and can also retrieve a copy of the U-5 from Web-CRD (Central Registration Depository).
True or False
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.
True
A registered representative at a FINRA firm that only handles equities wishes to sell variable annuities for another member firm. Which statements are true?
I Notification must be given to his current employer that he wishes to sell for another broker-dealer
II Notification must be given to FINRA that he will be dual registered
III Notification must be given to the SEC that he will be dual registered
IV Notification must be given to the public that he is dual registered whenever a transaction is effected
I and II only
Currently, dual registration is technically permitted, though many states do not allow this. The requirements are that the current employer (broker-dealer) be notified of the registration with the new broker-dealer and that FINRA be notified. This is accomplished by noting, and disclosing, the dual registration on the U-4 Form that is filed with the new broker-dealer. There is no notification required to the SEC directly - the U-4 filing with FINRA meets the disclosure requirement. Nor is there any requirement to inform the public that a person is dual registered.
True or False
There is no requirement to disclose the source of income backing a general obligation issue because it must be taxing power.
True
True or False
There is no requirement to disclose the source of income backing a revenue bond issue because it must be taxing power.
False.
No requirement for disclosure in general obligation bonds.
Source of income must be disclosed on revenue bonds.
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
I, II, and 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.
A customer signature is required to open which of the following accounts?
I Cash Account
II Margin Account
III Arbitrage Account
II and III only
No requirement for signature on cash accounts
A broker-dealer is obligated to inform customers as to their rights with regards to errors found in their accounts on
A
the reverse side of each customer confirmation
B
each customer account statement
C
the account verification statement
D
Form 1099-B
B.
True or False
FINRA states that trade confirmations must be sent to customers “at, or prior to, the completion of the transaction.”
True.
Since transactions are complete on settlement, this gives the firm up to 3 business days to get the customer the trade confirm for a regular way stock trade.
True or False
When opening a new account for a customer, the customer’s identity must be verified promptly after account opening. There is no requirement for verification prior to entering the first trade.
True
True or False
The 5% Policy only applies to over-the-counter and exchange transactions that do not involve a prospectus. Thus, it does not apply to new issue offerings.
True
The cost of registering a PIPE securities issue is paid:
I by the issuer
II by the private investor group
III before the issuer receives any proceeds of the sale
IV after the issuer receives any proceeds of the sale
I and IV
True or False
Disclosure of the dated date is only required for secondary issues.
False.
Disclosure of the dated date is only required for new issues, since this is the date from which interest accrues on the issue.
True or False
Seminar texts must be approved in advance of use by the General Principal
True
True or False
The orders that are reduced on ex-date are “OBLOSS” - Open Buy Limits and Open Sell Stops.
True
True or False
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
True
True or False
It is mandatory that the customer also signs a loan consent agreement, allowing his or her securities to be lent out on short sales
False.
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
True or False
The “Time of Trade disclosure” rule applies to both solicited and unsolicited trades, and to both primary market and secondary market trades.
The only exception is that the rule does not apply to transactions with SMMPs (Sophisticated Municipal Market Professionals).
True
Rule G-47 - Time of Trade Disclosure - requires that at, or prior to executing a trade for a customer, all material facts about the transaction must be disclosed either orally or in writing.
