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Series 3 > Regulations > Flashcards

Regulations Flashcards

1
Q

NFA rules require members to have written Ethics training programs? T or F

A

True - NFA requires all members to have written ethics training programs. NFA members must conduct and maintain records concerning the ethics training that the firm provides to its associated persons. Members are allowed flexibility as to the frequency and method of training being used to fulfill its ethics training requirement.

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2
Q

CPO’s must distribute the Account Statement to pool participants at least _____ in the case of pools with net assets of more than $500,000 at the begining of the FY.

If $500,000 or less, then it must be sent at least ______.

A

Monthly

Quarterly

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3
Q

CTA’s must provide ___ years worth of performance figures in their disclosure Doc

A

5

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4
Q

An independent IB must maintain adjusted net capital equal to or in excess of ________

A

$45,000

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5
Q

True or False - Clearing members are not permitted to pay to customers interest on minimum margin deposited?

A

True - Interest may NOT be paid on customers minimum margin deposit

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6
Q

Do CFTC trading/position limits and position limits apply to speculators only, Hedgers only, or both

What are trading vs position limits?

A

Speculators only. Does not apply to Hedgers

These limits apply to long positions, short positions and spread positions established on one or more exchanges.

The trading limit is the maximum number of contracts that a trader may enter into in any single trading session.

Position limit are the maximum number of contracts that he may hold at any one time.

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7
Q

A commodity pool operator may be granted an exemption from registration if there are fewer than ___ participants (ex CPO + family) and less than _____ in the pool

A

There are fewer than 15 participants (ex CPo and fam) and less than $400,000

In addition, the operator can only manage one pool and may not be compensated. However, he can be reimbursed for operating expenses, including commissions.

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8
Q

Rule 2-30, the “Know Your Customer Rule,” requires all of the following information about a customer EXCEPT:

Annual Income
Age
Investment Experience
Educational background

A

Educational background not needed

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9
Q

T or F - The rules of the Chicago Board of Trade allow any RCR to exercise discretion over a customer’s account?

A

False - The Chicago Board of Trade does not allow an RCR to exercise discretion over a customer’s account unless he has had at least two years of experience and has been continuously registered during that period.

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10
Q

Does the futures market provide an alternative channel for marketing a commodity?

A

Yes - when a futures contract is settled by delivery, the cost of financing can be reduced because banks will lend money on a more favorable basis when a position is hedged, and the price of a commodity is constantly being established through sales that take place on the exchange

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11
Q

If a commodity pool being solicited has traded commodity interests for less than three years, the CPO must disclose a prominent statement to this effect and also present the actual performance of each other pool it is operating for the last:

A

Five years or the life of the pool, whichever is less

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12
Q

A CPO’s account statements must be distributed at least _____.

A

Quarterly

A CPO must distribute statements of account at least quarterly. Pools with Net Asset Value greater than $500,000 must send statements monthly.

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13
Q

A CPO must distribute statements of account at least quarterly. But, Pools with Net Asset Value greater than _____ must send statements________.

A

$500,000

monthly

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14
Q

When must a CPO submit a copy of its proposed disclosure document to the NFA?

A

21 days prior to its intended use

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15
Q

Records of IBs, FCMs, CTAs and CPOs must be kept ____ years.

A

5 years.

CFTC requires records be kept for 5 years

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16
Q

T or F - Until the issue is resolved, an NFA member is under a trading restriction when a Regional Business Conduct Committee reviews a report of an investigation of an alleged rule infraction by the member.

A

False - While under investigation, NFA members may continue to conduct business.

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17
Q

Can NFA members continue to conduct business when under investigation?

A

Yes

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18
Q

T or F - The NFA’s Compliance Director needs court approval to subpoena documents from an NFA member.

A

False - The NFA’s Compliance Director can subpoena documents without court approval.

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19
Q

T or F - Written communication with the public can be approved by any associated person of an NFA member firm.

A

False - Written communications with the public must be approved by a partner or officer of the firm. Unless an AP is a partner or officer, he is not able to approve written communication.

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20
Q

Who at an NFA member firm can have written communication with the public?

A

Only a Partner or Officer

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21
Q

Describe the Risk disclosure statement. Who must it be sent to?

A

Must be sent to all clients, whether speculators or hedgers when they open an account

Must disclose that spread positions may not be safer than long or shorts

It must be signed by the customer and sent back

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22
Q

T or F - A Commodity Trading Advisor’s disclosure document must include only the CTA’s commodity business background. Any other businesses the CTA was involved in would be irrelevant.

A

False - The CTA must disclose his business background for five years. If the CTA’s business background includes business other than commodities, they must be disclosed.

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23
Q

A CTA must disclose his business background for ____ years. If the background includes businesses other than Commodities do they need to be disclosed?

A

5yr

yes

24
Q

The agency responsible for floor brokers and floor traders is:

NFA

CFTC

Exchange

FINRA

A

The CFTC is the agency responsible for the commodity industry including floor brokers and floor traders.

25
Q

What is the CFTC?

A

an the independent federal agency that has overall responsibility to regulate the futures industry.

26
Q

Is the Exchange an independent organization responsible for regulating futures industry?

A

No, the exchange is a membership organization

27
Q

What is the NFA

A

The NFA is an industry association

28
Q

Both the exchange and the NFA are what?

A

DSROs (Designated Self-Regulatory Organizations)

29
Q

T or F - The NFA needs a subpoena before requesting documents as part of an audit of an NFA member firm.

how often do them?

A

False. NFA can audit without subpoena. Spot audits unannounced and full scope once every 24 months

30
Q

What is an Omnibus Account?

A

an account that a non-clearing firm maintains with a clearing firm. The non-clearing firm will maintain all of the required records and will enter orders with the clearing firm in a single omnibus account rather than in an account where the name of each customer is designated.

Also

An account carried by one FCM for another FCM in which the transactions of two or more customers are combined and carried in the name of the originating FCM rather than designated separately

31
Q

Can the NFA board of director take an action against a member, requiring the firm to immediately cease going business, prior to holding a hearing?

A

YES - NFA prez, with support from board can initiate a member responsibility action with or without a hearing. Most extreme action would be require the firm to cease business

32
Q

Does a CPO disclosure document need to state the types of commodity interest the pool will trade?

A

yes. it must always disclose types of commodity

33
Q

T or F - Funds deposited by a customer in a commodity account must be segregated.

A

true - CFTC requires all funds of a customer relating to commodity futures must be segregated. NOT mixed with those relating to securities etc

34
Q

Is a CPO required to maintain confirmation statements received from a FCM?

A

Yes - a CPO must maintain records of trades performed by the FCM on behalf of the pool. Records used for computing performance results for disclosure purposed

35
Q

A CPO disclose document may not be more than ___ old

A

12 months. It must be furnished to the public up to 12m after the date on the cover page

36
Q

If applicable, position reports must be submitted:

A

daily - If a trader (hedger or speculator) equals or exceeds the position reporting level, the required report must be submitted daily.

37
Q

Who is responsible for the collection of margin from clients?

A

The AP is. APs collect monies from clients in the name of the FCM or CPO. APs may not collect money in the name of the Introducing Broker, nor in the name of the Commodities Trading Adviser.

38
Q

APs collect money from clients in the name of the FCM or CPO. But CANNOT collect in the name of a _____ or ____

A

Introducing Broker or CTA

39
Q

Can the CFTC revoke the registration of an employed AP bc of past violations?

A

Yes

40
Q

DO formal rules of evidence apply at compliance hearings?

A

No

41
Q

According to Rule 2-30 (Know Your Customer), if the customer refuses to disclose any additional information about himself can you open an account for him?

A

Yes.

Rule 1.35 states that every customer must give his true name, address and occupation

Rule 2-30 states that if a customer refuses to give background information, an account may be opened by the RCR if the customer’s refusal to give information is noted and the account is approved by the branch office manager.

42
Q

T or F - According to Rule 2-30, the “Know Your Customer Rule,” if a customer refuses to disclose required information, an account may be opened if the customer’s refusal is noted and the account is approved by the branch office manager. Such a record need not be made in the case of a non-U.S. customer.

A

True - Dont need to keep record for a non US customer who refuses to disclose info

43
Q

T or F - An IB which accepts an order from a client must keep a copy of the order ticket?

A

True. IB’s must always keep order tickets accepted from a client

44
Q

T or F - Under the NFA Know Your Customer Rule, a member is responsible for deciding what additional risk disclosure information may be appropriate for a customer.

A

T - An example is the risk disclosure document used for options.

45
Q

How often must a CPO display in the disclosure documents all additions, withdrawals, and redemptions during the period

A

Quarterly

46
Q

If a CPO has traded commodity interest for 4 years he will have to disclose the performance for the entire history, but will be also need to disclose the other pools he operates?

A

No

A commodity pool being solicited that has been in existence for more than three years but less than five years, must disclose its entire operating history

47
Q

T or F - According to NFA Rules, even if an IB is not involved with placing any orders for a customer, he is still required to keep a complete record of trades.

A

False - IBs must act on a fully disclosed basis, therefore, it is the responsibility of the FCM carrying the account to maintain these records for clients who do not place their orders through the IB. Good business practice, however, would be for the IB to maintain a record as well.

48
Q

The NFA requires that members maintain their books according to ____ _____ _____ ____

A

Generally Accepted Accounting Principals

49
Q

All of the following statements are TRUE regarding the risk disclosure statement, EXCEPT:

1) It discloses the risks of investing in futures contracts.

2) It must be signed by the customer before the account is opened.

3) Spreads positions must not be described as being safer than long or short positions.

4) Only futures commission merchants (FCMs) are required to send risk disclosure statements.

A

4 is not true

IB and FCM can open an account. so its not true that ONLY FCM are required to send risk disclosure statements

50
Q

Can the CFTC go directly to court to prevent someone fro violating the Commodity Exchange Act?

A

yes!

If the CFTC determines that an associated person has violated the CEA, the CFTC has authority to seek injunctive relief in federal court.

51
Q

T or F - An NFA member who does not pay an arbitration award within 30 days is subject to suspension and may not engage in business with other members until the award is paid.

A

True

52
Q

T or F - If FCM or IB fees are determined on a round-turn or per-trade basis, the customer needs to receive a detailed explanation in writing.

A

False - IF and FCM or IB fees are determined on a round turn or per-trade basis, it is NOT necessary to provide the customer with a detailed explanation in writing

53
Q

For a commodity trading advisor to purchase, margin, or guarantee any commodity interest of a client, she must be registered as a:

A

An FCM or a CPO

A commodity trading advisor must be registered as either a futures commission merchant or a commodity pool operator if she wants to purchase, margin, or guarantee any commodity interest of a client.

54
Q

Prior to any trades in the account, trading advisors are required to provide all of the following, EXCEPT:

1) The disclosure document
2) The performance disclosure
3) The risk disclosure statement
4) The monthly statement of account

A

4

Prior to any trades in the account, commodity trading advisors are required to provide clients with a disclosure document, performance disclosure, and a risk disclosure statement. Monthly statements of the account will be distributed to clients after the pool begins to operate.

55
Q

t or f - A CPO must include a breakeven calculation in the beginning of the Risk Disclosure Document

A

True

56
Q

T or F - An IB may be guaranteed by more than one FCM.

A

False. Just 1

Series 3 (8 decks)

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