review exam 1

Question 1

Define Clearly Erroneous

Answer 1

FINRA provides a mechanism for correcting or voiding transactions when certain terms (e.g., price, number of shares) are an obvious error. FINRA defines this situation as clearly erroneous.

Question 2

What is the time frame to file clearly erroneous

Answer 2

The member firm should file a clearly erroneous transaction request with FINRA within 30 minutes.

Question 3

What discretion does a member firm have for stop orders.

Answer 3

A member firm may, but is not required to, accept stop orders and stop limit orders for NMS stocks

Question 4

ADF Trading center required hours.

Answer 4

An ADF Trading Center is required to be open from 9:30 a.m. to 4:00 p.m., which is defined as normal business hours.

Question 5

ADF System hours

Answer 5

The ADF system is open from 8:00 a.m. to 6:30 p.m. An ADF Trading Center may voluntarily open before 9:30 a.m. or stay open past 4:00 p.m. (82863)

Question 6

Finra Disqualification Appeal time frame

Answer 6

In compliance with FINRA Rule 9522, if the member fails to file the application requesting relief within 10 business days, the registration of the disqualified person will be revoked.

Question 7

reserve bank account formula

Answer 7

The Reserve Formula requires the listing of the credit items. The total value of the credit items must be on deposit at the bank unless the member firm has offsetting debit items. In this case, the amount of the debit items may be deducted from the credit items and the net amount deposited in the Reserve Bank Account.

Question 8

Reserve bank account computation time frames

Answer 8

Computations must be made either monthly or weekly. If the broker-dealer makes monthly calculations, it must maintain 105% of the required amount on deposit

Question 9

Reserve Bank Account Deposit timeframe

Answer 9

2 days after the day of calculation

Question 10

A broker-dealer has a fail-to-deliver position as a result of bona fide market-making activities and not being able to deliver stock by the settlement date. Under SEC Regulation SHO, the firm must:

Answer 10

If the fail was the result of bona fide market-making activities by the broker-dealer, the close-out requirement would be three settlement days following the settlement date (T + 5).

Question 11

The maximum civil penalty for insider trading violations is:

Answer 11

$5,000,000 or treble damages, whichever is greater

Question 12

explain the Riskless-principal exception to the manning rule.

Answer 12

Prohibition Against Trading Ahead of Customer Orders (Manning Rule) - If the proprietary trade is to facilitate a riskless-principal basis transaction (the market order from a customer to buy stock), it is not required to fill the limit order.

Question 13

Regulation S

Answer 13

Regulation S is used by issuers to raise additional capital from foreign investors

Question 14

Rule 144 is for

Answer 14

Selling shareholders would file under Rule 144 to sell restricted securities or control securities.

Question 15

Regulation D

Answer 15

Regulation D is an exemption under the 1933 Act often used by issuers to conduct private placements, not public offerings.

Question 16

Market maker net capital rule

Answer 16

market makers are required to maintain net capital of $1,000 for each security valued at $5 or less and $2,500 for each security priced above $5, with a maximum net capital requirement of $1,000,000.

Question 17

Untrue statements exception

Answer 17

Any information conveyed to a purchaser after the time of sale is not taken into account when determining whether a prospectus included an untrue statement, or omitted to state a material fact.

Question 18

Portfolio Margin eligibility

Answer 18

Portfolio margin is not available for small retail clients. The following entities are permitted to engage in portfolio margining.

Any broker or dealer registered with the SEC under the Exchange Act
Any member of a national futures exchange to the extent that listed index options, unlisted derivatives, ETF options, index warrants, or underlying instruments hedge the member's index futures
Any person approved to engage in uncovered option contracts. If a customer wants to trade unlisted derivatives, the customer must maintain equity of at least $5,000,000 at all times.

Question 19

If a broker-dealer has sold a security to a customer that meets the definition of penny stock as of the last trading day of any month, the broker-dealer must provide

Answer 19

a monthly statement to the customer as long as the security is held for the customer’s account with the broker-dealer. The statement must include: (i) The identity and number of shares of each penny stock held for the customer’s account, and (ii) the estimated market value of the security, to the extent it can be determined.

Question 20

There are three standards that can be used when applying for Nasdaq Global Select listing.

Answer 20

A $4 minimum bid price
3 or 4 market makers
Subject to corporate governance

The following four requirements may not be applicable, depending on which of the three standards is used in the issuer’s application.

Pretax earnings
Cash flow
Market capitalization
Revenue

Question 21

Principal Review of an Annuity Contract

Answer 21

When an application for the purchase of a variable annuity is received from a registered representative, the principal must approve or reject the application within seven business days of receipt. In addition, the principal must document and sign the recommendation, whether the application is approved or rejected.

Question 22

Under Section 4(5) of the Securities Act of 1933

Defined

Answer 22

According to Section 4(5) of the Securities Act of 1933, an offering by an issuer may be considered an exempt transaction if certain conditions are met. The amount of the offering may not exceed $5 million, no advertising or public solicitation may be used to offer the securities, and the offering may be sold only to accredited investors. There are no document delivery requirements;

Question 23

FINRA has limited authority to halt trading OTC equity securities underlying an ADR

Answer 23

cannot halt trading pending release of material information. (98823)

Question 24

After the opening of quotations in a security’s principal market, stabilization may be initiated at a price

Answer 24

no higher than the last independent transaction in the principal market if
(1) the security has traded in its principal market (on the day stabilizing is initiated or on the preceding day, and (2) the current asked price in the principal market is equal to or greater than the last independent transaction price.
If either condition (1) or (2) is not satisfied, stabilizing may start after the opening of quotations at a price no higher than the last independent bid for the security on Nasdaq. The maximum stabilizing bid is the public offering price, however, a lower ceiling may apply.

Question 25

What is an aged Fail

Answer 25

An aged fail is a fail to deliver that has been outstanding for 5 business days or longer. When calculating a firm’s net capital, a broker-dealer is required to deduct from the contract value a percentage of aged fails to deliver.

Question 26

According to Sarbanes-Oxley, the annual reports filed with the SEC by publicly traded companies are required to contain

Answer 26

1. Management’s assessment of the effectiveness of the company’s internal controls over financial reporting as of the end of the company’s most recent fiscal year
2. A statement identifying the foundation used by management to evaluate the effectiveness of the company’s internal control over financial reporting
3. A statement that the firm has filed the required SEC forms when it has raised capital in the public markets
4. tatement by management acknowledging its responsibility for the establishment and the maintenance of adequate internal controls over the company’s financial reporting.

Question 27

The amount of restricted securities that may be sold within a three-month period under Rule 144 is

Answer 27

If a stock is listed on an exchange, the maximum that may be sold is the greater of 1% of the total shares outstanding or the average weekly volume of the past four weeks

Question 28

Under the safe harbor provisions of Rule 10b-18, an issuer should limit its purchases for that security to

Answer 28

no more than 25% of the average daily trading volume (ADTV) on any single day. Use only one broker-dealer during any trading session, although different broker-dealers may be used for normal trading hours and after-hours trading

Question 29

A firms’ compliance certification shall state

Answer 29

The certification requires the CEO to state that a meeting has been conducted with the Chief Compliance Officer (CCO) in the last 12 months.

Question 30

FINOP

Answer 30

Financial and Operations Principal (the holder of Series 27 registration).

Question 31

In response to an issuer’s corporate action (dividends and stock splits), the Nasdaq Market Center Execution System will take the following actions concerning adjustments for open orders and quotes.

Answer 31

All bid and offer quotes will be purged from the system.
All orders shall be cancelled in the event of a reverse stock split.
Sell orders will not be adjusted automatically by the system and should be modified by the market participant that entered the order.

Question 32

The following securities are not considered new issues and may be sold to restricted persons.

Answer 32

Secondary offerings
All debt offerings, including convertible
Private offerings, including Regulations D and 144A
Preferred stock offerings
Investment company offerings
Exempt securities as defined under the Securities Act of 1933
Direct Participation Programs and REITs
Rights offerings, exchange offers, and offerings made pursuant to an M&A transaction
ADR offerings that have a preexisting market outside the U.S.

Question 33

Form U6

Answer 33

Form U6 is used to report final arbitration awards against RRs and firms.

Question 34

Rule 104 of Regulation M requires any party that intends to engage in stabilization to

Answer 34

provide prior electronic notice of its intent to the market where stabilization will occur. If the security is listed on Nasdaq, the FINRA Market Regulations Department would be notified by way of the Restricted Period Notification Form (a.k.a. a regulatory wire). The SEC receives prior notice in written form through the disclosures contained in the registration documents.

Question 35

Under FINRA rules, if a person is granted discretion the firm is required to

Answer 35

Obtain the signature of each person authorized to exercise discretion in the account
Record the date such discretion is granted
Record the age or approximate age of the customer in connection with exempted securities other than municipals

Question 36

When preparing a fairness opinion that will be distributed to public shareholders, regulators require that

Answer 36

All existing conflicts of interest be revealed. These conflicts may include:

1. Current or prior relationship between the author of the opinion and any party to the transaction
2. Compensation due to the broker-dealer that prepares the report, if the compensation is contingent on the deal closing
   The amount of compensation need not be disclosed, only that the broker-dealer will receive compensation