Section 2 of Exam Breakdown

Question 1

What limitations are placed on an introducing BD with a $5,000 minimum net capital requirement?

Answer 1

It must introduce clients accounts to another BD and MAY NOT hold client funds or securities

Question 2

What SEC form is used to report the restricted stock a corporate officer receives as compensation in his 401(k) plan?

Answer 2

Form 4

Question 3

For margin accounts, the maximum amount that a firm may borrow from the bank is _____% of the debit balance.

Answer 3

Firm borrows from the bank is 100% of DEBIT balance

Question 4

How is the account affected if SMA is withdrawn?

Answer 4

debit balance increases

equity decreases

Question 5

According to a BD’s annual audited statement, its Statement of Financial Condition may be found in what two locations?

Answer 5

at the SEC and Broker Dealer’s office

Question 6

An introducing broker who receives and forwards customer assets has a net capital requirement of $_______.

Answer 6

$50,000

Question 7

To meet a maintenance (in-house) call by selling securities, clients must sell ______ times the amount of the call.

Answer 7

4x

Question 8

When must a BD notify the authorities if securities are discovered missing due to a securities count?

Answer 8

10 business days

Question 9

For SEC purposes, if an insider purchases or sells his stock, what form is filed and when is it filed?

Answer 9

Form 4 must be filed with the SEC within two business days of the trade.

Question 10

On what is a BD’s minimum fidelity bond requirement based?

Answer 10

It’s net capital requirement

Question 11

What are treble damages?

Answer 11

The civil penalty for insider trading, which is three times the profit made or loss avoided.

Question 12

Define a day trade.

Answer 12

The purchase and sale of the same security on the same day in a margin account

Question 13

A branch office that is NOT responsible for supervising another office is inspected every ______ years.

Answer 13

3 years

Question 14

A ____% reduction in excess net capital in the preceding three months is a sign of financial difficulty.

Answer 14

30%

Question 15

BDs are required to monitor the status of all fully paid and excess margin securities on a _______ basis.

Answer 15

daily

Question 16

When are BDs required to provide clients with information regarding their free credit balances?

Answer 16

Whenever account statements are provided to clients (at least quarterly)

Question 17

What net capital issues may require a member firm to curtail its business?

Answer 17

If a member’s net capital falls below 120% of its minimum capital requirement or its AI to NC ratio exceeds 12:1

Question 18

A carrying BD in business for less than one year has a net capital requirement of $_________ or _____ of its A.I.

Answer 18

$250,000

1/8th

Question 19

Other than in a BD’s vault, what else is considered a good control location?

Answer 19

An SEC-approved depository (domestic/foreign), at a bank (free of encumbrance), or in transit between BD offices

Question 20

A ____% reduction in excess net capital in the preceding two months is a sign of financial difficulty.

Answer 20

25%

Question 21

What are the two uses of SMA?

Answer 21

Buy more securities.

Loan Advance

Question 22

What percentage reduction in a BD’s excess net capital over the last three months would indicate financial difficulty?

Answer 22

30%

Question 23

If a security is recovered after having been reported as lost/missing, when must the SIC be notified?

Answer 23

1 business day of recovery

Question 24

A trial balance used to calculate net capital is prepared _________.

Answer 24

Monthyl