Series 3F

Question 1

A CFTC Enforcement action can result in a fine of up to $140,000. a. True b. False

Answer 1

a. True The CFTC may impose a maximum fine of the greater of $140,000 or three times the monetary gain per violation. The NFA may impose a fine of up to $250,000.

Question 2

CTAs must provide the last three years worth of performance figures in their disclosure document. a. True b. False

Answer 2

b. FalseCTA performance disclosures are required for the most recent five years.

Question 3

The National Futures Association requires, for a discretionary account, that the associated person handling the account has been continuously registered for a minimum of one year and has worked in such registered capacity for that period. a. True b. False

Answer 3

b. False To have discretionary authority in a non-family member’s account, two years of continuous registration with the NFA are required.

Question 4

Arbitration decisions are not appealable. a. True b. False

Answer 4

a. True Arbitration decisions are final and binding.

Question 5

A pool that invests only in foreign futures and options is exempt from registration. a. True b. False

Answer 5

b. False Commodity pools sold within the United States must be registered irrespective of the domestic or international character of the futures or commodities contained therein.

Question 6

An introducing broker may accept funds in its own name. a. True b. False

Answer 6

b. False The answer is false. Introducing brokers may not accept customer funds in their own name. They may however accept funds in the name of the FCM, if specifically authorized to do so.

Question 7

If a pool has been operating for six years, the disclosure document must show the performance for the life of the pool. a. True b. False

Answer 7

b. False The answer is false. Pools in operation for five or more years are required to disclose their most recent five-year performance.

Question 8

The CFTC and the exchanges consider a pork producer who buys corn futures to be a bona fide hedger. a. True b. False

Answer 8

a. True The answer is true. A hog farmer (pork producer) uses corn as feed for the hogs. The hog farmer is a user of corn and faces the risk that the price of corn will increase. The cost of corn can be hedged through the purchase of corn futures.

Question 9

To advertise the results of specific accounts, NFA members must be able to show that the results are comparable to all similar accounts. a. True b. False

Answer 9

a. True The answer is true.

Question 10

When disclosing performance in capsule form, a CTA may not combine the results of proprietary accounts and customer accounts. a. True b. False

Answer 10

a. True The answer is true.

Question 11

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 b. False

Answer 11

a. True This statement is true.

Question 12

The NFA has the authority to issue subpoenas without court approval. a. True b. False

Answer 12

a. True The rules for litigation through the courts do not apply to the investigations conducted by the NFA.

Question 13

The NFA will not accept the resignation of an AP or member who is under NFA investigation. a. True b. False

Answer 13

a. True The NFA will not permit resignation of NFA registration while an individual is under NFA investigation.

Question 14

Under NFA guidelines, members should audit branch offices on an annual basis. a. True b. False

Answer 14

a. True Branches should be audited annually.

Question 15

Up-front fees reduce pool performance during the initial period in which they are charged, unless the fees are amortizable under generally accepted accounting principles. a. True b. False

Answer 15

a. True As long as generally accepted accounting principles (GAAP) are followed, certain up-front fees may be amortized over a number of years.

Question 16

NFA guidelines recommend that members inspect each branch and GIB at least once every two years. a. True b. False

Answer 16

b. False Branches and Guaranteed Introducing Brokers (GIBs) should be audited annually.

Question 17

The disclosure document for a commodity pool does not need to include, as part of the performance information, the number of units outstanding, since this could fluctuate, making such figures misleading. a. True b. False

Answer 17

b. False The number of units outstanding at the beginning and at the end of the period must be disclosed.

Question 18

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. True b. False

Answer 18

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

Question 19

Which of the following purposes is served by the Customer Agreement for a commodity futures account? a. Ensure repayment of funds lent to customers to meet margin calls b. Prevent customers from holding futures exchanges liable for losses incurred in futures trading c. Preclude a customer from filing a lawsuit against the brokerage firm d. Inform the customer that the brokerage firm may close out the account if margin requirements are not met

Answer 19

d. Inform the customer that the brokerage firm may close out the account if margin requirements are not met One of the elements covered in the Customer Agreement is the right of the FCM to close out positions, and to close out the account, if margin calls are not met on a timely basis.

Question 20

A commodity pool with assets exceeding $500,000 must distribute an account statement monthly. a. True b. False

Answer 20

a. True This statement is true. Commodity pools with a value of $500,000 or less, must distribute account statements at least quarterly.

Question 21

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. True b. False

Answer 21

a. True This is true. An example is the risk disclosure document used for options.

Question 22

An IB can accept checks from customers in the name of the FCM if authorized to do so by the FCM. a. True b. False

Answer 22

a. True This statement is true. An Introducing Broker (IB) may never accept customer funds in its own name.

Question 23

A registered Commodity Pool Operator who is acting as a trading adviser to that pool must also be registered as a Commodity Trading Adviser. a. True b. False

Answer 23

b. False As long as a Commodity Trading Adviser is only advising pools that it operates, and it is registered as a Commodity Pool Operator, it does not need to register as a CTA.

Question 24

Which of the following is not part of the CFTC rules governing the options disclosure document? a. A requirement that the disclosure document be provided to the customer before a futures options account is opened b. A requirement that the customer deposit $5,000 of equity in the account c. A requirement that the customer acknowledge receipt of the disclosure document in writing d. A statement that options trading can have unlimited risks

Answer 24

b. A requirement that the customer deposit $5,000 of equity in the account The CFTC does not impose minimum equity requirements to open any form of futures account.

Question 25

For certain customers, a member firm, under NFA Rule 2-30, need only disclose that the trading of commodity futures is “extremely risky.” a. True b. False

Answer 25

b. False If an individual opens a futures account, she must be provided with the content of Rule 2-30 as a disclosure.

Question 26

An associated person (AP) may open a futures trading account at an outside FCM only if he has written permission from his employer. a. True b. False

Answer 26

b. False While some futures firms will require their APs to get written permission before opening outside accounts, it is not required under NFA rules. An employer may also elect to have trade confirmations sent, but is not required to do so.

Question 27

Orders entered for discretionary accounts are assumed to be discretionary unless otherwise marked. a. True b. False

Answer 27

a. True According to NFA Rule 2-8, all orders in a discretionary account are assumed to be made in a discretionary manner unless otherwise marked in writing. In order to begin trading in a discretionary account, an IB or FCM must have written power of attorney.

Question 28

An FCM receiving an order from a customer must time-stamp the order: a. Within one minute of receiving it b. Within one hour of receiving it c. By the end of the day it is entered d. After the order is executed

Answer 28

a. Within one minute of receiving it Orders entered at an IB or FCM must be time-stamped within one minute (60 seconds) of entry.

Question 29

An AP working for a CTA that is not an exchange member must register with the CFTC. a. True b. False

Answer 29

a. True True. CTAs and their APs do not need to be registered with the exchanges. However, they must register with the NFA and CFTC.