UNIT 10 QBANK

Question 1

Financial Industry Regulatory Authority (FINRA) staff must submit new rules and await approval from which of the following regulatory bodies prior to becoming effective?

A) New York Stock Exchange (NYSE)
B) Securities and Exchange Commission (SEC)
C) Municipal Securities Rule Board (MSRB)
D) Chicago Board Options Exchange (CBOE)

Answer 1

B) Securities and Exchange Commission (SEC)

Explanation
The MSRB, NYSE, and CBOE are deemed self-regulatory organizations (SROs) and are on an equal footing with FINRA. All SROs must first petition the SEC for approval of a new rule.

Question 2

Which of the following sets of FINRA rules focuses on disputes in the industry and with customers who have filed a predispute agreement?

A) Code of Arbitration
B) Uniform Practice Code
C) Code of Procedures
D) Conduct Rules

Answer 2

A) Code of Arbitration

Explanation
The Code of Arbitration covers disputes over money between representatives, member firms, banks, and customers.

Question 3

The Uniform Practice Code (UPC) establishes uniform trade practices pertaining to all of the following except

A) don’t know (DK) procedures.
B) settlement and ex-dates.
C) good-delivery procedures.
D) communications with the public.

Answer 3

D) communications with the public.

Explanation
The UPC established uniform trade practices and other guidelines for broker-dealers to follow when they do business with other member firms, including transaction settlement, good delivery, ex-dates, trade confirmations, and DK procedures.

Question 4

Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the

A) Code of Procedure.
B) Code of Arbitration Procedure.
C) Uniform Practice Code.
D) Uniform Securities Act.

Answer 4

A) Code of Procedure.

Explanation
The Code of Procedure describes how member violations of the Conduct Rules will be heard and handled.

Question 5

The MSRB has jurisdiction for making rules in all of the following cases except

A) municipalities selling their own securities.
B) broker-dealers underwriting municipal securities.
C) broker-dealers trading municipal securities.
D) banks selling municipal securities.

Answer 5

A) municipalities selling their own securities.

Explanation
The MSRB makes regulations for broker-dealers and banks buying and selling municipal securities but does not have authority over the municipalities.

Question 6

All of the following self-regulatory organizations (SROs) function under the Securities and Exchange Commission’s (SEC’s) oversight except

A) the Municipal Securities Rule Board (MSRB).
B) the Federal Savings and Loan Insurance Corporation (FSLIC).
C) the Financial Industry Regulatory Authority (FINRA).
D) the Chicago Board Options Exchange (CBOE).

Answer 6

B) the Federal Savings and Loan Insurance Corporation (FSLIC).

Explanation
SROs function under the SEC’s oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction. These include FINRA, MSRB, and CBOE.

Question 7

Under Financial Industry Regulatory Authority (FINRA)’s Code of Procedure, which of the following is not a sanction that could be imposed against a firm or registered person?

A) Suspension of FINRA membership
B) Jail sentence for an associated person of the firm
C) The barring of an associated person from the industry
D) Monetary fine for a firm, principal or registered representative

Answer 7

B) Jail sentence for an associated person of the firm

Explanation
A jail sentence is not within the jurisdictional powers of FINRA. However, censure (generally meant to mean public disclosure), fines, suspension of the membership of a member or suspension of the registration of an associated person for a definite period, expulsion of the member (canceling the membership of the member), and the barring of an associated person from association with all members (essentially barring one from the industry) are all sanctions under FINRA’s Code of Procedure. Additionally, imposition of any other fitting sanction is specified. However, this would not include criminal penalties such as a jail sentence.

Question 8

Which regulatory body oversees trading in the over-the-counter (OTC) market?

A) Securities and Exchange Commission (SEC)
B) Financial Industry Regulatory Authority (FINRA)
C) Municipal Securities Rule Board (MSRB)
D) New York Stock Exchange (NYSE)

Answer 8

B) Financial Industry Regulatory Authority (FINRA)

Explanation
FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.

Question 9

Each self-regulatory organization (SRO) functions under the Securities and Exchange Commission’s (SEC’s) oversight and is accountable to the commission for enforcing federal securities laws. While the Municipal Securities Rule Board (MSRB) regulates all matters related to the underwriting and trading of state and municipal securities, it does not have enforcement powers of its rules. Which of the following does the MSRB rely on for enforcement of these rules?

A) Federal Deposit Insurance Corporation (FDIC)
B) Chicago Board Options Exchange (CBOE)
C) Financial Industry Regulatory Authority (FINRA)
D) Federal Reserve Bank (FRB)

Answer 9

C) Financial Industry Regulatory Authority (FINRA)

Explanation
The MSRB regulates all matters related to the underwriting and trading of state and municipal securities but does not have enforcement powers. It depends on other SROs (e.g., FINRA) for the enforcement of its rules.

Question 10

While the Municipal Securities Rule Board (MSRB) writes the rules and regulations regarding underwriting and trading for municipal securities, it does not enforce those rules. Who does?

A) New York Stock Exchange (NYSE)
B) Options Clearing Corporation (OCC)
C) Financial Industry Regulatory Authority (FINRA)
D) Federal Reserve Bank (FRB)

Answer 10

C) Financial Industry Regulatory Authority (FINRA)

Explanation
While the MSRB has rulemaking authority, it has no authority to enforce those rules. The enforcement of the MSRB rules on broker-dealers has been primarily delegated to FINRA. Bank regulatory agencies, such as the Federal Reserve Board (FRB), enforce the MSRB rules on banks who act as municipal dealers.

Question 11

Which of the following entities considers appeals of decisions made in department of enforcement (DOE) actions?

A) Municipal Securities Regulatory Board (MSRB)
B) Federal Bureau of Investigation (FBI)
C) The National Adjudicatory Council (NAC)
D) Federal Reserve Board (FRB)

Answer 11

C) The National Adjudicatory Council (NAC)

Explanation
The National Adjudicatory Council (NAC) hears appeals from DOE decisions. An NAC ruling may be appealed to the SEC, then to the appellate courts.

Question 12

Financial Industry Regulatory Authority (FINRA) regulates all matters related to investment banking, including

A) trading in the over-the-counter (OTC) market.
B) trading in the futures markets.
C) trading in commodities markets.
D) trading in fixed annuities.

Answer 12

A) trading in the over-the-counter (OTC) market.

Explanation
FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons.

Question 13

Which of the following is a self-regulatory organization (SRO)?

A) Securities and Exchange Commission (SEC)
B) Federal Reserve Board (FRB)
C) Federal Deposit Insurance Corporation (FDIC)
D) Financial Industry Regulatory Authority (FINRA)

Answer 13

D) Financial Industry Regulatory Authority (FINRA)

Explanation
FINRA is considered the primary SRO in the securities industry.

Question 14

Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members?

A) Financial Industry Regulatory Authority (FINRA)
B) Securities Investor Protection Corporation (SIPC)
C) Municipal Securities Rule Board (MSRB)
D) Securities and Exchange Commission (SEC)

Answer 14

A) Financial Industry Regulatory Authority (FINRA)

Explanation
FINRA regulates all matters related to investment banking, trading in the over-the-counter (OTC) markets and some exchange markets, and the conduct of FINRA member firms and associated persons including the promotion of self-discipline among members. It also investigates and looks to resolve grievances between the public and members and between members. The MSRB relies upon FINRA to perform dispute resolution.

Question 15

An associated person of a Financial Industry Regulatory Authority (FINRA) member firm has been found guilty of forging a customer’s signature on a document relating to a securities transaction. Under the Code of Procedure, FINRA could impose any of the following sanctions except

A) imprisonment for a specified period.
B) requiring the person to retake the licensing exam before resuming work.
C) suspension from FINRA that might cause the person extreme hardship.
D) a fine far in excess of the amount involved in the transaction.

Answer 15

A) imprisonment for a specified period.

Explanation
FINRA does not have arrest or imprisonment authority, but in the event of a violation, FINRA may impose any fitting sanction on the guilty firm or associated person. Customary penalties include censure, suspension, expulsion, and fines, but FINRA is not limited to those. For example, taking the licensing exam is often imposed on associated persons found guilty of a violation.

Question 16

Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules?

A) Financial Industry Regulatory Authority (FINRA)
B) Chicago Board Options Exchange (CBOE)
C) New York Stock Exchange (NYSE)
D) Municipal Securities Rule Board (MSRB)

Answer 16

D) Municipal Securities Rule Board (MSRB)

Explanation
The MSRB differs from other regulatory bodies in that it writes its own rules, but by law, it cannot enforce them. Rather, the board must rely entirely upon other designated examining authorities to enforce its rules.

Question 17

Which of the following sets of FINRA rules focuses on fair dealing with the public?

A) Uniform Practice Code
B) Code of Procedures
C) Code of Arbitration
D) Conduct Rules

Answer 17

D) Conduct Rules

Explanation
The Conduct Rules deal with a broker-dealer’s (and representative’s) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.

Question 18

Should a member firm or an associated person be found in violation of Financial Industry Regulatory Authority (FINRA)’s Conduct Rules, a number of sanctions may be imposed. However, under the Code of Procedure, FINRA may not

A) censure the violator.
B) issue a fine to a member firm or associate.
C) bar an associated person from the industry forever.
D) impose a prison sentence on the violator.

Answer 18

D) impose a prison sentence on the violator.

Explanation
Only a court can issue a prison sentence. Each of the remaining answer selections, bar, fine, and censure, are sanctions FINRA could impose under the Code of Procedure.

Question 19

The Municipal Securities Rulemaking Board (MSRB) does not regulate

A) the writing of municipal securities rules and regulations.
B) the underwriting of municipal securities.
C) the trading of state or local municipal securities.
D) municipalities issuing municipal securities.

Answer 19

D) municipalities issuing municipal securities.

Explanation
While the MSRB writes its own rules and regulates all matters related to the underwriting and trading of state and local municipal securities, it does not regulate municipal issuers (municipalities). In addition, the MSRB has no enforcement powers for its own rules and regulations. Enforcement is left to other SROs, such as FINRA.

Question 20

Financial Industry Regulatory Authority (FINRA)’s Conduct Rules are designed to promote

A) efficient and just handling of trade practice violations.
B) settlement of disputes between member firms without resorting to the courts.
C) uniform trade practices for firms to follow when dealing with other member firms.
D) fair and ethical trade practices when dealing with the public.

Answer 20

D) fair and ethical trade practices when dealing with the public.

Explanation
The Conduct Rules specify trade practices that are fair and ethical when dealing with the public. Events that must be reported are also described.

Question 21

Under Financial Industry Regulatory Authority (FINRA)’s Code of Procedure, which of the following is not a sanction that could be imposed against a firm or registered person?

A) Suspension of FINRA membership
B) Monetary fine for a firm, principal or registered representative
C) Jail sentence for an associated person of the firm
D) The barring of an associated person from the industry

Answer 21

C) Jail sentence for an associated person of the firm

Explanation
A jail sentence is not within the jurisdictional powers of FINRA. However, censure (generally meant to mean public disclosure), fines, suspension of the membership of a member or suspension of the registration of an associated person for a definite period, expulsion of the member (canceling the membership of the member), and the barring of an associated person from association with all members (essentially barring one from the industry) are all sanctions under FINRA’s Code of Procedure. Additionally, imposition of any other fitting sanction is specified. However, this would not include criminal penalties such as a jail sentence.

Question 22

Which of the following sets of FINRA rules focuses on disputes in the industry and with customers who have filed a predispute agreement?

A) Uniform Practice Code
B) Conduct Rules
C) Code of Procedures
D) Code of Arbitration

Answer 22

D) Code of Arbitration

Explanation
The Code of Arbitration covers disputes over money between representatives, member firms, banks, and customers.

Question 23

The Uniform Practice Code (UPC) establishes uniform trade practices pertaining to all of the following except

A) settlement and ex-dates.
B) don’t know (DK) procedures.
C) communications with the public.
D) good-delivery procedures.

Answer 23

C) communications with the public.

Explanation
The UPC established uniform trade practices and other guidelines for broker-dealers to follow when they do business with other member firms, including transaction settlement, good delivery, ex-dates, trade confirmations, and DK procedures.

Question 24

Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members?

A) Financial Industry Regulatory Authority (FINRA)
B) Municipal Securities Rule Board (MSRB)
C) Securities Investor Protection Corporation (SIPC)
D) Securities and Exchange Commission (SEC)

Answer 24

A) Financial Industry Regulatory Authority (FINRA)

Explanation
FINRA regulates all matters related to investment banking, trading in the over-the-counter (OTC) markets and some exchange markets, and the conduct of FINRA member firms and associated persons including the promotion of self-discipline among members. It also investigates and looks to resolve grievances between the public and members and between members. The MSRB relies upon FINRA to perform dispute resolution.

Question 25

Which of the following sets of FINRA rules focuses on fair dealing with the public?

A) Code of Arbitration
B) Uniform Practice Code
C) Code of Procedures
D) Conduct Rules

Answer 25

D) Conduct Rules

Explanation
The Conduct Rules deal with a broker-dealer’s (and representative’s) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.

Question 26

Which of the following cannot enforce their own rules?

A) SEC
B) CBOE
C) MSRB
D) FINRA

Answer 26

C) MSRB

Explanation
The MSRB relies on FINRA and the SEC to enforce its rules for broker-dealers, and banking regulators to enforce their rules for banks.

Question 27

Which of the following sets of FINRA rules focuses on broker-dealers doing business with other broker-dealers?

A) Conduct Rules
B) Code of Arbitration
C) Uniform Practice Code
D) Code of Procedures

Answer 27

C) Uniform Practice Code

Explanation
The Conduct Rules deal with a broker-dealer’s (and representative’s) relationship with the customer and the public. The Uniform Practice Code deals with interactions with other broker-dealers.

Question 28

Which regulatory body oversees trading in the over-the-counter (OTC) market?

A) Financial Industry Regulatory Authority (FINRA)
B) Municipal Securities Rule Board (MSRB)
C) Securities and Exchange Commission (SEC)
D) New York Stock Exchange (NYSE)

Answer 28

A) Financial Industry Regulatory Authority (FINRA)

Explanation
FINRA regulates all matters related to investment banking (securities underwriting), trading in the OTC market, trading in NYSE-listed securities, and the conduct of FINRA member firms and associated persons. FINRA also regulates investment companies and limited partnership transactions.

Question 29

Which of the following is the largest self-regulating organization (SRO)?

A) SEC
B) CBOE
C) FINRA
D) MSRB

Answer 29

C) FINRA

Explanation
All broker-dealers in the United States who deal in corporate securities are required to be members of FINRA. The SEC has jurisdiction over all securities business in the United States, but it is not an SRO.

Question 30

If an arbitration agreement has not been signed, under which two of the following circumstances would a dispute between a Financial Industry Regulatory Authority (FINRA) member firm and a retail customer go to arbitration?

I. The dispute cannot otherwise be resolved to the satisfaction of both parties.
II. The customer requests that the dispute go to arbitration.
III. The amount under dispute is less than $50,000.
IV. The FINRA director of arbitration so rules.

A) I and II
B) III and IV
C) I and III
D) II and IV

Answer 30

A) I and II

I. The dispute cannot otherwise be resolved to the satisfaction of both parties.
II. The customer requests that the dispute go to arbitration.

Explanation
Generally speaking, a broker-dealer firm has the customer sign a binding arbitration agreement before opening the account. In the absence of such an agreement, if a dispute cannot otherwise be resolved, the dispute can go to arbitration if the customer wishes it so.

Question 31

Should a member firm or an associated person be found in violation of Financial Industry Regulatory Authority (FINRA)’s Conduct Rules, a number of sanctions may be imposed. However, under the Code of Procedure, FINRA may not

A) issue a fine to a member firm or associate.
B) bar an associated person from the industry forever.
C) impose a prison sentence on the violator.
D) censure the violator.

Answer 31

C) impose a prison sentence on the violator.

Explanation
Only a court can issue a prison sentence. Each of the remaining answer selections, bar, fine, and censure, are sanctions FINRA could impose under the Code of Procedure.

Question 32

Accusations of Financial Industry Regulatory Authority (FINRA) Conduct Rule violations will heard and handled under the

A) Uniform Practice Code.
B) Code of Arbitration Procedure.
C) Uniform Securities Act.
D) Code of Procedure.

Answer 32

D) Code of Procedure.

Explanation
The Code of Procedure describes how member violations of the Conduct Rules will be heard and handled.

Question 33

Which of the following is a self-regulatory organization (SRO)?

A) Federal Reserve Board (FRB)
B) Securities and Exchange Commission (SEC)
C) Financial Industry Regulatory Authority (FINRA)
D) Federal Deposit Insurance Corporation (FDIC)

Answer 33

C) Financial Industry Regulatory Authority (FINRA)

Explanation
FINRA is considered the primary SRO in the securities industry.

Question 34

The MSRB has jurisdiction for making rules in all of the following cases except

A) municipalities selling their own securities.
B) broker-dealers underwriting municipal securities.
C) broker-dealers trading municipal securities.
D) banks selling municipal securities.

Answer 34

A) municipalities selling their own securities.

Explanation
The MSRB makes regulations for broker-dealers and banks buying and selling municipal securities but does not have authority over the municipalities.

Question 35

While the Municipal Securities Rule Board (MSRB) writes the rules and regulations regarding underwriting and trading for municipal securities, it does not enforce those rules. Who does?

A) Federal Reserve Bank (FRB)
B) Options Clearing Corporation (OCC)
C) New York Stock Exchange (NYSE)
D) Financial Industry Regulatory Authority (FINRA)

Answer 35

D) Financial Industry Regulatory Authority (FINRA)

Explanation
While the MSRB has rulemaking authority, it has no authority to enforce those rules. The enforcement of the MSRB rules on broker-dealers has been primarily delegated to FINRA. Bank regulatory agencies, such as the Federal Reserve Board (FRB), enforce the MSRB rules on banks who act as municipal dealers.

Question 36

Financial Industry Regulatory Authority (FINRA) staff must submit new rules and await approval from which of the following regulatory bodies prior to becoming effective?

A) Municipal Securities Rule Board (MSRB)
B) Chicago Board Options Exchange (CBOE)
C) New York Stock Exchange (NYSE)
D) Securities and Exchange Commission (SEC)

Answer 36

D) Securities and Exchange Commission (SEC)

Explanation
The MSRB, NYSE, and CBOE are deemed self-regulatory organizations (SROs) and are on an equal footing with FINRA. All SROs must first petition the SEC for approval of a new rule.

Question 37

Each self-regulatory organization (SRO) functions under the Securities and Exchange Commission’s (SEC’s) oversight and is accountable to the commission for enforcing federal securities laws. While the Municipal Securities Rule Board (MSRB) regulates all matters related to the underwriting and trading of state and municipal securities, it does not have enforcement powers of its rules. Which of the following does the MSRB rely on for enforcement of these rules?

A) Financial Industry Regulatory Authority (FINRA)
B) Chicago Board Options Exchange (CBOE)
C) Federal Deposit Insurance Corporation (FDIC)
D) Federal Reserve Bank (FRB)

Answer 37

A) Financial Industry Regulatory Authority (FINRA)

Explanation
The MSRB regulates all matters related to the underwriting and trading of state and municipal securities but does not have enforcement powers. It depends on other SROs (e.g., FINRA) for the enforcement of its rules.

Question 38

All of the following self-regulatory organizations (SROs) function under the Securities and Exchange Commission’s (SEC’s) oversight except

A) the Chicago Board Options Exchange (CBOE).
B) the Federal Savings and Loan Insurance Corporation (FSLIC).
C) the Financial Industry Regulatory Authority (FINRA).
D) the Municipal Securities Rule Board (MSRB).

Answer 38

B) the Federal Savings and Loan Insurance Corporation (FSLIC).

Explanation
SROs function under the SEC’s oversight. Each SRO is accountable to the Commission for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction. These include FINRA, MSRB, and CBOE.

Question 39

Which of the following sets of FINRA rules focuses on how member violations will be handled?

A) Code of Arbitration
B) Code of Procedures
C) Conduct Rules
D) Uniform Practice Code

Answer 39

B) Code of Procedures

Explanation
The Code of Procedure covers improper acts by member firms and representatives.

Question 40

Which of the following regulatory authorities relies exclusively upon other examining authorities to enforce its rules?

A) Chicago Board Options Exchange (CBOE)
B) Financial Industry Regulatory Authority (FINRA)
C) New York Stock Exchange (NYSE)
D) Municipal Securities Rule Board (MSRB)

Answer 40

D) Municipal Securities Rule Board (MSRB)

Explanation
The MSRB differs from other regulatory bodies in that it writes its own rules, but by law, it cannot enforce them. Rather, the board must rely entirely upon other designated examining authorities to enforce its rules.