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Series 27 Questions > Unit 2- Record Keeping & Reporting Responsibilities > Flashcards

Unit 2- Record Keeping & Reporting Responsibilities Flashcards

1
Q

Recordkeeping
Question ID: 48510
Blotters prepared by a broker/dealer under SEC Rule 17a-3 must contain entries reflecting all of the following EXCEPT:

A) receipts and deliveries of securities.
B) receipts and disbursements of cash.
C) dividends and interest received.
D) purchases and sales of securities.

A

Answer: C

Under SEC Rule 17a-3, the required blotters (records of original entry) are receipts and deliveries of securities, receipts and disbursements of cash, and purchases and sales of securities. The record of dividends and interest received is defined as a subsidiary record, not as a blotter.

Reference: 2.1.3.1 in the License Exam Manual.

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2
Q

Recordkeeping
Question ID: 48511
SEC Rule 17a-3 requires a broker/dealer to maintain records that reflect:

I. separate itemized ledgers for each cash and margin account of each customer.
II. separate itemized ledgers for each cash account of the member firm and its partners.
III. combined ledgers for all cash accounts of the broker/dealer’s customers.
IV. combined ledgers for all cash and margin accounts of the broker/dealer’s customers and the broker/dealer’s own account.

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

A

Answer: C

Under SEC Rule 17a-3, a separate record must be kept for each cash and margin account for every customer or proprietary account.

Reference: 2.1.1 in the License Exam Manual.

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3
Q

Recordkeeping
Question ID: 48512
A broker/dealer registered with the SEC for 10 years would be required to have on file:

A) copies of all communications sent to customers since the firm started its business.
B) copies of bank statements and cancelled checks for the past 7 years.
C) customer order memorandums from the first 3 years.
D) its charter or articles of incorporation.

A

Answer: D

Articles of incorporation must be retained for the life of the firm. Customer communications, bank statements, and cancelled checks must be retained for 3 years.

Reference: 2.1.2 in the License Exam Manual.

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4
Q

Recordkeeping
Question ID: 48513
All records, whether required to be maintained for three or six years, must be readily accessible for the most recent:

A) one year.
B) 3 years.
C) two years.
D) six months.

A

Answer: C

The most recent two years worth of records must be readily accessible.

Reference: 2.1.1.3 in the License Exam Manual.

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5
Q

Recordkeeping
Question ID: 48514
For how long must a memorandum of every brokerage order indicating the terms and conditions be maintained?

A) Six years.
B) Seven years.
C) Lifetime of the firm.
D) Three years.

A

Answer: D

Brokerage office order memoranda (order tickets) must be kept for three years.

Reference: 2.1.4.1 in the License Exam Manual.

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6
Q

Recordkeeping
Question ID: 48515
For how long must ledgers reflecting securities failed to receive and securities failed to deliver be maintained?

A) Lifetime of the firm.
B) Three years.
C) Six years.
D) Seven years.

A

Answer: B

Subsidiary ledgers, such as securities failed to deliver and failed to receive, must be kept for three years.

Reference: 2.1.4.7 in the License Exam Manual.

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7
Q

Recordkeeping
Question ID: 48516
Purchase and sale of securities must be posted to a broker/dealer’s blotter no later than the:

A) business day following the trade date.
B) trade date.
C) settlement date.
D) business day following the settlement date.

A

Answer: A

Blotters and other records of original entry must be posted no later than the business day following the day of the event. Therefore, a purchase or sale must be posted no later than the day after trade date.

Reference: 2.1.3.1 in the License Exam Manual.

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8
Q

Recordkeeping
Question ID: 48517
When a broker/dealer introduces and clears its trades through another broker/dealer on a fully disclosed basis, the responsibility for maintaining the records relating to the customers’ accounts rests with:

A) the nonclearing broker/dealer.
B) the clearing broker/dealer.
C) both the nonclearing and the clearing broker/dealer.
D) the fully disclosed broker/dealer

A

Answer: C

Because the clearing broker/dealer (which carries the customer accounts on a fully disclosed basis) holds the customers’ funds and securities and executes the trades in those accounts, the clearing broker/dealer is responsible for keeping the records relating to the customer accounts under SEC Rule 17a-3. This does not exempt the introducing broker from maintaining certain records. The introducing broker keeps those records not customarily kept by the clearing broker/dealer.

Reference: 2.1.4.18 in the License Exam Manual.

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9
Q

Recordkeeping
Question ID: 48519
According to SEC Rule 17a-5, a trial balance must be prepared by broker/dealers at least:

A) daily.
B) weekly.
C) quarterly.
D) monthly.

A

Answer: D

SEC 17a-5 requires broker/dealers to prepare trial balances monthly.

Reference: 2.1.4.12 in the License Exam Manual.

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10
Q

Recordkeeping
Question ID: 48543
For how long must a FINRA member firm keep a record of written customer complaints?

A) Six years.
B) Lifetime of the customer’s account.
C) Three years.
D) One year.

A

Answer: C

According to FINRA, records of customer correspondence, including written customer complaints, must be kept for three years.

Reference: 2.1.4 in the License Exam Manual.

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11
Q

Recordkeeping
Question ID: 48546
Power of attorney authorizing discretionary trading in an account must be retained for how many years after the account is closed?

A) Three years.
B) One year.
C) Two years.
D) Four years.

A

Answer: A

Power of attorney for discretionary accounts must be kept three years after the account is closed. Other account records such as the new account form must be retained for six years.

Reference: 2.1.4.10 in the License Exam Manual.

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12
Q

Recordkeeping
Question ID: 48547
Blotters are prepared by member firms:

A) weekly.
B) monthly.
C) quarterly.
D) daily.

A

Answer: D

Blotters (also known as day books) are daily records of activity, such as cash receipts and disbursements, purchase and sales records, and securities receipts and deliveries.

Reference: 2.1.3.1 in the License Exam Manual.

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13
Q

Recordkeeping
Question ID: 48559
Under SEC rules, subsidiary ledgers must be retained for:

A) 6 years.
B) 3 years.
C) 18 months.
D) 1 year.

A

Answer: B

Under SEC rules, all subsidiary records must be retained for 3 years. General ledgers are 6-year records. The majority of records must be maintained for 3 years.

Reference: 2.1.4 in the License Exam Manual.

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14
Q

Recordkeeping
Question ID: 48566
The USA PATRIOT Act requires that member firms maintain records of reports of currency transactions involving more than $10,000 for how many years?

A) 6 years.
B) 5 years.
C) 1 year.
D) 3 years.

A

Answer: B

The USA PATRIOT Act requires that all currency transactions involving more than $10,000 are reported on FinCEN Form 104 and that these forms are maintained for 5 years. Normally, SEC rules for records of this type require a 3-year maintenance period. However, the SEC states in Rule 17a-8 that a longer recordkeeping requirement by another federal body will supersede the SEC requirement (in this case, the Department of the Treasury).

Reference: 2.1.4.19 in the License Exam Manual.

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15
Q

Recordkeeping
Question ID: 48590
All of the following records must be retained for 6 years EXCEPT:

A) the general ledger.
B) the stock record.
C) FOCUS reports.
D) blotters.

A

Answer: C

The 6-year records include blotters, the general ledger, the stock record, customer ledgers, and customer account information. FOCUS reports are kept for 3 years.

Reference: 2.1.3 in the License Exam Manual.

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16
Q

Recordkeeping
Question ID: 48595
Records relating to terminated representatives must be retained for how many years?

A) One year.
B) Five years.
C) Six years.
D) Three years.

A

Answer: D

Records generated by and about terminated representatives are among those records retained for three years.

Reference: 2.1.4.13 in the License Exam Manual.

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17
Q

Recordkeeping
Question ID: 48604
Under SEC rules, all of the following records must be retained for 3 years EXCEPT:

A) trial balances.
B) general ledger.
C) subsidiary ledgers.
D) order tickets.

A

Answer: B

The 6-year records include blotters, the general ledger, the stock record, customer ledgers, and customer account information.

Reference: 2.1.4 in the License Exam Manual.

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18
Q

Recordkeeping
Question ID: 48637
All of the following records must be retained for 3 years EXCEPT:

A) fingerprint cards for terminated personnel.
B) customer statements.
C) copies of advertising.
D) audio tapes of orders handled by the trading room.

A

Answer: B

Customer statements must be retained for 6 years. The other choices are all 3-year records.

Reference: 2.1.4 in the License Exam Manual.

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19
Q

Recordkeeping
Question ID: 48640
A broker/dealer has been in business for 5 years. Which of the following records must be on file for this entire period?

General ledger.
Customer account statements.
Customer confirmations.
Bank statements.
A) I and III.
B) II and IV.
C) III and IV.
D) I and II.
A

Answer: D

6-year records include blotters, stock records, general ledgers, customer ledgers (statements), and customer account information.

Reference: 2.1.3 in the License Exam Manual.

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20
Q

Recordkeeping
Question ID: 48656
A customer of a member transfers his account to another member firm. Under SEC rules, the member must maintain copies of the customer’s account records for how many years following the transfer?

A) Five years.
B) Six years.
C) Two years.
D) Three years.

A

Answer: B

Under SEC rules, customer account records must be maintained for six years following the closing of an account.

Reference: 2.1.3.4 in the License Exam Manual.

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21
Q

Recordkeeping
Question ID: 48685
According to SEC 17a-3, when must fail to receive and fail to deliver ledgers be posted?

A) TD+2.
B) SD.
C) SD+2.
D) TD.

A

Answer: C

The recordkeeping rules require that fail to receive and fail to deliver ledgers be posted within 2 business days of settlement date.

Reference: 2.1.4.7 in the License Exam Manual.

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22
Q

Recordkeeping
Question ID: 48686
Under 17a-3, blotters and other records of original entry include which of the following?

P/S Securities.
Div/Int Received.
R/D Cash.
SB/SL.
A) I and III.
B) I and II.
C) I, III and IV.
D) I, II, III and IV.
A

Answer: A

Records of original entry include the primary records of broker/dealers involving receipts and disbursements of cash and securities. They must be on file for six years. Dividends and interest received, and stock borrowed and stock loaned are subsidiary ledgers and must be kept on file for three years.

Reference: 2.1.3.1 in the License Exam Manual.
icense Exam Manual.

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23
Q

Recordkeeping
Question ID: 48694
Under SEC 17a-4, which of the following records must be kept for six years?

Customer ledgers.
Trial balances.
Stock records.
SIPC assessment records.
A) I and III.
B) II and III.
C) I, III and IV.
D) I and II.
A

Answer: C

Trial balances must be kept for three years.

Reference: 2.1.3 in the License Exam Manual.

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24
Q

Recordkeeping
Question ID: 48709
Under 17a-3, blotters or other records of original entry must be posted no later than:

A) TD + 4.
B) SD.
C) TD + 1.
D) TD.

A

Answer: C

Records of original entry are required to be posted no later than the business day after the event.

Reference: 2.1.3.1 in the License Exam Manual.

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25
Q

Recordkeeping
Question ID: 48711
Under Rule 17f-2, which of the following employees must be fingerprinted?

I Registered representatives
II Registered principals.
III Clerical employees handling monies or securities.
IV Clerical employees preparing customer statements.
A) II, III and IV.
B) I, II, III and IV.
C) I, II and III.
D) II and III.
A

Answer: C

Fingerprinting is required for persons who transact business with the public, or handle customer money or securities. Registered representatives and principals must always be fingerprinted; clerks also fall within the requirement if they handle money or securities.

Reference: 2.1.4.14.1 in the License Exam Manual.

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26
Q

Recordkeeping
Question ID: 48717
Under SEC rules, customer ledgers must be posted no later than:

A) SD + 1.
B) SD.
C) TD.
D) TD + 1.

A

Answer: B

Customer transactions must be posted to the customer ledger no later than the settlement date of the transaction.

Reference: 2.1.3.4 in the License Exam Manual.

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27
Q

Recordkeeping
Question ID: 48720
The short side of the stock record reflects:

A) fails to receive.
B) location of securities.
C) ownership of securities.
D) fails to deliver.

A

Answer: B

The long side of the stock record identifies ownership of securities held for customers. The short side reflects the location of the securities.

Reference: 2.1.3.3 in the License Exam Manual.

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28
Q

Recordkeeping
Question ID: 48721
Alpha broker/dealer serves as a clearing agent for Beta broker/dealer on an omnibus basis. Beta directs all of its securities executions to Delta broker/dealer. Which firm is responsible for recordkeeping under 17a-3?

A) Alpha.
B) Alpha and Beta.
C) Delta.
D) Beta.

A

Answer: D

The clearing firm is generally responsible for recordkeeping of customer securities in a fully-disclosed relationship. However, the introducing broker/dealer is responsible if an omnibus arrangement is in place. In an omnibus arrangement, all securities trades are cleared through one master account. The introducing broker/dealer is responsible for the recordkeeping of individual customer accounts.

Reference: 2.1.4.19 in the License Exam Manual.

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29
Q

Recordkeeping
Question ID: 48723
The general ledger of a broker/dealer must be posted monthly but no later than:

A) 17 business days after month-end.
B) the 15th of the following month.
C) 10 business days after month-end.
D) 5 business days after month-end.

A

Answer: C

Broker/dealer general ledgers must be posted once each month, no later than 10 business days after month-end. All firms are also required to prepare a monthly trial balance within 10 business days of the end of the month.

Reference: 2.1.3.2 in the License Exam Manual.

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30
Q

Recordkeeping
Question ID: 48768
Broker/dealers must prepare trial balances at least:

A) quarterly.
B) monthly.
C) weekly.
D) daily.

A

Answer: B

All brokerage firms are required to prepare, not file, monthly trial balances.

Reference: 2.1.4.12 in the License Exam Manual.

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31
Q

Recordkeeping
Question ID: 48769
Which of the following records must be retained for three years?

I U-4 forms of terminated personnel.
II U-5 forms of terminated personnel.
III Fingerprint cards of terminated personnel.
IV Trial balances.
A) II and IV.
B) IV only.
C) I, II, III and IV.
D) I, II and III.
A

Answer: C

All the records identified above must be kept for three years and be readily accessible for the first two years.

Reference: 2.1.4 in the License Exam Manual.

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32
Q

Recordkeeping
Question ID: 48804
Under 17a-3, the stock record must be posted no later than:

A) TD+1.
B) SD.
C) SD+2.
D) SD+1.

A

Answer: D

The stock record must be posted on the business day after the settlement date.

Reference: 2.1.3.3 in the License Exam Manual.

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33
Q

Recordkeeping
Question ID: 48808
According to 17a-3, securities in transfer records must be posted no later than:

A) TD+5.
B) TD+2.
C) TD.
D) TD+1.

A

Answer: B

SEC rules 17a-3 require that records of securities in transfer be posted not later than the transfer date plus two.

Reference: 2.1.4.3 in the License Exam Manual.

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34
Q

Recordkeeping
Question ID: 48828
Blotters prepared by a broker/dealer under SEC Rule 17a-3 must contain entries reflecting all of the following EXCEPT:

A) receipts and disbursements of cash.
B) dividends and interest received.
C) purchases and sales of securities.
D) receipts and deliveries of securities.

A

Answer: B

Under SEC Rule 17a-3, the required blotters (records of original entry) are receipts and deliveries of securities, receipts and disbursements of cash, and purchases and sales of securities. The record of dividends and interest received is defined as a subsidiary record, not as a blotter.

Reference: 2.1.3.1 in the License Exam Manual.

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35
Q

Recordkeeping
Question ID: 48832
According to SEC Rule 17a-13, all unresolved differences discovered during a securities count must be recorded on the books and records of the member no later than how many business days after the count?

A) 30 days.
B) 7 days.
C) 11 days.
D) 15 days.

A

Answer: B

All securities count differences must be recorded on the books of the broker/dealer 7 business days after the count.

Reference: 2.1.4.8 in the License Exam Manual.

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36
Q

Recordkeeping
Question ID: 48836
Which of the following pairs of terms are synonymous?

I. Records of original entry.
II. Blotters.
III. Official statement.
IV. Notice of sale.
A) III and IV.
B) III and I.
C) I and II.
D) II and III.
A

Answer: C

Records or forms of original entry are the same as blotters.

Reference: 2.1.3.1 in the License Exam Manual.

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37
Q

Recordkeeping
Question ID: 48837
Which of the following must be preserved for the life of the broker/dealer?

I Syndicate transactions.
II Articles of incorporation or partnership.
III Records of the broker/dealer's stock certificates.
IV Firm's general ledger.
A) II, III and IV.
B) I, II, III and IV.
C) II and III.
D) I and IV.
A

Answer: C

The corporate charter, the record for the issuance of the corporate stock, and partnership records must be maintained for the life of the firm.

Reference: 2.1.2 in the License Exam Manual.

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38
Q

Recordkeeping
Question ID: 48838
No posting on the securities records of a dealer is required for:

A) the location of securities held by the dealer.
B) long securities differences.
C) securities received in and delivered out on the same day.
D) short positions owned by a dealer.

A

Answer: C

No posting is required if securities are received and delivered the same day.

Reference: 2.1.3.1 in the License Exam Manual.

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39
Q

Recordkeeping
Question ID: 48839
For how long must a broker/dealer’s records of transactions as principal be kept?

A) Six years.
B) Lifetime of firm.
C) Three years.
D) Two years.

A

Answer: C

Records of both principal and agency trades (order tickets) must be maintained for three years.

Reference: 2.1.4.1 in the License Exam Manual.

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40
Q

Recordkeeping
Question ID: 48840
Which of the following records must be maintained for a minimum of six years?

A) Records relating to agency transaction.
B) Copies of confirmations.
C) Securities records.
D) Subsidiary records.

A

Answer: C

The stock record must be maintained for no less than six years.

Reference: 2.1.3.3 in the License Exam Manual.

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41
Q

Recordkeeping
Question ID: 48841
Which of the following broker/dealers may be exempt from some recordkeeping requirements?

I Nonclearing broker or dealer.
II Broker or dealer that introduces transactions and transmits monies and securities to a clearing firm on a fully disclosed basis.
III Broker or dealer that clears transactions through a bank and has an agreement with the bank regarding recordkeeping duties.
A) II only.
B) III only.
C) I, II and III.
D) I and II.

A

Answer: C

Nonclearing or introducing brokers need not maintain customer account logs because they do not hold cash or securities for clients.

Reference: 2.1.4.18 in the License Exam Manual.

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42
Q

Recordkeeping
Question ID: 48842
All customer account information must be preserved by a broker/dealer for at least:

A) the life of the account or three years, whichever is less.
B) six years.
C) three years.
D) the life of the account with no specific time limit.

A

Answer: B

Customer account information must be retained for no less than six years after the account is closed.

Reference: 2.1.3.4 in the License Exam Manual.

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43
Q

Recordkeeping
Question ID: 48843
If an agency order is canceled by a customer, which of the following statements regarding the firm’s recordkeeping practices in reflecting the cancellation is NOT true?

A) To the extent feasible, the time of the cancellation must be recorded.
B) The date of the cancellation must be recorded.
C) Records do not have to reflect any canceled agency orders.
D) The conditions of the cancellation must be recorded.

A

Answer: C

A record of the cancellation and time of cancellation, if feasible, must be kept.

Reference: 2.1.4.1 in the License Exam Manual.

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44
Q

Recordkeeping
Question ID: 48844
If a broker/dealer terminates a registered representative’s employment, all records relating to the hiring, work history, and termination of that employee must be maintained for:

A) six years.
B) The records need not be retained past the employee’s last day.
C) three years.
D) two years.

A

Answer: C

Like most other records, those pertaining to registered reps, including hiring, work history, and termination records, must be maintained for at least three years.

Reference: 2.1.4 in the License Exam Manual.

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45
Q

Recordkeeping
Question ID: 48845
The short side of the stock record, as required by SEC Rule 17a-3, reflects:

A) the physical location of all securities in possession or control of the broker/dealer.
B) ownership of securities in possession or control of the broker/dealer.
C) securities failed to deliver.
D) purchases and sales of securities in customer and firm accounts.

A

Answer: A

The short side of a stock record shows the location of securities under the broker/dealer’s possession or control.

Reference: 2.1.3.3 in the License Exam Manual.

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46
Q

Recordkeeping
Question ID: 48846
According to SEC Rule 17a-3, by when must fail-to-receive and fail-to-deliver ledgers be posted?

A) Settlement date plus two days.
B) Trade date.
C) Trade date plus two days.
D) Settlement date.

A

Answer: A

To be current, failed-to-receive and failed-to-deliver records must be posted no later than two business days after the settlement date.

Reference: 2.1.4.7 in the License Exam Manual.

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47
Q

Recordkeeping
Question ID: 48847
Records of written customer complaints must be retained by an MSRB member firm for a minimum of:

A) two weeks.
B) one year.
C) three years.
D) six years.

A

Answer: D

The MSRB requires customer complaint records to be retained for six years; SEC rules require retention for only three years.

Reference: 2.1.3.5.1 in the License Exam Manual.

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48
Q

Recordkeeping
Question ID: 48848
Receipts and deliveries of securities and receipts and disbursements of cash must be posted on a broker/dealer’s blotter no later than the:

A) business day following receipt or delivery.
B) day of receipt or delivery.
C) settlement date.
D) business day following the settlement date.

A

Answer: A

Blotters must be posted no later than the day after the event, so receipts and deliveries of cash or securities must be posted to the blotter no later than the day after the receipt or delivery.

Reference: 2.1.3.1 in the License Exam Manua

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49
Q

Recordkeeping
Question ID: 48849
For how long must ledgers reflecting all assets and liabilities, income and expenses, and capital accounts (general ledger) be maintained?

A) Lifetime of the firm.
B) Six years.
C) Three years.
D) Seven years.

A

Answer: B

A firm’s general ledger must be kept for six years.

Reference: 2.1.3.2 in the License Exam Manual.

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50
Q

Recordkeeping
Question ID: 48850
Under the provisions of SEC Rule 17a-3, broker/dealers are required to maintain subsidiary ledgers that reflect all of the following EXCEPT:

A) securities failed to receive and failed to deliver.
B) securities borrowed and loaned.
C) receipts and disbursements of cash.
D) securities in transfer.

A

Answer: C

The subsidiary ledgers required under SEC Rule 17a-3 are securities in transfer, dividends and interest received, securities borrowed and loaned, monies borrowed and loaned, securities failed to receive or deliver, and long and short stock record differences. The record of cash receipts and disbursements is a blotter record, not a subsidiary record.

Reference: 2.1.3.1 in the License Exam Manual.

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51
Q

Recordkeeping
Question ID: 48851
Blotters reflecting purchases and sales of securities, receipts and deliveries of securities, and receipts and disbursements of cash must be prepared:

A) weekly.
B) monthly.
C) quarterly.
D) daily.

A

Answer: D

Records of original entry (blotters) reflecting receipts and disbursements of cash, receipts and deliveries of securities, and purchases and sales must be posted daily.

Reference: 2.1.3.1 in the License Exam Manual.

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52
Q

Recordkeeping
Question ID: 48852
Securities transactions are entered on the broker/dealer’s blotter as of the:

A) settlement date.
B) business day following the trade date.
C) second business day following the trade date.
D) trade date.

A

Answer: B

The normal date on which transactions are posted to a firm’s blotter is the day after the transaction’s trade date.

Reference: 2.1.3.1 in the License Exam Manual.

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53
Q

Recordkeeping
Question ID: 48853
SEC 17a-3 requires that the long side of the stock record reflects:

A) the physical location of all securities in possession or control of the broker/dealer.
B) debit and credit balances in customer and firm accounts.
C) purchases and sales transactions in customer and firm accounts.
D) the ownership of all securities in possession or control of the broker/dealer.

A

Answer: D

The long side of the stock record shows fails to deliver, stock borrowed, long positions owned by customers, long positions owned by the firm, and all ownership descriptions.

Reference: 2.1.3.3 in the License Exam Manual.

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54
Q

Recordkeeping
Question ID: 48854
According to SEC Rule 17a-3, blotters and other records of original entry must reflect all:

I purchases and sales of securities.
II receipts and disbursements of cash.
III dividends and interest received on customer 
IV securities held by a firm in street name or in bearer form.
A) I and II.
B) I only.
C) II and III.
D) I, II and III.
A

Answer: A

SEC Rule 17a-3 requires that blotters reflect all purchases and sales of securities, receipts and disbursements of cash, and deliveries of securities. Under this rule, dividends and interest received is considered a subsidiary record.

Reference: 2.1.3.1 in the License Exam Manual.

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55
Q

Recordkeeping
Question ID: 48855
According to SEC Rule 17a-3, ledgers recording monies borrowed and loaned must be completed by the:

A) trade date.
B) settlement date.
C) day of the movement of the monies.
D) second business day after the movement of the monies.

A

Answer: D

Under SEC Rule 17a-3, ledgers recording monies borrowed and loaned must be posted no later than the second business day after the movement of the monies.

Reference: 2.1.4.6 in the License Exam Manual.

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56
Q

Recordkeeping
Question ID: 48856
Ledgers reflecting securities failed to receive and securities failed to deliver must be maintained for:

A) the lifetime of the firm.
B) three years.
C) six years.
D) seven years.

A

Answer: B

Subsidiary ledgers, such as securities failed to deliver and failed to receive, must be kept for three years.

Reference: 2.1.4.7 in the License Exam Manual.

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57
Q

Recordkeeping
Question ID: 48974
Which of the following types of information must be recorded and maintained with respect to agency transactions in securities?

I Time of execution, to the extent feasible.
II Time of receipt of the order.
III Terms and conditions of the order and any added qualifications.
IV Name and address of the person placing the order if entered by a third party pursuant to a power of attorney.
A) III and IV.
B) I, II, III and IV.
C) I and II.
D) II and III.

A

Answer: B

All the information listed is required to be maintained.

Reference: 2.1.4.1 in the License Exam Manual.

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58
Q

Recordkeeping
Question ID: 49025
Copies of SARs that have been filed with FinCEN must be kept by broker/dealers for how many years?

A) Two years.
B) Three years.
C) Five years.
D) One year.

A

Answer: C

Copies of SARs that have been filed with FinCEN must be kept by broker/dealers for five years.

Reference: 2.1.4.19 in the License Exam Manual.

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59
Q

Recordkeeping
Question ID: 49072
If a principal terminates the employment of a registered rep, all files, telegrams, letters and other records relating to the employee must be retained for how long after the termination?

A) 6 years.
B) 3 years.
C) 30 days.
D) 1 year.

A

Answer: B

Any time an employee is terminated, all records relating to that employee and his termination must be kept for a minimum of three years; for two years, the records must be held in an easily accessible place.

Reference: 2.1.4.13 in the License Exam Manual.

60
Q

Recordkeeping
Question ID: 49087
When a clearing broker/dealer clears customer accounts on an omnibus basis, customer statements and confirmations are prepared by:

A) both the introducing and clearing broker/dealers.
B) the introducing broker/dealer.
C) the clearing broker/dealer.
D) DTC.

A

Answer: B

In an omnibus clearing arrangement, the introducing firm maintains a bulk account at a clearing firm. Individual customer account information is not disclosed to the clearing firm, so customer statements and confirmations must be prepared by the introducing firm.

Reference: 2.1.4.19 in the License Exam Manual.

61
Q

Recordkeeping
Question ID: 49088
Compliance and supervisory manuals must be kept for:

A) three years after the termination of their use.
B) six years; two years in a readily accessible place.
C) five years; two years in a readily accessible place.
D) 18 months.

A

Answer: A

Compliance and supervisory manuals must be kept for three years after the termination of their use.

Reference: 2.1.3 in the License Exam Manual.

62
Q

Recordkeeping
Question ID: 49089
SEC rules require broker/dealers to maintain and keep which of the following?

I Copies of Form BD (and all amendments) for the life of the broker/dealer.
II All reports which a securities regulator has requested as a result of an examination for 3 years after the date of the report.
III All manuals describing policies and practices with respect to compliance and supervision for 3 years after the termination of their use.
IV Reports created to review unusual activity in customer accounts for 18 months.
A) III and IV.
B) I, II, III and IV.
C) I and II.
D) I and III.

A

Answer: B

SEC rules require broker/dealers to maintain and keep copies of Form BD (and all amendments) for the life of the broker/dealer; all reports which a securities regulator has requested as a result of an examination for three years; all manuals describing the policies and practices with respect to compliance and supervision for three years after the termination of their use; and reports created to review unusual activity in customer accounts for 18 months.

Reference: 2.1.1 in the License Exam Manual.

63
Q

Recordkeeping
Question ID: 49091
Under SEC Rule 17a-4, copies of exception reports must be maintained for:

A) 18 months.
B) 2 years.
C) 3 years.
D) 6 years.

A

Answer: A

Exception reports must be maintained for 18 months. Exception reports are reports produced to review for unusual activity in customer accounts.

Reference: 2.1.4.19 in the License Exam Manual.

64
Q

Recordkeeping
Question ID: 49131
Under SEC Rule 17f-2, an associated person is exempt from the fingerprinting requirement if they submit illegible fingerprint cards on at least how many occasions?

A) Five occasions.
B) Three occasions.
C) Two occasions.
D) Four occasions.

A

Answer: B

If three fingerprint cards are returned to the member as illegible, that person is exempt from the fingerprinting requirement.

Reference: 2.1.4.14.1 in the License Exam Manual.

65
Q

Recordkeeping
Question ID: 49136
Broker/Dealer A clears its business on an omnibus basis through Broker/Dealer B, a carrying firm. Under SEC rules, the requirement for maintaining the trade blotter rests with:

A) Broker/Dealer A.
B) Broker/Dealer B.
C) either Broker/Dealer A or Broker/Dealer B.
D) both Broker/Dealer A and Broker/Dealer B.

A

Answer: A

Firms that clear through an omnibus account are referred to as K2(i) firms. All customer securities are held in an umbrella account (omnibus account) at the clearing firm. The clearing firm does not know the identity of the beneficial owners of the securities being held because they are in the name of the broker/dealer. Therefore, Broker/Dealer A must maintain the trade blotter showing which customers bought or sold which securities. The firm must also maintain the stock record showing all positions being held in the omnibus account and the ownership of those securities. Broker/Dealer A is also responsible for sending statements and confirmations.

Reference: 2.1.4.19 in the License Exam Manual.

66
Q

Broker-Dealer Financial Reporting
Question ID: 48518
Under SEC Rule 17a-5, a broker/dealer doing business as a carrying firm must file all of the following EXCEPT:

A) FOCUS II with FINRA.
B) Audited annual balance sheet and statement of net capital with customers.
C) FOCUS IIA with FINRA.
D) Unaudited semiannual balance sheet and statement of net capital with customers.

A

Answer: C

Clearing (or carrying) broker/dealers must file, among other things, a monthly and quarterly FOCUS II with FINRA, and a balance sheet and statement of net capital with customers, the latter in unaudited form on a semiannual basis, and in audited form on an annual basis. The FOCUS IIA is used by fully disclosed broker/dealers.

Reference: 2.2.1 in the License Exam Manual.

67
Q

Broker-Dealer Financial Reporting
Question ID: 48520
Which of the following must occur when material inadequacies are discovered by an independent accountant during the course of an audit?

I. The broker/dealer must file a report within 48 hours of the notice stating what steps have been or are being taken to correct the situation.
II. The accountant must notify the chief financial officer of the broker/dealer, who must inform the SEC and the examining authority by telephone within 24 hours.
III. The accountant must notify the chief financial officer of the broker/dealer, who must inform the SEC and the examining authority by telegraph or facsimile within 24 hours.
IV. The accountant must be furnished with a copy of the notice sent to the SEC within 24 hours of the time the notice is sent.
A) I only.
B) I, II and IV.
C) III and IV.
D) I, III and IV.

A

Answer: D

If an independent accountant discovers a material inadequacy in a firm’s accounting records, he must notify the broker/dealer (who then has 24 hours to notify its DEA and the SEC). The accountant must be given a copy of the notice; otherwise he is obligated to notify the DEA and SEC directly. Finally, within 48 hours of the notice, a report must be transmitted stating the corrective steps that are being taken.

Reference: 2.2.1.1 in the License Exam Manual.

68
Q

Broker-Dealer Financial Reporting
Question ID: 48556
A broker/dealer discovers that its books are not current. Which of the following actions must the firm take?

On the day of the discovery, notify its DEA and the SEC.
Send a FOCUS II or IIA within 24 hours to the SEC and FINRA.
Within 48 hours, report the corrective actions being taken to the SEC and FINRA.
Immediately employ an alternative method of calculating net capital.
A) I and III.
B) I and II.
C) II and IV.
D) III and IV.

A

Answer: A

When books and records are not current, firms must notify their DEA and the SEC on the same day, and follow up within 48 hours with a report of corrective action to be taken.

Reference: 2.2.1.1 in the License Exam Manual.

69
Q

Broker-Dealer Financial Reporting
Question ID: 48596
An established member firm discovers that its AI exceeds its net capital by more than 12:1. Under SEC 17a-11, which of the following statements are TRUE?

I. Immediate notice is required.
II. Notice within 24 hours is required.
III. Notice must be made by U.S. mail (certified and registered).
IV. Notice must be made electronically.

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

A

Answer: B

Once a firm discovers that it is in early warning, notification must be made to the regulatory authorities within 24 hours. This notice must be made electronically.

Reference: 2.2.1.1 in the License Exam Manual.

70
Q

Broker-Dealer Financial Reporting
Question ID: 48598
An established member firm is in early warning once its AI-to-NC ratio exceeds:

A) 12:1.
B) 8:1.
C) 10:1.
D) 15:1.

A

Answer: A

An established firm is in early warning once the ratio of AI to NC exceeds 12:1.

Reference: 2.2.1.1 in the License Exam Manual.

71
Q

Broker-Dealer Financial Reporting
Question ID: 48599
Which of the following violations of the net capital rule require that the member making the notification file a report within 48 hours detailing the steps being taken to correct the situation?

I. AI-to-NC exceeding 15:1.
II. Books and records not current.
III. Material inadequacies in the member’s accounting system.
IV. Debt-equity ratio at 80% for 100 days.

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

A

Answer: C

If a member is reporting that its books and records are not current or that there are material inadequacies in its accounting system, the member must file a report detailing the steps being taken to correct the situation within 48 hours.

Reference: 2.2.1.1 in the License Exam Manual.

72
Q

Broker-Dealer Financial Reporting
Question ID: 48607
Under the net capital rule, which of the following must an established member report within 24 hours?

I. Books and records that are not current.
II. Inadequacy in the accounting system.
III. Net capital below minimum.
IV. AI to NC at 13:1.

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

A

Answer: A

Books and records not current and net capital below minimum require a same-day report. Inadequacy in the accounting system and an AI-to-NC ratio above 12:1 but not above 15:1 require a report within 24 hours.

Reference: 2.2.1.1 in the License Exam Manual.

73
Q

Broker-Dealer Financial Reporting
Question ID: 48614
In which of the following situations must an established carrying firm make immediate notification to the regulatory authorities?

I. Books and records are not current.
II. Debt/equity ratio is at 80% for 100 days.
III. Net capital falls below 120% of minimum.
IV. AI-to-NC exceeds 12:1.

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

A

Answer: D

Choices I, II represent violations under SEC 17a-11 and require immediate notification to the regulatory authorities. Choices III and IV represent early warning, which is reported within 24 hours (not immediate).

Reference: 2.2.1.1 in the License Exam Manual.: 2.2.1.1 in the License Exam Manual.

74
Q

Broker-Dealer Financial Reporting
Question ID: 48657
Which of the following will cause an established carrying firm with a minimum net capital requirement of $250,000 to be in early warning?

I. Its capital falls below $300,000.
II. Its capital falls below $250,000.
III. Its AI-to-NC ratio exceeds 12:1.
IV. Its AI-to-NC ratio exceeds 15:1.

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

A

Answer: A

An established firm is in early warning if its computed capital falls below 120% of the minimum or its AI-to-NC ratio exceeds 12:1. An AI-to-NC ratio exceeding I5:1 and capital below $250,000 would be violations of the net capital rule.

Reference: 2.2.1.1 in the License Exam Manual.

75
Q

Broker-Dealer Financial Reporting
Question ID: 48672
If a member firm discovers that there is a material inadequacy in its accounting system, the member must do which of the following?

I. Notify the regulatory authorities immediately.
II. Notify the regulatory authorities within 24 hours.
III. File a report within 48 hours, detailing the steps being taken to correct the situation.
IV. Stop accepting new accounts.

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

A

Answer: D

Material inadequacies in a member’s accounting system must be reported to the regulatory authorities within 24 hours. The member must also provide a report within 48 hours detailing the steps being taken to correct the situation.

Reference: 2.2.1.1 in the License Exam Manual.

76
Q

Broker-Dealer Financial Reporting
Question ID: 48683
An established carrying broker/dealer has a net capital of $500,000. Reporting under Rule 17a-11 will begin if the broker/dealer’s AI exceeds:

A) $6,000,000.
B) $4,000,000.
C) $5,000,000.
D) $7,500,000.

A

Answer: A

Early warning reporting is set forth under Rule 17a-11. Under Rule 17a-11, firms are in early warning if the AI- to-NC ratio exceeds 12:1. 1,200% of $500,000 is $6,000,000.

Reference: 2.2.1.1 in the License Exam Manual.

77
Q

Broker-Dealer Financial Reporting
Question ID: 48707
Which of the following are violations of the net capital rule?

I. Broker/dealer with $900,000 of subordinated debt and $300,000 of equity for 60 days.
II. Established self-clearing broker/dealer with $700,000 in AI and net capital of $150,000.
III. Broker/dealer with $900,000 of subordinated debt and $300,000 of equity for 100 days.
IV. Market maker in 15 stocks under $5 bid with $70,000 in net capital.

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

A

Answer: B

A clearing firm must have net capital of at least $250,000 and the debt to equity ratio cannot exceed 70% for more than 90 days ($900,000 ÷ $1,200,000 = 75%). Market makers must have minimum net capital of $100,000.

Reference: 2.2.1.1 in the License Exam Manual.

78
Q

Broker-Dealer Financial Reporting
Question ID: 48725
If a material inadequacy is found by the independent accountant:

I. the SEC and FINRA must be given notice within 24 hours.
II. the broker/dealer must file a report within 48 hours with the regulatory authorities stating how the problem is being resolved.
III. the broker/dealer must give the accountant a copy of such report.
IV. the accountant must notify the regulatory authorities within 24 hours if no copy is given to the accountant or if the accountant disagrees with the report.
A) I, II, III and IV.
B) I and II.
C) I, II and III.
D) II, III and IV.

A

Answer: A

Material inadequacies are deficiencies identified by an auditing accountant. Rule 17a-11 requires that reports of material inadequacies be made within 24 hours to the SEC and FINRA, and a follow-up report of steps to correct the problem be filed within 48 hours. Accountants must receive copies and have an opportunity to comment. Any disagreement must be reported by the accountant within 24 hours.

Reference: 2.2.1.1 in the License Exam Manual.

79
Q

Broker-Dealer Financial Reporting
Question ID: 48726
When failure to maintain books and records on a current basis is discovered, a broker/dealer must:

file a FOCUS II or IIA within 24 hours.
send same day notice to the SEC and FINRA.
file a report within 48 hours detailing the steps being taken to correct the situation
cease doing business with the public.
A) I only.
B) I and II.
C) II, III and IV.
D) II and III.
A

Answer: D

When books and records are not current, Rule 17a-11 requires broker/dealers to send same day notice to the SEC and FINRA, and follow within 48 hours with a report detailing steps taken to correct the problem.

Reference: 2.2.1.1 in the License Exam Manual.

80
Q

Broker-Dealer Financial Reporting
Question ID: 48735
Which of the following require(s) same-day notice to the regulatory authorities?

I. A first-year broker/dealer with AI to NC of 9:1.
II. A second-year broker/dealer with AI to NC of 13:1.
III. Termination of the independent accountant.
IV. Withdrawal of membership in a stock exchange.
A) I, II and III.
B) I, II, III and IV.
C) I only.
D) I and II.

A

Answer: C

Same-day telegraph or fax notice to FINRA and SEC is required for new firms with AI-to-NC ratios exceeding 8:1 and for established firms (more than 1 year old) with AI-to-NC ratios exceeding 15:1. Termination of an accountant requires notice within 15 business days. Withdrawal of stock exchange membership requires a FOCUS II or IIA filing within two business days.

Reference: 2.2.1.1 in the License Exam Manual.

81
Q

Broker-Dealer Financial Reporting
Question ID: 48797
Which of the following violations under SEC Rule 17a-11 require same-day notice?

I. Books and records not current.
II. Debt/equity ratio exceeds 70% for a period of more than 90 days.
III. AI-to-NC ratio exceeds 15:1.
IV. Material inadequacies in the accounting system.

A) III only.
B) I, II, III and IV.
C) I, II and III.
D) II and IV.

A

Answer: C

Material inadequacies in the accounting system require a notice to FINRA and SEC within 24 hours.

Reference: 2.2.1.1 in the License Exam Manual.

82
Q

Broker-Dealer Financial Reporting
Question ID: 48817
A broker/dealer discovers that its capital is below its minimum requirement. Which of the following statement(s) may be TRUE?

I. The broker/dealer must give same day notice to the regulatory authorities.
II. The notice must specify the broker/dealer’s minimum requirement and its current amount of net capital.
III. The broker/dealer must file a FOCUS Part II or Part IIA within 24 hours.

A) I only.
B) I, II and III.
C) I and III.
D) I and II.

A

Answer: D

As part of its same day notice to both the SEC and FINRA, the broker/dealer must state its minimum requirement and its computed capital. FOCUS filings are not required in violation situations.

Reference: 2.2.1.1 in the License Exam Manual.

83
Q

Broker-Dealer Financial Reporting
Question ID: 48826
Under which of the following instances must same-day notice be sent to the SEC?

I. The dollar amount of a broker/dealer’s net capital falls below the minimum requirement.
II. An independent public accountant notifies a broker/dealer of a material inadequacy, as defined by SEC Rule 17a-5.
III. A broker/dealer’s ratio of aggregate indebtedness to net capital exceeds 1,500%.
IV. A broker/dealer discovers that its books and records are not being maintained on a current basis.

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

A

Answer: D

Under SEC Rule 17a-11, net capital violations and books and records violations require same-day notice to the SEC and FINRA. If a firm is notified of an accounting inadequacy, notice must be given within 24 hours.

Reference: 2.2.1.1 in the License Exam Manual.

84
Q

Broker-Dealer Financial Reporting
Question ID: 48871
A broker/dealer that introduces its customers to a general securities firm and that does not carry money or securities for its customers is required to file a FOCUS Part IIA:

A) quarterly.
B) monthly.
C) semiannually.
D) annually.

A

Answer: A

FOCUS Part IIA is an abbreviated version of the regular FOCUS Part II subject to the same filing deadlines and required of introducing brokers that do not carry customer accounts.

Reference: 2.2.1 in the License Exam Manual.

85
Q

Broker-Dealer Financial Reporting
Question ID: 48872
Which of the following conditions subject a broker/dealer to early warning reporting requirements?

I. Aggregate indebtedness rises above 1,200% of net capital.
II. Aggregate indebtedness rises above 1,500% of net capital.
III. Net capital falls below 100% of the minimum requirement.
IV. Net capital falls below 120% of the minimum requirement.

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

A

Answer: B

A broker/dealer is said to be in early warning if its ratio of AI to NC exceeds 12:1 (1,200%) or if its net capital level falls below 120% of the minimum requirement.

Reference: 2.2.1.1 in the License Exam Manual.

86
Q

Broker-Dealer Financial Reporting
Question ID: 48873
A FOCUS Part II and IIA must be filed with FINRA and SEC within how many business days after the end of the reporting period?

A) 17 days.
B) 7 days.
C) 10 days.
D) 15 days

A

Answer: A

A quarterly FOCUS II or IIA must be filed with FINRA and SEC within 17 business days of the end of each quarter.

Reference: 2.2.1 in the License Exam Manual.

87
Q

Broker-Dealer Financial Reporting
Question ID: 48874
A broker/dealer whose net capital reserves fall below the required minimum net capital must:

I. notify the appropriate regulatory agency the same day.
II. disclose its net capital requirement and its current amount of net capital.
III. cease doing business with the public.
A) I only.
B) III only.
C) I, II and III.
D) I and II.

A

Answer: D

Upon finding itself in violation of minimum net capital requirements, a broker/dealer must send same-day telegraphic (or facsimile) notice to the SEC and to FINRA. Included in the notice must be a disclosure of the broker/dealer’s current net capital amount and its net capital requirement.

Reference: 2.2.1.1 in the License Exam Manual.

88
Q

Broker-Dealer Financial Reporting
Question ID: 48875
Under SEC Rule 17a-11, a broker/dealer whose net capital falls below the required minimum must:

I. send same-day notice to the SEC and the examining authority.
II. inform the regulators of its net capital requirement and its current amount of net capital.
III. file a report within 48 hours specifying the steps being taken to correct the deficiency.
IV. cease doing business with the public immediately.

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

A

Answer: B

Under SEC Rule 17a-11, when a broker/dealer’s net capital drops below the minimum requirement, same-day notice must be given to FINRA and SEC and the notice must include the broker/dealer’s amount of net capital and its net capital requirement.

Reference: 2.2.1.1 in the License Exam Manual.

89
Q

Broker-Dealer Financial Reporting
Question ID: 48876
A broker/dealer has been in business for 10 years and has net capital of $500,000. Under SEC Rule 17a-11 (early warning), special reporting must begin if the broker/dealer’s aggregate indebtedness exceeds:

A) $5 million.
B) $7.5 million.
C) $6 million.
D) $4 million.

A

Answer: C

Early warning reporting commences when a broker/dealer’s AI-to-NC ratio exceeds 12:1. The broker/dealer in question has computed net capital of $500,000. If its aggregate indebtedness exceeds 12 times $500,000 (which equals $6 million), the firm is in early warning.

Reference: 2.2.1.1 in the License Exam Manual.

90
Q

Broker-Dealer Financial Reporting
Question ID: 48877
Which of the following situations subject an established broker/dealer to reporting requirements under SEC Rule 17a-11?

I. The broker/dealer is a clearing broker/dealer with net capital of $250,000.
II. The broker/dealer’s aggregate indebtedness to net capital ratio exceeds 10:1.
III. The broker/dealer fails to maintain records on a current basis, as required by SEC Rule 17a-3.
IV. The broker/dealer’s accountant has reported a material inadequacy.

A) III only.
B) I, II, III and IV.
C) I, III and IV.
D) II and IV.

A

Answer: C

SEC Rule 17a-11 requires early warning reporting if a broker/dealer’s net capital drops below 120% of the minimum. Although a clearing broker/dealer with $250,000 of net capital meets the minimum, it is below 120% of the minimum and therefore must notify its DEA. An AI-to-NC ratio of 10:1 does not cause early warning reporting; the ratio must exceed 12:1. Under SEC Rule 17a-11, both a failure to maintain books and records on a current basis, and a material inadequacy in records require telegraphic or facsimile notice.

Reference: 2.2.1.1 in the License Exam Manual.

91
Q

Broker-Dealer Financial Reporting
Question ID: 48878

If a material inadequacy exists in its accounting procedures or internal controls, a broker/dealer is required to:

I. send immediate (on-the-spot) telegraphic notice to the SEC and the examining authority.
II. send notice within 24 hours to the SEC and the examining authority.
III. file a report within 48 hours with the SEC and the examining authority detailing the steps being taken to correct the situation.
IV. cease doing business with the public until the situation is corrected.
A) II and III.
B) I, II and III.
C) I and IV.
D) II and IV.

A

Answer: A

If an accountant or a broker/dealer finds a material inadequacy in the records, the broker/dealer must give notice within 24 hours to its DEA and the SEC and must transmit a report within 48 hours specifying the steps being taken to correct the situation.

Reference: 2.2.1.1 in the License Exam Manual.

92
Q

Broker-Dealer Financial Reporting
Question ID: 48879
If a broker/dealer is in early warning, it must notify:

I. its DEA and the SEC.
II. the DBCC and the IRS.
III. on the day the event occurs.
IV. within 24 hours of the event.

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

A

Answer: C

A broker/dealer must notify its DEA and the SEC within 24 hours of discovering that it has fallen within the early warning requirements.

Reference: 2.2.1.1 in the License Exam Manual.

93
Q

Broker-Dealer Financial Reporting
Question ID: 48880
SEC Rule 17a-11 does not apply to a broker/dealer:

A) with net capital of 115% of the required minimum.
B) with a debt/equity ratio of 80:20 for the last four months.
C) subject to the minimum requirement of a clearing broker/dealer and has $300,000 of net capital.
D) with a net capital ratio of 14:1.

A

Answer: C

A broker/dealer is subject to SEC Rule 17a-11 if its AI-to-NC ratio is greater than 12:1 (aggregate indebtedness is more than 1,200% of net capital); its net capital is less than 120% of the required minimum; or its debt/equity ratio is over 70% for more than 90 days. A clearing broker/dealer is supposed to maintain minimum net capital of $250,000. If it has $300,000 of net capital, it has exactly 120% of the minimum and would not be in early warning.

Reference: 2.2.1.1 in the License Exam Manual.

94
Q

Broker-Dealer Financial Reporting
Question ID: 48881
Which of the following firms must notify its DEA under the early warning requirements of SEC Rule 17a-11?

I. Established broker/dealer with a ratio of aggregate indebtedness to net capital of 13:1.
II. First-year broker/dealer with a ratio of aggregate indebtedness to net capital of 9:1.
III. Broker/dealer conducting a general securities business with total aggregate indebtedness of $310,000 and total net capital of $310,000.
A) I, II and III.
B) I only.
C) II and III.
D) III only.

A

Answer: B

Under SEC Rule 17a-11, the broker/dealer in Choice I is in early warning and the broker/dealer in Choice II and III is in violation.

Reference: 2.2.1.1 in the License Exam Manual.

95
Q

Broker-Dealer Financial Reporting
Question ID: 48882
A broker/dealer with a minimum net capital requirement of $250,000 is subject to the early warning reporting requirements of SEC Rule 17a-11 if its net capital falls below:

A) $350,000.
B) $500,000.
C) $300,000.
D) $250,000.

A

Answer: C

The early warning provisions of SEC Rule 17a-11 start when a broker/dealer’s net capital drops below 120% of the minimum requirement. In this case, 120% of $250,000 equals $300,000.

Reference: 2.2.1.1 in the License Exam Manual.

96
Q

Broker-Dealer Financial Reporting
Question ID: 48883
According to SEC Rule 17a-11, if net capital falls below 120% of the minimum requirement, a broker/dealer is required to:

I file the required notice within 24 hours.
II. send notice to the SEC the day the event occurs.
III. file monthly reports until three months elapse during which the firm’s net capital exceeds 120% of the minimum requirement.
IV. notify the SEC with a FOCUS II report no later than the fifteenth day of the following month.

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

A

Answer: A

SEC Rule 17a-11 requires early warning reporting when net capital falls below 120% of the minimum requirement. If this occurs, the broker/dealer must notify its DEA and the SEC within 24 hours of the occurrence.

Reference: 2.2.1.1 in the License Exam Manual.

97
Q

Broker-Dealer Financial Reporting
Question ID: 48884

If a principal or an independent accountant finds that a broker/dealer has failed to keep its books and records current, the broker/dealer must:

I. file a FOCUS II or IIA within 24 hours of the discovery.
II. notify the SEC and the designated examining authority the same day.
III. cease doing business with the public immediately.
IV. transmit a report within 48 hours specifying the steps that will be taken to correct the deficiency.
A) I and II.
B) II and III.
C) II and IV.
D) I only.

A

Answer: C

If an accountant or a principal finds that books are not current, the broker/dealer must notify the DEA and the SEC on the day of the occurrence, and must transmit a report within 48 hours detailing the steps that will be taken to remedy the situation.

Reference: 2.2.1.1 in the License Exam Manual.

98
Q

Broker-Dealer Financial Reporting
Question ID: 49070
If a principal discovers that ALFA Securities has failed to keep its books and records current, ALFA must:

I .file FOCUS Part II or Part IIA within 24 hours of the discovery.
II. notify its DEA and the SEC on the same day.
III. cease doing business with the public immediately.
IV. transmit a report within 48 hours specifying what steps will be taken to correct the deficiency.
A) I and II.
B) II and III.
C) II and IV.
D) I only.

A

Answer: C

If a broker/dealer finds that its books are not current, the broker/dealer must on the same day notify by telegraph or facsimile its designated examining authority (DEA) and the SEC and it must transmit a report within 48 hours detailing the steps it intends to take to remedy the situation.

Reference: 2.2.1.1 in the License Exam Manual.

99
Q

Broker-Dealer Financial Reporting
Question ID: 49183
Your firm is an established introducing broker/dealer with net capital of $120,000. Reporting under Rule 17a-11 will begin once the AI of your firm exceeds:

A) $1,200,000.
B) $1,800,000.
C) $1,440,000.
D) $960,000.

A

Answer: C

Once the AI-to-NC ratio exceeds 12:1, your firm would be in early warning.

Reference: 2.2.1.1 in the License Exam Manual.

100
Q

Supplemental Reporting Requirements
Question ID: 48521
A carrying broker/dealer is required by SEC Rule 17a-5 to keep customers informed of its financial condition by sending a(n):

A) balance sheet and income statement to customers upon request.
B) income statement to customers upon request.
C) annual audited balance sheet and a net capital computation.
D) semiannual audited balance sheet and a net capital computation.

A

Answer: C

SEC Rule 17a-5 requires customers be sent annual audited balance sheets (along with a net capital computation) and semiannual unaudited balance sheets (along with a net capital computation).

Reference: 2.3.1.2 in the License Exam Manual.

101
Q

Supplemental Reporting Requirements
Question ID: 48522
Upon a client’s written request, a broker/dealer must furnish a(n):

A) income and expense statement.
B) balance sheet.
C) trial balance.
D) statement of changes in net assets.

A

Answer: B

SEC rules require a broker/dealer to provide a copy of its current balance sheet to any active customer who makes a written request for one.

Reference: 2.3.1.2 in the License Exam Manual.

102
Q

Supplemental Reporting Requirements
Question ID: 48542
A broker/dealer’s outside public accountant decides to terminate his association with the broker/dealer. The broker/dealer has what obligation in this matter?

A) It must notify FINRA by filing a FOCUS IIA with the FINRA district office.
B) None: only if the broker/dealer had terminated the contract would it have had to notify the SEC and FINRA immediately.
C) None: a broker/dealer may choose to initiate or cancel a contract with any accountant.
D) It must notify the SEC and FINRA within 15 business days.

A

Answer: D

Rule 17a-5 requires that if the accountant or the broker/dealer terminates the association, the SEC and FINRA must be notified within 15 business days.

Reference: 2.3.1.4 in the License Exam Manual.

103
Q

Supplemental Reporting Requirements
Question ID: 48593
A carrying firm must provide its customers with information on which of the following semiannually and annually?

Balance sheet.
Income statement.
Net capital.
A) I, II and III.
B) I and III.
C) I and II.
D) II and III.
A

Answer: B

Carrying firms must provide their customers with a semiannual statement (unaudited balance sheet and net capital computation) and an annual statement (audited balance sheet and net capital computation).

Reference: 2.3.1.2 in the License Exam Manual.

104
Q

Supplemental Reporting Requirements
Question ID: 48642
If a member firm terminates its independent accounting firm, the SEC and the SRO must be notified:

A) within 15 business days of termination date.
B) immediately.
C) within 10 business days of termination date.
D) on or prior to the engagement of another accounting firm.

A

Answer: A

SEC rules require members to notify the SEC and the SRO within 15 business days of termination. The notification must include reasons for the termination and a summary of all disputes the member had with its former accountant within the past 2 years. A statement from the former accounting firm declaring whether the firm agrees or disagrees with the member’s interpretation is also included.

Reference: 2.3.1.4 in the License Exam Manual.

105
Q

Supplemental Reporting Requirements
Question ID: 48716
Audited FOCUS II or IIA reports must be filed annually by a:

I. broker/dealer dealing exclusively in investment company shares.
II. fully disclosed broker/dealer.
III. self-clearing broker/dealer.
IV. market maker.

A) I, II, III and IV.
B) I and II.
C) III only.
D) III and IV.

A

Answer: A

All registered broker/dealers are required to file annual audited FOCUS II or IIA reports with FINRA and the SEC. The reports must be filed within 60 days of year end. A 30-day extension on filing may be granted by the Designated Examining Authority (DEA).

Reference: 2.3.1.3 in the License Exam Manual.

106
Q

Supplemental Reporting Requirements
Question ID: 48732
A broker/dealer finds that it will be unable to file its audited FOCUS II within the prescribed time period. An application for extension may be filed for a date not more than:

A) 60 days from fiscal year-end.
B) 90 days from due date.
C) 90 days from fiscal year-end.
D) 30 days from fiscal year-end.

A

Answer: C

An extension may be granted by the DEA for no more than 30 days. When added to the original due date, the final filing date for the audited FOCUS II becomes 90 days after fiscal year-end.

Reference: 2.3.1.3 in the License Exam Manual.

107
Q

Supplemental Reporting Requirements
Question ID: 48733
A broker/dealer terminates its allied membership interest in a national securities exchange. Under 17a-5, the broker/dealer must:

I. file FOCUS II immediately.
II. file FOCUS II within 2 business days.
III. send telegraphic notice immediately.
IV. send telegraphic notice within 24 hours.

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

A

Answer: B

Termination of exchange or SRO membership requires filing of a FOCUS II to the SRO and the SEC within 2 business days.

Reference: 2.3.1.1 in the License Exam Manual.

108
Q

Supplemental Reporting Requirements
Question ID: 48734
Under 17a-5, if a broker/dealer’s annual audit does not coincide with the end of a calendar quarter, the broker/dealer must file an:

A) audited FOCUS I.
B) audited copy of its most recently filed FOCUS II.
C) none of these.
D) additional FOCUS II.

A

Answer: D

If a firm’s fiscal year-end date does not fall on a calendar quarter, it must file a fifth FOCUS II or IIA within 17 business days of its fiscal year-end date.

Reference: 2.3.1.3 in the License Exam Manual.

109
Q

Supplemental Reporting Requirements
Question ID: 48765

A broker/dealer replaces its independent accountant. Under SEC Rule 17a-5, the broker/dealer must file notice with the:

I. SEC's principal office.
II. SEC's district office.
III. SRO's principal office.
IV. SRO's district office.
A) II and IV.
B) I, II, III and IV.
C) I, II and III.
D) I, II and IV.
A

Answer: C

When there is a termination of or replacement of a broker/dealer’s independent accountant, notice must be filed within 15 business days with the SEC’s principal and district office, and the principal office of the SRO.

Reference: 2.3.1.4 in the License Exam Manual.

110
Q

Supplemental Reporting Requirements
Question ID: 48827
FINRA’s Conduct Rules state a customer has the right to examine a broker/dealer’s:

A) general ledger.
B) trading account records.
C) balance sheet.
D) investment records.

A

Answer: C

The Conduct Rules state that a customer must be given a copy of the firm’s latest balance sheet on request.

Reference: 2.3.1.2 in the License Exam Manual.

111
Q

Supplemental Reporting Requirements
Question ID: 48829
Broker/dealer annual reports must be filed with the SEC by:

A) all firms registered under the Securities Exchange Act of 1934.
B) firms that make markets in OTC securities and underwrite corporate securities.
C) firms that carry customer accounts and hold customer funds and securities.
D) NYSE and other exchange member firms.

A

Answer: A

Any broker/dealer that is registered with the SEC must file.

Reference: 2.3.1.3 in the License Exam Manual.

112
Q

Supplemental Reporting Requirements
Question ID: 48833
Under SEC reporting Rule 17a-5, a carrying firm is required to send an:

A) audited balance sheet semiannually to all customers.
B) unaudited balance sheet semiannually to all customers.
C) audited balance sheet to customers only on written request.
D) audited balance sheet annually and an unaudited balance sheet semiannually to all customers.

A

Answer: D

Rule 17a-5 requires carrying firms to send audited balance sheets yearly and unaudited balance sheets semiannually to each customer.

Reference: 2.3.1.2 in the License Exam Manual.

113
Q

Supplemental Reporting Requirements
Question ID: 48834
A broker/dealer is a member of an exchange as well as of FINRA. What action would be required if the broker/dealer ceased being a member of the exchange?

A) Notify the SEC and FINRA within 24 hours.
B) Notify the SEC and FINRA within 15 business days.
C) No notification is required.
D) Notify the SEC and FINRA and file a FOCUS II within 2 business days.

A

Answer: D

If a broker/dealer ceases to be a member of FINRA (or any other national securities exchange), a FOCUS II (or IIA) must be filed with the SEC and the authority within 2 business days of the event.

Reference: 2.3.1.1 in the License Exam Manual.

114
Q

Supplemental Reporting Requirements
Question ID: 48835
Under SEC Rule 17a-5, when and by whom must a formal audit of a broker/dealer’s books and records be undertaken?

A) Semiannually by the firm’s internal audit department.
B) Semiannually by an independent public accountant hired by the broker/dealer.
C) Annually by an auditor employed by FINRA or the NYSE.
D) Annually by an independent public accountant hired by the broker/dealer.

A

Answer: D

SEC Rule 17a-5 requires that a broker/dealer’s books and records be audited annually by an independent accountant. Semiannual reports are unaudited.

Reference: 2.3.1.3 in the License Exam Manual.

115
Q

Supplemental Reporting Requirements
Question ID: 49114
Under SEC Rule 17a-5, a broker/dealer’s annually audited FOCUS Report must be filed with all of the following EXCEPT the:

A) principal office of the SEC.
B) regional office of the SEC.
C) principal office of the DEA.
D) district office of the DEA.

A

Answer: D

A firm must file two copies with the SEC’s Washington, D.C., office, and send one copy to the SEC’s regional office. In addition, one copy must be sent to the DEA’s principal office.

Reference: 2.3.1.3 in the License Exam Manual.

116
Q

Supplemental Reporting Requirements
Question ID: 49125
A carrying firm is exempt from having to send balance sheet and net capital information to customers twice a year provided the firm:

I. sends a financial disclosure statement to customers.
II. places its full audited balance sheet on its website within 90 days of year-end date.
III. places its unaudited balance sheet on its website within 75 days of its mid-year point.
IV. has not provided notice under 17a-11 during the prior year relating to the existence of a material inadequacy in its accounting system.
A) II and III.
B) I, II, III and IV.
C) I only.
D) I and II.

A

Answer: B

Instead of sending balance sheet and net capital information to customers twice a year, carrying firms may choose to send a financial disclosure statement. They must also place their full balance sheet on their website within 90 days of fiscal year-end and within 75 days of their mid-year point. If a firm has filed notice of any material inadequacies in its accounting system during the prior year, it can not take advantage of this exemption.

Reference: 2.3.1.2 in the License Exam Manual.

117
Q

Supplemental Reporting Requirements
Question ID: 49127
Under 17a-5, which of the following statements regarding the engagement of an independent accountant are TRUE?

I. An agreement with an independent accountant must be filed with the SEC no later than December 1 of each year.
II. An agreement with an independent accountant must be filed with the SEC no later than December 10 of each year.
III. The agreement may be of a continuing nature, in which case no further filing is required.
IV. The agreement may not be of a continuing nature, requiring an annual notification filing with the SEC.

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

A

Answer: B

Every broker/dealer must, by December 10 of each year, file a statement with the SEC indicating the existence of an agreement, dated no later than December 1, with an independent accountant covering a contractual commitment to conduct an annual audit during the following year. The agreement may be of a continuous nature, providing for successive yearly audits, in which case no further filing is required.

Reference: 2.3.1.4 in the License Exam Manual.

118
Q

Supplemental Reporting Requirements
Question ID: 49144
In its notice to the SEC and FINRA regarding termination of its independent accountant, a member must address all accounting and auditing disputes with its former accountant over the prior:

A) 18 months.
B) 36 months.
C) 24 months.
D) 12 months.

A

Answer: C

All disputes over the 24-month period before termination must be addressed, whether or not they were resolved to the former accountant’s satisfaction.

Reference: 2.3.1.4 in the License Exam Manual.

119
Q

SIC
Question ID: 48528
When securities previously reported as lost are recovered or found, recovery must be reported:

A) within ten business days of recovery or as soon as the certificate numbers can be determined.
B) within one business day of recovery.
C) on the day of recovery.
D) within two business days of recovery.

A

Answer: B

If securities reported as lost are subsequently recovered, a report must be made within one business day of recovery.

Reference: 2.4.1.1 in the License Exam Manual.

120
Q

SIC
Question ID: 48529
If securities are discovered missing as a result of a securities count, a report must be made to the Securities Information Center:

A) within 7 business days of the count, if not resolved.
B) within 10 business days of the count, if not resolved.
C) immediately.
D) within 2 business days of the count, if not resolved.

A

Answer: B

When securities are discovered missing after a broker/dealer conducts a physical securities count (required quarterly), the broker has 10 business days in which to resolve the difference before reporting it.

Reference: 2.4.1.1 in the License Exam Manual.

121
Q

SIC
Question ID: 48530
Under which of the following conditions would a broker/dealer be required to make an inquiry and determine whether a security has been reported as missing, lost, or stolen?

I. An existing customer delivers 100,000 shares registered in his name.
II. Another reporting broker/dealer delivers 100,000 shares.
III.A new customer delivers 100,000 shares registered in his name.
IV. An existing customer delivers 100,000 shares registered in street name.

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

A

Answer: A

A broker/dealer must inquire as to the validity of ownership of securities delivered by a new customer or by an existing customer that are not registered in the customer’s name. No inquiry is needed when securities are delivered by a reporting broker/dealer (which would have to inquire itself) or when an existing customer delivers securities registered in his own name.

Reference: 2.4.1.2 in the License Exam Manua

122
Q

SIC
Question ID: 48531
If criminal activity is suspected in the case of missing securities, notification must be made to all of the following EXCEPT the:

A) Securities Information Center.
B) issuer’s transfer agent.
C) FINRA.
D) FBI.

A

Answer: C

When securities are suspected of being stolen, the SIC and the transfer agent must be notified within one business day. The FBI must be notified immediately.

Reference: 2.4.1.1 in the License Exam Manual.

123
Q

SIC
Question ID: 48532
If securities are discovered missing from the cashier’s desk and evidence of vandalism leads you to suspect criminal activity, you must make a report:

A) within 1 business day of discovery.
B) on the day of discovery.
C) within 3 business days after discovery.
D) within 10 business days of

A

Answer: A

When securities are discovered missing and criminal activity is suspected, a report must be sent within 1 business day of discovery. The FBI must be notified immediately.

Reference: 2.4.1.1 in the License Exam Manual.

124
Q

SIC
Question ID: 48555
Which of the following securities deliveries require an inquiry with the SIC?

I. $100,000 received from another clearing member in the member’s name.
II. Primary offering of $100,000 received from the issuer.
III. $100,000 received from an existing customer in another broker/dealer’s name.
IV. $100,000 received in bearer bonds from a new customer.

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

A

Answer: B

Securities received directly from an issuer or from another broker/dealer are not subject to SIC inquiry. Securities not registered in the name of the bearer, or brought in by a new customer, require an inquiry to be made.

Reference: 2.4.1.2 in the License Exam Manual.

125
Q

SIC
Question ID: 48633
Reports concerning lost or stolen municipal securities are filed with:

A) SEC.
B) SIC.
C) FINRA.
D) MSRB.

A

Answer: B

The Securities Information Center (SIC) was created by the SEC to deal with problems relating to lost, stolen, or counterfeit securities.

Reference: 2.4.1.2 in the License Exam Manual.

126
Q

SIC
Question ID: 48666
An inquiry of SIC must be made for which of the following securities deliveries?

A) Bearer bonds received from another member firm.
B) Registered stock received from an existing customer.
C) Registered stock received from a new customer.
D) Stock received directly from the issuer.

A

Answer: C

A member must inquire about certain securities that come into its possession. A member must check as to whether they are reported as missing, lost, or stolen. Exceptions are made if the security is received directly from the issuer, from another broker/dealer; from an existing customer of the firm; is registered in the customer’s name; or was previously sold to that customer as verified by the firm’s records. In addition, an exception is made if the security is part of a transaction valued at $10,000 or less. Registered stock received from a new customer is subject to inquiry.

Reference: 2.4.1.2 in the License Exam Manual.

127
Q

SIC
Question ID: 48715
If a broker/dealer finds that securities are missing and suspects criminal activity, which of the following statements are TRUE?

I. The broker/dealer has 1 business day to report to the SIC and the transfer agent.
II. The broker/dealer has 2 business days to report to the SIC and the transfer agent.
III. The FBI must be advised promptly.
IV. The recovery of securities reported missing must be reported within 1 business day of recovery.

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

A

Answer: B

Corporate or municipal securities missing due to suspected criminal activity must be reported to the SIC and the transfer agent within 1 business day and must also be promptly reported to the FBI. Any notified party must be informed within 1 business day if the securities have been found. SIC reporting is required after 2 business days for securities that are missing with no suspicion of criminal activity, and after 10 business days if missing as a result of the securities count.

Reference: 2.4.1.1 in the License Exam Manual.

128
Q

SIC
Question ID: 48728
Securities being delivered through a clearing agency are lost. Reporting to the SIC is to be made:

by the delivering broker/dealer.
by the receiving broker/dealer.
within one business day after receipt of the certificate numbers.
within two business days after receipt of the certificate numbers.
A) I and IV.
B) II and IV.
C) II and III.
D) I and III.
A

Answer: C

Reporting to the SIC of securities being delivered through a clearing firm is required from the receiving broker/dealer within one business day after receipt of the certificate numbers.

Reference: 2.4.1.1 in the License Exam Manual.

129
Q

SIC
Question ID: 48766
Under which of the following circumstances must a broker/dealer inquire of the SIC?

I. An existing customer delivers bearer securities.
II. Another broker/dealer delivers bearer securities.
III. A new customer delivers securities registered in the customer’s name.
IV. An existing customer delivers securities registered in his name.

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

A

Answer: A

SIC inquiry is required when customers (not other firms) deliver securities in bearer form or in the street name of another firm. Inquiry is also necessary when a new customer (not an existing customer) delivers securities registered in that customer’s name.

Reference: 2.4.1.2 in the License Exam Manual.

130
Q

SIC
Question ID: 48772
Securities lost in transit to customers, transfer agents, banks, or other broker/dealers are reported to the SIC:

I. by the delivering broker/dealer.
II. by the receiving broker/dealer.
III. by the later of two business days after receiving notice of nonreceipt, or as soon after such notice as the certificate numbers can be ascertained.

A) II and III.
B) I and III.
C) I only.
D) II only.

A

Answer: B

The delivering broker/dealer must report to the SIC when securities are lost in transit. The report must be completed no later than two business days after the notice of nonreceipt or as soon as the certificate numbers of the lost securities are available.

Reference: 2.4.1.1 in the License Exam Manual.

131
Q

SIC
Question ID: 48823
Under SEC Rule 17f-l, a broker/dealer must report which of the following to the Securities Information Center?

A) Exchange-listed securities delivered by a member of the exchange.
B) Newly-issued securities delivered by the issuer.
C) Securities held in street name and delivered by a new customer from another broker/dealer.
D) Securities delivered by another reporting institution.

A

Answer: C

Broker/dealers must report all securities received, by CUSIP number, to SIC except for securities delivered by issuers or other reporting institutions and securities delivered by customers and registered in the customer’s name. Securities delivered by customers in street name or in bearer form require an inquiry to SIC (unless the securities were sold to the customer by the same member).

Reference: 2.4.1.2 in the License Exam Manual.

132
Q

SIC
Question ID: 48824
If criminal activity is suspected in the case of missing securities, notification must be made to the:

I. FBI.
II. Securities Information Center.
III. Federal Reserve Bank.
IV. issuer’s transfer agent.

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

A

Answer: A

The SIC, the transfer agent, and the FBI must be notified when securities are suspected of being stolen.

Reference: 2.4.1.1 in the License Exam Manual.

133
Q

SIC
Question ID: 48825
If a broker/dealer discovers that stock is lost or missing but does not suspect it is stolen, it must report the incident to the Securities Information Center:

A) within one business day, if the loss is not resolved within three business days of discovery.
B) within one business day, if the loss is not resolved within two business days of discovery.
C) immediately.
D) within one business day, if the loss is not resolved within one business day of discovery.

A

Answer: B

When a broker/dealer suspects that securities are lost or missing (but not stolen), it has two business days in which to find the securities, and on the next business day, must report the loss to SIC and the transfer agent.

Reference: 2.4.1.1 in the License Exam Manual.

134
Q

SIC
Question ID: 49014
Records relating to FinCEN Form 104, which records large cash transactions, must be retained by a broker/dealer for:

A) three years.
B) six years.
C) the life of the firm.
D) five years.

A

Answer: D

FinCEN Form 104 records are an exception to the 3-year, 6-year, or lifetime rule. They must be retained for five years.

Reference: 2.4.1.3 in the License Exam Manual.

135
Q

SIC
Question ID: 49015
Which of the following transactions are broker/dealers required to report on FinCEN Form 104?

A) A customer pays $10,500 in cash for fund shares.
B) A customer pays $10,500 in a cashier’s check for fund shares but the source of the funds is unknown.
C) A customer pays $10,500 in a personal check for fund shares even though the customer is unemployed.
D) A customer pays $10,500 in an endorsed third-party check for fund shares.

A

Answer: A

Of the items listed, only the cash payment is reportable.

Reference: 2.4.1.3 in the License Exam Manual.

136
Q

SIC
Question ID: 49016
Most money laundering regulations are written by which two regulators?

A) FINRA and MSRB.
B) U.S. Department of the Treasury and NYSE Board of Governors.
C) U.S. Department of the Treasury and Federal Reserve Board of Governors.
D) FRB and NYSE.

A

Answer: C

Both the Federal Reserve and the U.S. Treasury have established the most regulations regarding money laundering.

Reference: 2.4.1.3 in the License Exam Manual.

137
Q

SIC
Question ID: 49017
On Wednesday, August 6, a customer deposits $4,500 in currency into her brokerage account. 2 weeks later, she deposits another $4,000. Before the end of the month, she deposits an additional $3,000 in currency into her account. Which of the following statements is TRUE?

A) FinCEN Form 104 must be filed only if securities are purchased with the deposited funds.
B) No FinCEN Form 104 filing is required.
C) FinCEN Form 104 must be filed after each deposit.
D) FinCEN Form 104 must be filed after the third deposit.

A

Answer: B

A report on FinCEN Form 104 is filed only if a customer deposits more than $10,000 on a single business day. If required, the form must be filed within 15 calendar days of the currency deposit. However, the firm may elect to file a suspicious activity report.

Reference: 2.4.1.3.1 in the License Exam Manual.

138
Q

SIC
Question ID: 49022
As a compliance officer, you note that a client has, over the past 3 months, made weekly cash deposits into a brokerage account, each of approximately $5,000, to purchase securities that have no apparent overall objective. Under the USA PATRIOT Act, you should consider:

A) notifying the SEC.
B) notifying FINRA.
C) filing an SAR.
D) filing FinCEN Form 104.

A

Answer: C

FinCEN Form 104 is used to report currency deposits of more than $10,000 occurring on a single business day. Under the USA Patriot Act, a pattern of suspicious activity, such as apparently purposeless investments of substantial amounts of money, would require that a firm file a suspicious activity report with the U.S. Treasury Department.

Reference: 2.4.1.3.1 in the License Exam Manual.

139
Q

SIC
Question ID: 49026
Within how many days of a suspicious transaction must an SAR be filed?

A) 30 days.
B) 5 days.
C) 10 days.
D) 20 days.

A

Answer: A

Reports of suspicious financial activities must be filed within 30 days.

Reference: 2.4.1.3.1 in the License Exam Manual.

140
Q

SIC
Question ID: 49027
SARs must be filed with:

A) the Office of Foreign Assets Control (OFAC).
B) FINRA.
C) the Financial Crimes Enforcement Network (FinCEN).
D) the IRS.

A

Answer: C

SAR forms reporting suspicious transactions must be filed with FinCEN within 30 days.

Reference: 2.4.1.3.1 in the License Exam Manual.

141
Q

SIC
Question ID: 49028
Suspicious activity report (SAR) filing is required for suspicious transactions involving at least:

A) $25,000.
B) $5,000.
C) $3,000.
D) $10,000.

A

Answer: B

SARs must be filed with Financial Crimes Enforcement Network (FinCEN) for suspicious transactions of $5,000 or more.

Reference: 2.4.1.3.1 in the License Exam Manual.

142
Q

SIC
Question ID: 49029
Which of the following Acts requires all broker/dealers to develop internal policies, procedures, and controls to ensure that anti-money laundering compliance occurs?

A) Bank Secrecy Act.
B) Terrorism Abatement Act.
C) OFAC Terrorist Control Act.
D) USA PATRIOT Act.

A

Answer: D

The USA PATRIOT Act of 2001 requires broker/dealers to develop internal policies, procedures, and controls to ensure compliance with anti-money laundering laws.

Reference: 2.4.1.3.1 in the License Exam Manual.

143
Q

SIC
Question ID: 49030
The currency reporting threshold for cash and equivalent instruments is:

A) over $3,000.
B) over $5,000.
C) over $25,000.
D) over $10,000.

A

Answer: D

The currency reporting threshold for cash and equivalent instruments is over $10,000. These transactions must be reported on a CTR (currency transaction report) (FinCEN Form 104).

Reference: 2.4.1.3 in the License Exam Manual.

144
Q

SIC
Question ID: 49086
FINRA Rule 3310 requires that FINRA member firms do all of the following EXCEPT:

A) identify to the SEC the person responsible for compliance with the firm’s anti-money laundering program.
B) establish policies and procedures designed to achieve compliance with the Bank Secrecy Act.
C) designate an individual responsible for compliance with the firm’s anti-money laundering program.
D) provide ongoing training to appropriate personnel.

A

Answer: A

Firms are required to identify to FINRA (not the SEC) the individual charged with oversight of the firm’s anti-money laundering program.

Reference: 2.4.1.3 in the License Exam Manual.

145
Q

SIC
Question ID: 49109
Under FINRA rules, a member firm may be prohibited from expanding its business if, for more than 15 consecutive business days, its net capital is less than:

A) 200% of its minimum requirement.
B) 125% of its minimum requirement.
C) 120% of its minimum requirement.
D) 150% of its minimum requirement.

A

Answer: D

A member may be prohibited from expanding its business if any of the following have existed for more than 15 consecutive business days: net capital is less than 150% of minimum; AI-to-NC ratio exceeds 10:1; or for firms computing under the alternative method, net capital is less than 5% of aggregate debits.

Reference: 2.4.1.4 in the License Exam Manual.

146
Q

SIC
Question ID: 49110
An introducing broker/dealer has a minimum net capital requirement of $100,000. Under FINRA rules, the firm may be required to reduce its business if, for more than 15 consecutive business days, its computed net capital is less than:

A) $150,000.
B) $120,000.
C) $125,000.
D) $200,000.

A

Answer: C

A member firm may be required to reduce its business if any of the following have existed for more than 15 consecutive business days: net capital is less than 125% of minimum; AI-to-NC exceeds 12:1; or for firms computing under the alternative method, net capital is less than 4% of aggregate debits.

Reference: 2.4.1.4 in the License Exam Manual.

Series 27 Questions (7 decks)

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