Unit 2 Supervision of General BD Activities Flashcards
1
Q
When determining if a client qualifies for a breakpoint, mutual fund holding in all of the below accounts may be aggregated
A
- the client’s IRA
- the client spouse’s IRA
a UTMA account for the client’s minor, dependent child
2
Q
Sales charges are applicable to all of the below
A
- open end funds
- variable annuities
- unit trusts
3
Q
To qualify as a REIT, certain IRS requirements must be met. Which of the following are those requirements
A
- Invest at least 75% of its total assets in real estate assets
- Derive at least 75% of its gross income from rents from real property of interest on mortgages financing real property
- Pay annually at least 90% of its taxable income in the form of shareholder dividends.
4
Q
Rule 22d-1 of the Investment Company Act of 1940 stipulates certain persons who are eligible to purchase shares of an open end investment company at prices below the public offering price. Included in that list would be
A
- officers of the fund’s investment adviser
- full-time employees of the fund’s sponsor
5
Q
An order to redeem mutual fund shares is filled at the
A
next computed NAV
6
Q
Under FINRA Rule 2330, a potential red flag would be
A
a client exchanging one deferred variable annuity for another 24 months after the initial purchase
7
Q
Both open and closed end funds may
A
borrow from banks
8
Q
A member may purchase variable contracts from an insurance company underwriter if
A
- there is a written sales agreement in place
- the insurance company is a member
- the member agrees to forfeit all concessions if the contract is redeemed within 7 business days of acceptance
9
Q
A diversified investment company must invest at least ___ of its assets in such a way that no more than ___ of its assets are in any one company, and each investment represents no more than ___ of the target company’s voting securities
A
75%
5%
10%
10
Q
All of the following terms apply to municipal unit investment trusts
A
- regulated
- redeemable
- registered
11
Q
Under FINRA rules, payments made to purchase variable contracts must be forwarded to the insurance company underwriter
A
promptly
12
Q
Which of the following activities would require a member firm to register as an investment adviser?
A
None of these
13
Q
To register with the SEC on Form N-1A, an investment company must have capital of at least
A
100k
14
Q
FINRA Rule 2330 dealing with members’ responsibilities regarding variable annuities applies under which of the following circumstances?
A
- The initial purchase of a deferred variable annuity
- The initial sub account allocations
15
Q
Rule 35d-1 (the name rule) would apply to which of the below mutual fund
A
- GHI Global Equity Fund
- DEF Muni Bond Fund
- JKL Small Cap Fund
16
Q
Which of the following would be deemed impermissible under FINRA rules?
A
A RR sharing disproportionately in her mom’s company trading account.
17
Q
Information on customer complaints must be electronically filed with FINRA
A
quarterly
18
Q
Under FINRA rules, the annual gift limit is
A
$100
19
Q
Which of the following statements is true regarding explained decisions by arbitrators
A
Parties must submit a joint request for explained decisions to require arbitrators to provide one.
20
Q
If a member wishes to appeal an adverse decision in a Code of Procedure hearing, the member must first appeal to the National Adjudicatory Council within how many days of the decision date?
A
25
21
Q
Under the Code of Procedure, if a member receives a formal complaint from the Department of Enforcement, the member must file an answer within
A
25 days
22
Q
If a RR is suspended for 90 days as the result of a Code of Procedure decision, during the suspension period, that person may
A
be paid monies earned before the suspension
23
Q
Under the code of Arbitration, all monetary awards must be paid within how many days of the decision date
A
30
24
Q
Under FINRA rules, which if the following statements is true if an associated person wishes to open an account at another member firm?
A
Prior notification to the employer is required.
25
United Money Managers is under contract to manage the assets of the GEM fund, an open end investment company registered under the Investment Company Act of 1940. This fund is their only client. The GEM Fund currently has 106 million in net assets. Which if the following is correct.
United Money Managers would have to register with the SEC
26
A RR recommendations to a customer
must be suitable based on the facts the customer disclose regarding other holdings and investment objectives
27
A customer buys 100 shares of RFTQ at $10 per share. Several months later, the stock is trading at 4.60-5, at which time the RR offers to buy back the stock from the customer for his own account at $9 per share. This action is
prohibited, because FINRA does not allow RR to guarantee customers against loss
28
Under Section 28e of the SE Act of 1934, which if the below is allowable soft dollar compensation form the BD to an investment advisor under the safe harbor provisions?
Custodial services provided by the BD
29
Ruling under the Code of Arbitration
are binding on all parties
30
According to the Investment Advisers Act of 1940, which if the below is defined as an investment adviser?
1. a lawyer who charges a separate fee for giving specific investment advice
2. a person paid to give advice on bank stocks
3. a publisher of a newsletter that makes specific securities recommendations based on market events
31
A member firm, operating on the premises of a commercial bank, must advise new customers that securities purchased or sold are
1. not insured by the FDIC
2. not deposits or obligations of the bank
3. subject to investment risk
32
Your company has been designated as having hired an excessive number of licensed personnel from a disciplined firm. The company must arrange to monitor all sales efforts, including taping conversations between salespersons and the public. How long does the company have to install the required systems and procedures?
60 days
33
FOCUS part IIA reports must be submitted
quarterly
34
Under SEC rules, all of the below info must be on a customer confirmation
1. whether the member acted as agent or principal
2. whether the member is a market maker and the security is bought or sold
3. whether the member has a control relationship with the issuer
35
A customer's margin account is long 400 shares of XYZ currently trading at $18 per share. Under FINRA rules, the minimum maintenance margin requirement for this account is
$1800
36
37
A customer purchases stock in a cash account and pays for the purchase on the following business day. Under FINRA rules, the purchase is complete
when the securities are delivered into the account
37
A member firm maintains a list of borrowable securities for short sale purposes. Under FINRA rules, this list must be updated
daily
37
Which if the statements regarding joint accts/tenants in common is true
1. each party specifies a percentage interest in the account
2. the interest of a deceased tenant passes to the estate of the decedent
38
Which of the below investments does SIPC provide coverage
1. common stock
2. municipal bonds
39
A customer has a short margin account that has a credit balance of $39000 and a market value of $26000. The short market value at maintenance is
$30,000
40
An established member firm discovers that its AI exceeds its net capital by more that 12:1. Under SEC 17a-11, which of the statements are true?
1. Notice withing 24 hours is required
2. Notice must be made electronically
41
A principal is required to approve discretionary order tickets
promptly after execution
42
The deposit of fully paid securities into a long margin account increases all of the following
1. market value
2. equity
3. SMA
43
The agreement that allows the member firm to use customer securities as collateral for a loan is the
hypothecation agreement
44
A power of attorney is not required for a RR to choose which of the below order qualifiers?
1. Time of execution
2. Price of execution
45
An order ticket, under FINRA rules, must be prepared before
the execution of the order
46
A stock lender retains all of the below rights
1. the right to cash dividends an the loaned stock
2. the right to additional shares resulting from a stock split on the loaned stock
3. the right to additional shares resulting from a stock dividend on the loaned stock
47
A carrying firm must provide its customers, semi-annually and annually, with information on its
1. balance sheet
2. net capital
48
Which of the below statements regarding DVP transactions are true?
1. The customer must receive a confirmation no later than T+1
2. The member is required to receive assurance from the customer that proper instructions have been given to the agent bank
49
A customer sells stock and fails to deliver the securities by settlement date to satisfy the sale. Under SEC rules, the member firm must buy in the position after after how many business days from settlement date?
10
50
If a member's fidelity bond is modified, FINRA must be notified
immediately
51
Under FINRA rules, a principal must review all discretionary accounts
frequently
52
A customer's margin account shows a market value of $13,200 and a debit balance of $8,400. The maintenance market value is
$11,200
53
Under FINRA rules on account transfers, the carrying member must transfer the positions in the account to the receiving member within how many business days of validation?
3
54
If a firm terminates its independent accountant, it must notify the regulatory authorities within
15 business days
55
Subordinated loan agreements must have a minimum term of
1 year
56
Under the Customer Protection Rules, a carrying firm must reduce to possession or control fully paid for customer securities and excess margin securities
daily
57
Who must sign a new account form for a cash account?
principal
58
A dealer must use special procedures whenever it opens a municipal securities account for
1. a clerical employee of another dealer
2. the spouse of a trader employed by another dealer
3. the minor child of an operation supervisor employed by another dealer
59
Which of the below would be considered discretionary?
Account in which the broker has the power to decide when and what to trade, without specific customer authorization for those trades
60
One of your client's dies. Upon notification of the death, you should immediately
1. mark the accounts Deceased until proper documents are received
2. cancel all GTC orders for the account
61
A member firm acting solely as a market maker makes a market in 20 stocks under $5 bid and 20 stocks over $ 5 bid. Under SEC rules, this firm has a minimum net capital requirement of
$100,000
62
The documents required to open a cash account for a customer and give a sibling trading authorization include
1. a new account form
2. a limited power of attorney
63
Under SEC 17a-11, a member is in violation of the net capital rule if its debt/equity ratio exceeds 70% for more than
90 days
64
Which if the following violations of the net capital rule require that the member making the notification file a report within 48 hours of notification detailing the steps being taken to correct the situation?
1. Books and records are not current
2. Material inadequacies in the member's accounting system
65
An employee of another BD would like to open an account with your firm. Under FINRA rules, all of the below statements regarding the employee and the account are true
1. the employer must receive duplicate copies of all transactions made in the account if requested
2. prior notice to the employer is needed for a cash account
3. prior notice to the employer is needed for a margin account
66
All of the below records must be retained for 6 years
1. blotters
2. general ledgers
3. stock record
67
All of the below information must be obtained from new customers
1. employer name and address
2. date of birth
3. citizenship
68
Unless otherwise directed by the SEC, carrying firms must perform a reserve computation
weekly
69
A new account form requires the signatures of the customer, the registered representative, and the principal approving the account. True or False?
False
There is no requirement for the customer's signature on the new account form. The only required signature is the principal approving the account.
70
If a member firm is recommending an issuer's securities to a customer and a control relationship exists between the issuer and the member, the relationship must be disclosed either in writing before the recommendation or on t he customer's confirmation. True or False?
True
71
A discretionary trade is one in which the member chooses the action, the security, or the price. True or False?
False
Deciding the price at which to buy to sell a security does not require discretionary authority. Discretionary authority is required if the member chooses the action (buy or sell), the security, or the number of shares being bought or sold.
72
A principal must approve all discretionary order tickets before execution. True or False?
False
Discretionary order tickets must be reviewed by a principal promptly after execution. In addition, a principal must frequently review all discretionary accounts to detect potential abuses.
73
A RR may distribute an internal use only memo to institutional customers that have a block size position in the security covered by the memo. True or False?
False
Internal use only means just that. By distributing the memo, the representative and firm could stand to be in violation of several rules and laws.
74
The valuation of a nonexchange traded REIT must disclosed annually. True or False?
True
75
A stock lender retains the right to cash dividends, stock dividends and stock splits. True or False?
True
76
If a member firm keeps a list of borrowable stock, the firm must update this list at least weekly. True or False?
False
Under FINRA rules, a list of borrowable securities for short sale purposes must be updated at least daily.
77
SMA in a short account is created when market value falls. In a long account, SMA is created when market value rises. True or False?
True
78
New issues trading for less than 30 days in the secondary market are not marginable. True or False?
True
79
Under Regulation T, a customer must make payment for purchased stock within 3 business days of trade date. True or False?
False
Regular way settlement requires payment within 2 business days following trade date. Regulation T, however, allows customers an additional 2 business days to pay for securities purchased. Under Regulation T, customers must pay promptly but no later than 4 business days from trade date.
80
Minimum net capital required for an introducing firm that effects more than 10 transactions per year in its investment account
$100k
81
Minimum net capital required for a firm that deals exclusively in investment company securities and accepts customer wire orders
$25K
82
Minimum net capital required for an introducing BD that cannot receive customer securities
$5k
83
Minimum net capital require form a firm that carries customer accounts
$250k
84
Minimum net capital required for a market market that makes a market in 200 stocks over $5 bid
$500k
85
Minimum net capital required for a market maker that makes a market in 400 stocks over $5 bid and 100 stocks under $5 bid
$1mm
86
Minimum net capital required from an introducing BD that receives customer securities and participates as a selling group member in firm commitment underwriting
$50k
87
Aged fails to deliver are considered nonallowable assets. True or False?
False
Aged fails to deliver are allowable assets after being marked to the market and a haircut taken on the 5th business day after settlement.
88
A carrying BD in business for 8 months is in compliance with 15c3-1 if its net capital is $200k and its aggregate indebtedness is $1mm. True or False?
False
Regardless of the AI to NC ratio, this new firm is not in compliance because its net capital is below the minimum requirement of $250k.
89
Temporary subordination agreements must be filed with FINRA 30 days before their effective date. True or False?
False
All subordinated loan agreements must be filed with FINRA 10 days prior to their effective date.
90
A firm wit ha net work of $500k and subordinated debt of $500k has a debt/equity ratio of 50%. True or False?
True
91
The haircut for a stock owned by a firm with no ready market is 40%. True or False?
False
A security for which there is no ready market is a nonallowable asset. The haircut for securities with a limited market (less than 3 independent market makers total) is 40%.
92
Government securities are never subject to undue concentration haircuts. True or False?
True
93
If undue concentration exists, an additional haircut of 15% applies to the amount that exceeds the 10% threshold. True or False?
True
94
A standard subordination agreement musta have a minimum term of 3 years. True or False?
False
A standard subordination agreement must have a minimum term of 1 year.
95
Term for which FOCUS reports must be retained
3 years
96
Typical frequency of a firm's customer reserve calculation
Weekly
97
Term for which customer account records must be retained
6 years
98
Term for which minute books must be retained
lifetime
99
Amount of excess of credits over debits that must be deposited by monthly reserve account calculators
105%
100
Numbers of days after which unresolved short securities differences must be bought in
45 days
101
Frequency with which trial balances must be prepared
Monthly
102
Frequency of securities counts
quarterly
102
Date by which customer ledgers must be posted
settlement date
103
A fail to receive must be bought in immediately after this many days passed settlement
10 business days
104
A participating unit investment trust purchases mutual fund shares. True or False?
True
105
A change cannot be made to a mutual fund's investment adviser without the approval of a majority vote of outstanding shares. True or False?
True
105
Open and closed end funds must provide audited financial information to the SEC annually. True or False?
True
106
Shareholders must receive quarterly financial reports from the investment company. True or False?
False
Shareholders must receive annual audited reports and semiannual unaudited financial reports from the management company
107
According to the Investment Company Act of 1940, a diversified open end management company may hold, at most, 10% of a corporation's voting stock? True or False?
True
108
Prospectuses cannot include financial information that is more than 12 month's old. True or False?
False
Prospectuses cannot include financial information more than 16 months old.
109
FINRA rules limit 12b-1 fees to .75% of the average annual net assets of the investment company. True or False?
True
110
A 12b-1 charge can be terminated with a majority vote of the shareholders or a majority vote of the outside directors. True or False?
True
111
A mutual fund sponsor must be a member firm. True or False?
True
112
Mutual funds are prohibited from all transactions involving short options. True or False?
False
As an example, mutual funds may write covered calls.
113
Member firms must transmit customer payments to the mutual fund within 1 business day of the trade of three business days of receipt, whichever is later. True or False?
False
Member firms must transmit customer payments to the mutual fund within 3 business days of the trade of 1 business day of receipt, whichever is later.
114
If shares are redeemed within seven business days of purchase, concessions received by the member must be forfeited to the fund or its sponsor. True or False?
True
115
Capital gains distributions can be made no more frequently than once per year. True or False?
True
