Unit 6 - Uniform Practice Rules

Question 1

Scope of the UPC
Question ID: 48562
If the mark to the market demand for a cash deposit is sent by one broker to another, the required amount of cash must be deposited:

A) within 24 hours.
B) within 5 business days.
C) as promptly as possible.
D) within 1 hour.

Answer 1

Answer: C

When a member firm sends a mark to the market to another member firm, the required amount of cash must be deposited as promptly as possible.

Reference: 6.1.2.3 in the License Exam Manual.

Question 2

Scope of the UPC
Question ID: 48563
A mark to the market is based on:

A) the amount of time from the date on which the delivery is due.
B) the number of shares involved in a transaction.
C) contract price in relation to market price.
D) reclamation procedures.

Click for Answer and Explanation

Answer 2

Answer: C

A mark to the market is based on the difference between the contract price and the market price.

Reference: 6.1.2.4 in the License Exam Manual.

Question 3

Scope of the UPC
Question ID: 48760
Under the Uniform Practice Code of FINRA, delivery may be made on a seller’s option contract no sooner than:

A) T+5.
B) T+7.
C) T+4.
D) T+1.

Answer 3

Answer: C

Under Uniform Practice Code, the seller’s option delivery may take place no sooner than the business day following regular way, which is trade date plus 4 business days.

Reference: 6.1.2 in the License Exam Manual.

Question 4

Scope of the UPC
Question ID: 48806
A when-issued municipal confirmation would include:

I. trade date.
II. settlement date.
III. price.
IV. accrued interest.

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

Answer 4

Answer: D

A when-issued confirmation will include the trade date and the price of the bonds expressed in yield. It will not include the settlement date because it is not yet known. The settlement date is unknown, so accrued interest cannot be computed.

Reference: 6.1.2.3 in the License Exam Manual

Question 5

Scope of the UPC
Question ID: 48964
Under MSRB Rule G-12, all of the following are true EXCEPT:

A) regular way transactions settle on the third business day.
B) when-issued trades settle on a date agreed to by both parties, which can be no earlier than two business days after notification of settlement is provided to the clearing agencies.
C) cash trades settle on the same business day.
D) cash trades settle on the next business day.

Answer 5

Answer: D

Under MSRB rules, cash trades settle on the trade date, not on the next business day. Regular way trades settle three business days after the trade date.

Reference: 6.1.2 in the License Exam Manual.

Question 6

Scope of the UPC
Question ID: 48990
Confirmation of a cash trade between two member firms must be exchanged:

A) within five business days of the trade date.
B) on the trade date.
C) on the business day following the trade date.
D) within three business days of the trade date.

Answer 6

Answer: B

A cash trade must be confirmed on the day of the trade because it settles on the day of the transaction.

Reference: 6.1.2 in the License Exam Manual.

Question 7

Scope of the UPC
Question ID: 48992
A don’t know (DK) notice will be sent when:

A) a uniform reclamation form is not used.
B) bearer bonds are delivered with coupons detached.
C) written notice of the publication of a bond call is received after delivery of the bonds.
D) a contra-broker/dealer fails to confirm a transaction.

Answer 7

Answer: D

If a buyer or seller does not receive a return confirmation from the other party involved in the transaction by the end of the fourth business day, a don’t know (DK) notice is sent promptly.

Reference: 6.1.2.2 in the License Exam Manual.

Question 8

Scope of the UPC
Question ID: 48998
Under the Uniform Practice Code, a seller’s option transaction settles:

A) within 90 calendar days of the transaction.
B) on or before the expiration date specified in the option.
C) at the discretion of the seller.
D) within 35 calendar days of the transaction.

Answer 8

Answer: B

In a seller’s option transaction, the seller may deliver, at his discretion, between four business days after the trade date until expiration of the option.

Reference: 6.1.2 in the License Exam Manual.

Question 9

Scope of the UPC
Question ID: 48999
Where there is an unsecured debit, a demand for the difference between the contract price and the market price is called a:

A) mark to the market.
B) settlement claim.
C) deposit demand.
D) clearance demand.

Answer 9

Answer: A

When a securities contract has been entered into, but not settled, and the market value changes materially, the party who is partially unsecured may demand a mark to the market or deposit to cover the difference.

Reference: 6.1.2.3 in the License Exam Manual.

Question 10

Scope of the UPC
Question ID: 49000
In a regular way transaction, if a seller delivers before the settlement date, the:

A) buyer may accept the stock or may refuse it without prejudice.
B) buyer must only accept delivery if the seller gave advance notice of his intention.
C) seller has violated the Uniform Practice Code.
D) buyer must accept delivery.

Answer 10

Answer: A

In a regular way trade, the purchaser does not have to accept securities delivered before settlement date (three business days after the trade date), but may do so if he wishes.

Reference: 6.1.2 in the License Exam Manual.

Question 11

Scope of the UPC
Question ID: 49001
Settlement on when-, as-, and if-issued and when-, as-, and if-distributed transactions is usually determined by the:

A) board of governors.
B) FINRA Uniform Practice Committee.
C) buying broker.
D) selling broker.

Answer 11

Answer: B

Settlement on when-issued securities is on a date set by FINRA’s Uniform Practice Committee unless such date is determined by an exchange (if the securities are listed) or by the manager of the underwriting syndicate (if new issue securities are involved).

Reference: 6.1.2.3 in the License Exam Manual.

Question 12

Scope of the UPC
Question ID: 49002
Settlement of securities transactions is made:

A) when the selling broker/dealer delivers the securities to the buying broker/dealer’s office.
B) at either the office of the buyer or the seller, as specified at the time the parties enter into contract.
C) when the buying broker/dealer delivers a check to the selling broker/dealer’s office.
D) when the seller and the buyer come together at the office of the transfer agent

Answer 12

Answer: A

Settlement of securities transactions occurs when the selling broker/dealer delivers to the buying broker/dealer.

Reference: 6.1.2 in the License Exam Manual.

Question 13

Scope of the UPC
Question ID: 49004
In a seller’s option, securities may be delivered prior to the expiration date specified if the seller:

A) cannot deliver on the specified date.
B) wishes to be paid earlier.
C) gives one day’s written notice to the buyer.
D) gives notice to the buyer on the day of delivery.

Answer 13

Answer: C

In a seller’s option trade, the seller may deliver at his option by giving the buyer written notice one day before the delivery date.

Reference: 6.1.2 in the License Exam Manual.

Question 14

Scope of the UPC
Question ID: 49005
When a broker receives confirmation of a transaction of which there is no record, the broker will send the confirming broker a:

A) don’t know notice.
B) sell-out notice.
C) close-out notice.
D) fail notice.

Answer 14

Answer: A

A DK notice is sent when a confirmation or comparison is received that does not conform with the broker’s record of the transaction.

Reference: 6.1.2.2 in the License Exam Manual.

Question 15

Scope of the UPC
Question ID: 49032
Which of the following statements regarding the physical delivery of securities are TRUE?

I. Delivery is made at the office of the seller.
II. Delivery is made at the office of the buyer.
III. Delivery expenses are borne by the seller.
IV. Delivery expenses are borne by the buyer.

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

Answer 15

Answer: C

All physical deliveries are made by the seller at the office of the purchaser. Any expenses incurred in connection with the delivery are borne by the seller.

Reference: 6.1.2 in the License Exam Manual

Question 16

Scope of the UPC
Question ID: 49034
A seller must provide written notice of intent to deliver at least how many business days before delivering under a seller’s option contract?

A) Three days.
B) Four days.
C) One day.
D) Two days.

Answer 16

Answer: C

Before delivering securities to satisfy a seller’s option contract, the seller must give the buyer a written notice of intent to deliver at least one business day before making delivery.

Reference: 6.1.2 in the License Exam Manual

Question 17

Scope of the UPC
Question ID: 49037
When one party to a trade sends a paper confirmation but does not receive one (or a DK) in return, the confirming member must send a DK notice to the nonconfirming member:

A) immediately.
B) after three business days from trade date.
C) after five business days from trade date.
D) after four business days from trade date.

Answer 17

Answer: D

When one party to a trade sends a confirmation (the confirming member) but does not receive one in return, the confirming member must send a DK (don’t know) notice to the nonconfirming member after four business days from trade date.

Reference: 6.1.2.2 in the License Exam Manual.

Question 18

Scope of the UPC
Question ID: 49095
Under the Uniform Practice rules of FINRA, the failure of a buying dealer to comply with a demand for additional collateral by the seller of a when-issued contract enables the seller to close out the contract without notice as early as how many business days following the day notice demand was sent?

A) Two days.
B) Three days.
C) Five days.
D) One day.

Answer 18

Answer: D

Should the price of the contract decline in the when-issued trading market, the seller may demand additional collateral. Failure to comply with a demand entitles the seller to close the contract by making an offsetting purchase. Any offsetting purchase may be made as early as the business day following the day notice of demand was sent.

Reference: 6.1.2.3 in the License Exam Manual.

Question 19

Scope of the UPC
Question ID: 49096
Under the Uniform Practice rules of FINRA, all of the following events will generally result in the cancellation of a when-issued contract EXCEPT a change in the:

A) type of securities to be issued.
B) redemption schedule of the securities to be issued.
C) interest rates of the securities to be issued.
D) dollar value of the securities to be issued.

Answer 19

Answer: D

Events which may result in cancellation by the Uniform Practice Committee include changes in redemption schedule, changes in dividend rates and interest rate, or a change in the type of security to be issued. Events which will may not result in cancellation include changes in the dollar value of the securities to be issued, restructuring of the financing arrangements previously announced by the issuer, and settlement of any legal action on the part of the issuer.

Reference: 6.1.2.3 in the License Exam Manual.

Question 20

Scope of the UPC
Question ID: 49098
If no settlement date is set by the Uniform Practice Committee, delivery may be made by the seller provided written notice of intent to deliver is given to purchasers at least:

A) five business days before delivery.
B) one business day before delivery.
C) two business days before delivery.
D) three business days before delivery.

Answer 20

Answer: B

If no settlement date is set by the Committee, delivery may be made by the seller on the business day following the day the seller delivers written notice of intent to deliver to purchasers.

Reference: 6.1.2.3 in the License Exam Manual.

Question 21

Scope of the UPC
Question ID: 49120
Which of the following statements regarding funds received as collateral by the seller of a when-issued contract are TRUE?

I. The funds must be segregated on its books and records.
II. The funds need not be segregated on its books and records.
III. The funds must be physically segregated from other funds of the firm.
IV. The funds need not be physically segregated from other funds of the firm.

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

Answer 21

Answer: B

Funds received by the selling member must be segregated on its books and records. However, Uniform Practice rules do not require that these funds be physically segregated from other funds of the firm. Firms can not permit any part of these deposits against when-issued contracts to be used for any purpose other than to secure these contracts.

Reference: 6.1.2.3 in the License Exam Manual.

Question 22

Good Delivery Rules
Question ID: 48483
On February 13, your customer buys an 8% Treasury bond maturing in 2009 for settlement on February 14. If the bonds pay interest on January 1 and July 1, how many days of accrued interest are added to the buyer’s price?

A) 44 days.
B) 14 days.
C) 43 days.
D) 45 days.

Answer 22

Answer: A

Accrued interest for government bonds is figured on an actual-days-elapsed basis. The number of days begins with the previous coupon date and continues up to, but not including, the settlement date. The bonds pay interest on January 1. There are 31 days of accrued interest for January. The bonds settle February 14. There are 13 days of accrued interest for February. Do not count the settlement date (31 + 13 = 44 days).

Reference: 6.2.2 in the License Exam Manual.

Question 23

Good Delivery Rules
Question ID: 48484
One of your customers buys a new issue municipal revenue bond on March 19. The trade settles on March 24, and the bond pays interest on February 1 and August 1. If the dated date of the bond is March 1, how many days of accrued interest are due?

A) 23 days.
B) 19 days.
C) 24 days.
D) 55 days.

Answer 23

Answer: A

Interest started accruing from the dated date of the bond (March 1). Interest accrues up to, but not including, settlement. Therefore, 23 days of accrued interest are due. The customer’s first interest payment, the following August, will represent interest that has accrued from the dated date.

Reference: 6.2.2 in the License Exam Manual.

Question 24

ood Delivery Rules
Question ID: 48485
A May and November Treasury bond is traded the regular way on Wednesday, June 8. The number of days of accrued interest is:

A) 44 days.
B) 45 days.
C) 39 days.
D) 38 days.

Answer 24

Answer: C

Accrued interest on government bonds is based on actual days in a year. Settlement occurs on the next business day. This bond pays interest in May and November, with the most recent payment on May 1. Interest has accrued on this bond for 31 days in May and 8 days in June, for a total of 39 days. Settlement date is Thursday, June 9.

Reference: 6.2.2 in the License Exam Manual.

Question 25

Good Delivery Rules
Question ID: 48537
Which of the following statements regarding accrued interest on bond transactions are TRUE?

I. When bonds are bought or sold, any accrued interest is deducted from the sale proceeds and added to the buyer’s total purchase cost.
II. Accrued interest on corporate bonds is calculated based on a 360-day year.
III. Only registered bonds are subject to accrued interest calculations; bearer bonds do not carry accrued interest.
IV. In counting the number of accrued interest days, start with the last interest payment date, which is included in the count, and end with the transaction settlement date, which is not included in the count.

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

Answer 25

Answer: B

Accrued interest is added to both sides of a bond transaction − to the buyer’s total cost and the seller’s total proceeds.

Reference: 6.2.2 in the License Exam Manual.

Question 26

Good Delivery Rules
Question ID: 48586
Accrued interest is:

I. added to the buyer's confirmation.
II. subtracted from the buyer's confirmation.
III. added to the seller's confirmation.
IV. subtracted from the seller's confirmation.
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.

Answer 26

Answer: A

Accrued interest is payable by the buyer to the seller. It is added to the buyer’s purchase price. The seller receives the accrued interest, so it is added to the seller’s proceeds.

Reference: 6.2.2 in the License Exam Manual.

Question 27

Good Delivery Rules
Question ID: 48588
If securities delivered in an interdealer trade are refused by the transfer agent, the time frame for reclamation, under Uniform Practice rules, is:

A) 30 months from delivery date.
B) 15 days from delivery date.
C) 45 days from delivery date.
D) 90 days from delivery date.

Answer 27

Answer: A

If securities accepted by a member in an interdealer trade are subsequently rejected by the transfer agent (for whatever reason), the time frame for reclamation is 30 months from delivery date.

Reference: 6.2.4.2 in the License Exam Manual.

Question 28

Good Delivery Rules
Question ID: 48589
All of the following deliveries are subject to reclamation EXCEPT a:

A) mutilated certificate.
B) bond certificate rejected by the transfer agent.
C) bond that defaults after trade date.
D) bearer bond delivered with missing coupons.

Answer 28

Answer: C

In this instance, the buying member assumes any loss on the defaulted bond. Reclamation was not designed to shield members from market risk. Bonds delivered with missing coupons, mutilated certificates, and bonds rejected by the transfer agent can all be reclaimed.

Reference: 6.2.4.2 in the License Exam Manual.

Question 29

Good Delivery Rules
Question ID: 48611
On Thursday, March 17, a customer enters a regular way order to buy $20,000 of a 5-1/2% corporate bond maturing in 15 years. The bond pays interest on January 1 and July 1. How many days of accrued interest will the customer pay the seller?

A) 81 days.
B) 76 days.
C) 77 days.
D) 82 days.

Answer 29

Answer: A

Interest accrues up to but not including settlement date. For a trade done on Thursday, March 17, regular way settlement would be Tuesday, March 22. The computation is: January 30 days + February 30 days + March 21 days = Total of 81 days.

Reference: 6.2.2 in the License Exam Manual.

Question 30

Good Delivery Rules
Question ID: 48629
The calculation of accrued interest:

I. includes the prior payment date.
II. does not include the prior payment date.
III. includes the settlement date.
IV. does not include the settlement date.

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

Answer 30

Answer: C

Interest begins to accrue on the prior interest payment date and accrues up to but not including settlement date.

Reference: 6.2.2 in the License Exam Manual.

Question 31

Good Delivery Rules
Question ID: 48632
Under Uniform Practice rules, all of the following deliveries are eligible for reclamation EXCEPT:

A) bonds delivered subject to an in-whole call.
B) registered bonds delivered without a signature guarantee.
C) bearer bonds delivered with missing coupons.
D) bonds delivered subject to a partial call.

Answer 31

Answer: A

Reclamation is available if a member inadvertently accepts a delivery from another member as good and later discovers that the delivery should have been rejected. Reclamation represents the right to return a security that had previously been accepted. Bonds subject to an in-whole call are never subject to reclamation. The only certificates the seller could have delivered are those subject to the call. Unless identified at time of trade, bonds subject to a partial call are subject to reclamation.

Reference: 6.2.4.2 in the License Exam Manual.

Question 32

Good Delivery Rules
Question ID: 48651
In a regular way trade, a customer buys a 6-5/8% corporate debenture on Wednesday, March 2. The bond pays interest on February 15 and August 15. How many days of accrued interest will the buyer pay the seller?

A) 16 days.
B) 17 days.
C) 21 days.
D) 22 days.

Answer 32

Answer: D

Interest accrues up to, but not including, settlement date. This trade settles on Monday, March 7. The computation is: February 16 days + March 6 days = Total 22 days. Remember, if a corporate bond pays on the fifteenth, the first month will have 16 days of accrued interest (15 through 30 inclusive is 16 days).

Reference: 6.2.2 in the License Exam Manual.

Question 33

Good Delivery Rules
Question ID: 48668
After accepting as good delivery securities that have minor irregularities, a buying dealer can return the securities to the delivery dealer through:

A) reversion.
B) reclamation.
C) rejection.
D) rescission.

Answer 33

Answer: B

Reclamation is available if a member inadvertently accepts a delivery on settlement date and later discovers that the securities were not in good deliverable form.

Reference: 6.2.4.2 in the License Exam Manual.

Question 34

Good Delivery Rules
Question ID: 48710
Under the Uniform Practice Code of FINRA, which of the following statements regarding reclamation are TRUE?

I. Any security returned without a Uniform Reclamation Form attached may be closed out.
II. The time limit for reclaiming securities with minor irregularities is 15 days from original delivery; 45 days for a foreign security.
III. The time limit for reclaiming a security refused by the transfer agent is 30 months.
IV. The time limit for reclaiming a security lost or stolen is 30 months.

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

Answer 34

Answer: B

The Uniform Practice Code requires a Uniform Reclamation Form to be attached for reclamation purposes. Note the differences in time limits as compared to municipal securities.

Reference: 6.2.4.2 in the License Exam Manual.

Question 35

Good Delivery Rules
Question ID: 48714
A customer buys a U.S. Treasury note in a cash account on Monday, March 31. The note pays interest on January 1 and July 1. How many days of accrued interest will the customer pay the seller?

A) 96 days.
B) 90 days.
C) 89 days.
D) 95 days.

Answer 35

The accrued interest calculation for government securities is based on regular way settlement of T+1 and actual day months. The settlement of this transaction would be Tuesday, April 1, which means the seller is entitled to interest from January 1 through March 31. 31 days of interest is payable in January, 28 in February, and 31 for March. The total number of days is 90.

Reference: 6.2.2 in the License Exam Manual.

Question 36

Good Delivery Rules
Question ID: 48730
On March 17, a customer buys (in a cash settlement transaction) 10 ABC Corp. 7 1/4% debentures maturing 6/15/20. How many days of accrued interest will the customer pay to the seller?

A) 100 days.
B) 92 days.
C) 93 days.
D) 99 days.

Answer 36

Answer: B

For corporate bonds, the accrued interest computation is based on 30-day months. Settlement would occur on March 17 in this transaction, so the count of days would be through March 16. The interest payments are made on June 15 and December 15, so the count begins as of December 15th. The number of days per month are as follows: 16 in December, 30 in January, 30 in February, and 16 in March, for a total of 92 days.

Reference: 6.2.2 in the License Exam Manual.

Question 37

Good Delivery Rules
Question ID: 48762
A customer buys a new issue municipal bond for settlement on January 31. The dated date is January 1 and the first interest payment date is April 1. How many days of accrued interest will the customer pay to the syndicate?

A) 31 days.
B) 90 days.
C) 91 days.
D) 30 days.

Answer 37

Answer: D

In an accrued interest computation, interest accrues up to but not including the settlement date. The count begins as of the dated date in a new municipal; so counting from January 1 (inclusive) through January 30 results in 30 days of interest payable to the syndicate.

Reference: 6.2.2 in the License Exam Manual.

Question 38

Good Delivery Rules
Question ID: 48949
Under MSRB rules regarding registered municipal securities, which of the following assignments would not constitute good delivery?

I. Individual executor.
II. Person since deceased.
III. Custodian under Uniform Gifts to Minors Act rules.
IV. Attorney for the customer.

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

Answer 38

Answer: A

Assignments by an attorney or a person since deceased are not acceptable. Assignments by custodians and individual executors are allowed.

Reference: 6.2.3 in the License Exam Manual.

Question 39

Good Delivery Rules
Question ID: 48950
Which of the following is not good delivery for a $20,000 bearer bond trade?

A) Two $10,000 certificates.
B) Four $5,000 certificates.
C) Two $5,000 certificates and 10 $1,000 certificates.
D) Three $5,000 certificates and 5 $1,000 certificates.

Answer 39

Answer: A

Bearer bonds must be delivered in denominations of $1,000 and $5,000. Anything else is a counterfeit.

Reference: 6.2.1.2 in the License Exam Manual.

Question 40

Good Delivery Rules
Question ID: 48956
Under MSRB rules, all of the following bond certificates would constitute good delivery EXCEPT one with an assignment executed by a(n):

A) custodian under the Uniform Gifts to Minors Act.
B) person since deceased.
C) individual executor.
D) individual trustee under an inter vivos trust.

Answer 40

Answer: B

An assignment executed by a person since deceased is not acceptable. Assignments by custodians under the Uniform Gifts to Minors Act, by individual executors, and by individual trustees are acceptable.

Reference: 6.2.3 in the License Exam Manual.

Question 41

Good Delivery Rules
Question ID: 48957
If a stock or bond certificate is registered in the name of Quantum Rapid Search, Inc., the securities will constitute good delivery if:

A) the certificate is notarized and authorized by the company’s registrar.
B) the statement “proper papers for transfer filed by assignor” is placed on the assignment and signed by the transfer agent.
C) the treasurer of Quantum Rapid Search, Inc., attests to legal ownership.
D) delivery is made to the broker/dealer that originally sold the bonds and the president of Quantum Rapid Search, Inc., signs his natural name.

Answer 41

Answer: B

Legal papers (corporate resolutions) always are required to transfer securities registered in the name of a corporation. The broker/dealer representing the seller submits to the transfer agent the securities being sold, along with the necessary papers, requesting either reissuance in street name or affixing the “proper papers for transfer” notice, signed by the transfer agent, to the old certificate.

Reference: 6.2.3 in the License Exam Manual.

Question 42

Good Delivery Rules
Question ID: 48958
Armand B. Smith wants to deliver bonds registered in his name. According to MSRB rules, the assignment may contain his signature in which of the following forms?

I. Armand Smith.
II. Armand B. Smith.
III. Armie B. Smith.
IV. A. B. Smith.

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

Answer 42

Answer: C

Assignments (signatures) must conform exactly to the bondholder’s name and spelling as printed on the certificate.

Reference: 6.2.3 in the License Exam Manual.

Question 43

Good Delivery Rules
Question ID: 48962
Under MSRB rules, computation of accrued interest is figured up to:

A) and including the trade date.
B) and including the settlement date.
C) but not including the settlement date.
D) but not including the trade date.

Answer 43

Answer: C

Interest accrues up to but does not include settlement date for municipal and corporate bond computations.

Reference: 6.2.2 in the License Exam Manual.

Question 44

Good Delivery Rules
Question ID: 48991
Under which of the following circumstances do reclamation procedures under FINRA’s Uniform Practice Code apply?

I. A mutilated certificate is returned even though it was authenticated by the transfer agent before delivery.
II. A delivery is returned without a Uniform Reclamation Form.
III. A certificate is returned because the transfer agent refused to accept it.
IV. A certificate is returned after it is discovered to have been stolen.

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

Answer 44

Answer: C

Reclamation is allowed if a transfer agent refuses to accept the certificate or if a certificate is found to be stolen. Reclamation is not permitted without a Uniform Reclamation Form or if the security is authenticated by the transfer agent before delivery.

Reference: 6.2.4.2 in the License Exam Manual.

Question 45

Good Delivery Rules
Question ID: 49008
Under which of the following circumstances is reclamation regarding called securities available?

A) A security is delivered after the publication of a notice of partial call for redemption.
B) The security involved is specifically traded as a called security.
C) The entire issue is called for redemption.
D) All of these.

Answer 45

Answer: A

Reclamation is available when a bond is delivered after the bond issue has been partially called. This provision does not apply if the entire issue is called. It also assumes that the security was not dealt as a trade in a called bond.

Reference: 6.2.4.2 in the License Exam Manual.

Question 46

Good Delivery Rules
Question ID: 49031
A customer purchases a Treasury bond in a regular way transaction on Monday, April 4. The bond is a J&J bond. How many days of accrued interest will the seller receive?

A) 96 days.
B) 94 days.
C) 79 days.
D) 80 days.

Answer 46

Answer: B

The seller will receive 94 days of interest (actual days) from the previous payment date up to, but not including, the settlement date of April 5.

Reference: 6.2.2 in the License Exam Manual.

Question 47

Good Delivery Rules
Question ID: 49033
Under Uniform Practice, a partial delivery of common stock in an interdealer trade is:

A) acceptable without restriction.
B) acceptable with the approval of the Market Operations Review Committee.
C) unacceptable.
D) acceptable as long as the amount remaining to be delivered does not include an odd lot.

Answer 47

Answer: D

A partial delivery is acceptable only if the amount remaining to be delivered does not include an odd lot.

Reference: 6.2.1.1 in the License Exam Manual.

Question 48

Good Delivery Rules
Question ID: 49035
In an interdealer trade of 600 shares, all of the following would be good delivery EXCEPT:

A) 5 120-share certificates.
B) 2 300-share certificates.
C) 12 50-share certificates.
D) 6 certificates of 60 shares and 6 certificates of 40 shares.

Answer 48

Answer: A

For round lot sales, delivery must be in denominations that add up to 100 shares or are divisible by 100 shares. For two 300-share certificates, 300-share certificates are divisible by 100. For 12 50-share certificates and 6 certificates of 60 shares and 6 certificates of 40 shares, 2 certificates can be put together to make 100 shares.

Reference: 6.2.1 in the License Exam Manual.

Question 49

Good Delivery Rules
Question ID: 49049
A bond is dated June 1, 2006. The first interest payment is on January 1, 2007. How many months will the first and second interest payments cover?

A) Seven months and five months.
B) Seven months and six months.
C) One month and five months.
D) One month and Six months.

Answer 49

Answer: B

Interest is paid semiannually on most debt securities. The bond’s dated date is the date on which the bond begins to accrue interest. The first payment date is scheduled for seven months later. Thereafter, the bond will pay interest at 6-month intervals.

Reference: 6.2.2 in the License Exam Manual.

Question 50

Dividends
Question ID: 48587
The ex-date for stock dividends and/or splits that are valued at 25% or more of the subject security is 1 business day:

A) before record date.
B) after record date.
C) before payable date.
D) after payable date.

Answer 50

Answer: D

The ex-date for most stock splits and stock dividends is 1 business day after payable date.

Reference: 6.3.1 in the License Exam Manual.

Question 51

Dividends
Question ID: 48612
Under Uniform Practice rules, the ex-date for a regular way cash dividend is two business days:

A) after the payable date.
B) before the record date.
C) after the record date.
D) before the payable date.

Answer 51

Answer: B

The regular way ex-date for a cash dividend is two business days prior to the record date.

Reference: 6.3.1 in the License Exam Manual.

Question 52

Dividends
Question ID: 49007
A due bill would be required when a security is purchased:

A) after the ex-dividend date and delivered after the record date.
B) before the ex-dividend date and delivered before the record date.
C) after the ex-dividend date and delivered before the record date.
D) before the ex-dividend date and delivered after the record date.

Answer 52

Answer: D

A due bill is sent when a customer is entitled to receive a dividend but did not receive it due to late settlement.

Reference: 6.3.1.2 in the License Exam Manual.

Question 53

Dividends
Question ID: 49038
The ex-date for cash settlement transactions is one business day:

A) before payable date.
B) after payable date.
C) after record date.
D) before record date.

Answer 53

Answer: C

For cash settlement trades (same day settlement), ex-date is one business day after record date.

Reference: 6.3.1 in the License Exam Manual.

Question 54

Dividends
Question ID: 49040
SEC Rule 10b-17 requires issuers of listed securities to advise FINRA or exchange of an upcoming record date at least how many business days in advance of the record date?

A) 10 days.
B) 15 days.
C) 20 days.
D) 30 days.

Answer 54

Answer: A

Issuers must notify the exchange (if listed) or FINRA (if unlisted) at least ten business days in advance of the record date as to the established date. This allows the exchange or FINRA sufficient time to set and publish the ex-date.

Reference: 6.3.1.1 in the License Exam Manual.

Question 55

Close-Out Procedures
Question ID: 48585
Under FINRA rules, if a member wants to have the terms of a clearly erroneous trade adjusted, it must notify Nasdaq Market Operations:

A) prior to 4:00 pm ET on settlement date.
B) within 30 minutes of the execution.
C) within 1 hour of the execution.
D) prior to 4:00 pm ET on trade date.

Answer 55

Answer: B

If a member wants to have a clearly erroneous trade adjusted or nullified, the member must make the request of Nasdaq within 30 minutes of the execution.

Reference: 6.4.3.3 in the License Exam Manual.

Question 56

Close-Out Procedures
Question ID: 48627
Under Uniform Practice rules, corporate underwriting syndicates must close their books within how many days of the syndicate settlement date?

A) 30 days.
B) 60 days.
C) 90 days.
D) 15 days.

Answer 56

Answer: C

Uniform Practice rules require corporate syndicates to close their books (allocate expenses and profit and loss) within 90 days of the date the securities are delivered to the syndicate by the issuer.

Reference: 6.4.3.5 in the License Exam Manual.

Question 57

Close-Out Procedures
Question ID: 48677
Which of the following statements regarding clearly erroneous trades are TRUE?

The request for adjustment or nullification must be made within 30 minutes of the execution.
The request for adjustment or nullification must be made within 1 hour of the execution.
Any appeal of Nasdaq’s decision must be made within 30 minutes of receiving the decision.
Any appeal of Nasdaq’s decision must be made within 1 hour of receiving the decision.
A) II and IV.
B) I and III.
C) I and IV.
D) II and III.

Answer 57

Answer: B

A clearly erroneous trade occurs when there is an obvious error in price, number of shares, and so forth. If a member wants to have an interdealer trade nullified or adjusted, it must notify Nasdaq within 30 minutes of the execution, providing all of the details surrounding the trade. After review, Nasdaq will make a decision to void the trade, adjust the terms of the trade, or take no action. Either side to the trade can appeal Nasdaq’s decision. Any appeal must be made within 30 minutes after receiving Nasdaq’s decision.

Reference: 6.4.3.3 in the License Exam Manual.

Question 58

Close-Out Procedures
Question ID: 48679
Under FINRA rules, a notice of close-out on a regular way contract not properly completed may be distributed how many business days after settlement?

A) One business day.
B) Three business days.
C) Seven business days.
D) Ten business days.

Answer 58

Answer: A

FINRA rules allow that notice of close out (buy in) may be sent the business day following settlement date. The buy in may take place no sooner than two business days after the notice has been given. Note that MSRB rules require that notice of close out be given no sooner than five business days after settlement date.

Reference: 6.4.1 in the License Exam Manual.

Question 59

Close-Out Procedures
Question ID: 48713
Under the Uniform Practice Code of FINRA, a buy in of a fail to receive may be made:

A) after 30 calendar days.
B) 2 business days after the date written notice is sent.
C) immediately after settlement date.
D) on the business day after the date written notice is sent.

Answer 59

Answer: B

Uniform Practice Rules allow a buy in to take place no sooner than 2 business days after written notice has been given. The notice can be given on the business day following settlement, meaning the earliest possible buy-in would be 3 business days following the settlement date.

Reference: 6.4.1 in the License Exam Manual.

Question 60

Close-Out Procedures
Question ID: 49006
Under FINRA rules, a buy in may be executed against a broker/dealer that fails to deliver:

A) without notice.
B) after sending written notice by 12:00 pm 2 days before the proposed buy-in.
C) only if specifically permitted by the District Committee.
D) after sending written notice by 12:00 pm 1 day before the proposed buy-in.

Answer 60

Answer: B

In the event that a broker/dealer sells stock but cannot make delivery on the settlement date, the buying broker can give the selling broker two business days notice and then buy in the stock in the open market as early as the third business day following settlement, charging any loss to the selling broker.

Reference: 6.4.1 in the License Exam Manual.

Question 61

Close-Out Procedures
Question ID: 49009
Under FINRA rules, after a buy in or sell out has been executed, the executing broker/dealer must send notice to the failing broker/dealer:

A) within one week of the close out.
B) promptly on the day of the close out.
C) the day following the close out.
D) within five days of the close out.

Answer 61

Answer: B

When a buy-in or sell-out is executed, the initiating member sends notice to the other member promptly on the same day.

Reference: 6.4.1 in the License Exam Manual.

Question 62

Close-Out Procedures
Question ID: 49010
A sell-out may be executed against a broker/dealer that refuses to accept delivery on securities sold to the firm:

A) only if specifically permitted by the District Committee.
B) after written notice by 12:00 pm 1 day before the proposed sell-out.
C) after written notice by 12:00 pm 2 days before the proposed sell-out.
D) without notice.

Answer 62

Answer: D

If a selling broker/dealer does not receive payment, it may sell-out and charge any loss to the buyer. Sell-outs require no prior notice.

Reference: 6.4.2 in the License Exam Manual.

Question 63

Close-Out Procedures
Question ID: 49018
After reviewing a clearly erroneous trade, Nasdaq makes a written determination as to its decision. All of the following statements are true EXCEPT:

A) any decision made on the appeal can be arbitrated under the Code of Arbitration.
B) either side can appeal.
C) appeals must be made within 30 minutes of receiving Nasdaq’s written determination.
D) any decision made on the appeal is final and binding.

Answer 63

Answer: A

Appeals of Nasdaq’s written determination can be made by either side. Under FINRA rules, any appeal must be made within 30 minutes of receiving written determination and all decisions are final and binding.

Reference: 6.4.3.3 in the License Exam Manual.

Question 64

Close-Out Procedures
Question ID: 49036
How many business days after settlement can the earliest buy in be executed under Uniform Practice?

A) Five days.
B) Three days.
C) One day.
D) Two days.

Answer 64

Answer: B

Before buying in the position, the buying member must provide written notice of the proposed buy-in to the seller by noon two business days prior to executing the buy-in. This notice can be given as early as the business day after settlement. Therefore, the earliest a buy-in can be executed is three business days after settlement date.

Reference: 6.4.1 in the License Exam Manual.

Question 65

Close-Out Procedures
Question ID: 49039
If a buying member fails to pay for securities purchased when delivery is attempted on settlement date, the selling member can sell out the position:

A) after giving two days written notice.
B) after giving three days written notice.
C) anytime after the settlement date.
D) after giving one day written notice.

Answer 65

Answer: C

A sell-out occurs if a member sells securities to another member (the buyer) and the buying member fails to pay when delivery is attempted on settlement date. Sell-outs can be executed anytime after settlement date. Unlike buy-ins, no prior written notice is required.

Reference: 6.4.2 in the License Exam Manual.

Question 66

Close-Out Procedures
Question ID: 49074
Under OCC rules, a Contrary Exercise Advice is used to:

A) exercise an out-of-the-money option.
B) decline an exercise of an option which is automatically exercisable.
C) none of these.
D) both of these.

Answer 66

Answer: D

A Contrary Exercise Advice is used to take a counterintuitive position (i.e., to either exercise an out-of-the-money option or to decline the exercise of an in-the-money option).

Reference: 6.4.3.2 in the License Exam Manual.

Question 67

Close-Out Procedures
Question ID: 49097
After failing to deliver securities to the buying dealer on settlement date, a selling dealer receives a written notice of intent to buy-in the position. The selling dealer immediately retransmits the notice to a third party. Under the Uniform Practice rules of FINRA, the re-transmittal extends the proposed buy-in date by:

A) two calendar days.
B) three calendar days.
C) ten calendar days.
D) seven calendar days.

Answer 67

Answer: D

A re-transmittal of a buy-in notice extends the proposed buy-in date by seven calendar days.

Reference: 6.4.1 in the License Exam Manual.

Question 68

Close-Out Procedures
Question ID: 49099
Under the FINRA’s Uniform Practice rules, any gain resulting from a buy-in:

A) is payable to the firm which failed to deliver.
B) may be kept by the firm which executed the buy-in.
C) is shared equally between the parties.
D) is shared as determined by the Uniform Practice Committee.

Answer 68

Answer: A

Losses resulting from a buy-in are borne by the seller. However, gains are payable to the seller.

Reference: 6.4.1 in the License Exam Manual.

Question 69

Close-Out Procedures
Question ID: 49142
If a member firm wishes to have a clearly erroneous trade reviewed, it must notify:

A) Nasdaq Market Operations.
B) the District Hearing Panel.
C) the Market Operations Review Committee.
D) the Uniform Practice Committee.

Answer 69

Answer: A

To have a clearly erroneous trade reviewed, a member must notify Nasdaq Market Operations within 30 minutes of the trade. Appeals of any decision are made to the Market Operations Review Committee.

Reference: 6.4.3.3 in the License Exam Manual.

Question 70

Close-Out Procedures
Question ID: 49173
A broker/dealer may take exception to the transfer of a customer account in all of the following situations EXCEPT:

A) there is a discrepancy as to the valuation of the account.
B) the firm does not recognize the signature on the transfer form.
C) the firm does not recognize the account.
D) the transfer instruction is incomplete.

Answer 70

Answer: A

A carrying member may not take exception to a transfer instruction, thereby denying validation of the transfer instruction, because of a dispute over securities positions or the money balance in the account to be transferred.

Reference: 6.4.3 in the License Exam Manual.