UNIT 8 QBANK Flashcards
A corporation enlists the services of a TRANSFER AGENT, who would be expected to handle all of the following functions EXCEPT
A) registering the corporation’s securities with the state.
B) replacing lost or destroyed stock certificates.
C) maintaining records of shareholder ownership.
D) canceling old certificates and issuing new ones.
DOES NOT HANDLE:
A) registering the corporation’s securities with the state.
DOES HANDLE:
B) replacing lost or destroyed stock certificates.
C) maintaining records of shareholder ownership.
D) canceling old certificates and issuing new ones.
Explanation
The transfer agent for a corporation is responsible for ensuring that its securities are issued in the correct owner’s name; canceling old certificates and issuing new ones; maintaining records of ownership; and handling problems relating to lost, stolen, or destroyed certificates. It is the registrar—a separate entity—who is responsible for registering the corporation’s securities with the state.
A market in which EXCHANGE-LISTED SECURITIES are traded in the OVER-THE-COUNTER (OTC) market would best be described as
A) the Fourth Market.
B) the First Market.
C) the Second Market.
D) the Third Market.
D) the Third Market.
Explanation
Broker-dealers registered as OTC MARKET MAKERS in exchange-listed securities may execute transactions in the Third Market.
ALL securities listed on the NYSE and MOST securities listed on the REGIONAL exchanges are eligible for OTC trading AS LONG AS the trades are reported to the CONSOLIDATED TAPE within 10 SECONDS OF EXECUTION.
A FULLY DISCLOSED broker-dealer
A) clears all of its retail customer transactions and those of other broker-dealers.
B) is also known as a full-service clearing agent able to process and clear transactions.
C) is one that introduces its business to a carrying firm to clear transactions.
D) is like a clearing agent in that it can take custody of funds and securities.
C) is one that INTRODUCES its business to a carrying firm to CLEAR transactions.
Explanation
A fully disclosed broker-dealer is also known as an INTRODUCING broker-dealer because it introduces its business to a carrying firm that can CLEAR AND PROCESS TRANSACTIONS FOR IT.
UNABLE to clear transactions themselves, they are NOT a clearing agent or carrying firm and therefore CANNOT take custody of funds and securities.
All of the following are associated with being a carrying firm EXCEPT
A) accepting customer funds.
B) being able to clear customer transactions.
C) being a fully disclosed firm.
D) accepting customer securities.
NOT ASSOCIATED
C) being a fully disclosed firm.
ASSOCIATED
A) accepting customer funds.
B) being able to clear customer transactions.
D) accepting customer securities.
Explanation
A carrying firm has the capability to do trade executions, clear and settle transactions, and take custody of customer funds and securities.
A fully disclosed firm is one that introduces its customer business to another firm for the purpose of clearing and settling transactions.
Having been told that a firm incorporates PROPRIETARY TRADING in its business model buying and selling securities into and out of its OWN INVENTORY you would know that it is
A) a market maker.
B) an executing for commissions only.
C) a clearing agent.
D) a fully disclosed broker-dealer.
A) a market maker.
Explanation
Broker-dealers who incorporate proprietary trading into their business model are known as market makers.
As a market maker the broker-dealer trades in their own account attempting to profit.
A firm making markets may be a carrying firm or a fully disclosed firm.
Commissionable transactions are those done by brokers for customer accounts, not proprietary trades.
An individual who purchases securities for a personal account is called
A) a retail investor.
B) an institutional investor.
C) a market maker.
D) an accredited investor.
A) a retail investor.
Explanation
An individual who makes investments such as the purchase of securities for his account rather than for an organization is a retail investor. This investor may be accredited, but there is no way to know for sure given the limited information.
Your broker-dealer EXECUTES TRADES for OTHER broker-dealers and AFTER EXECUTION settles those transactions FOR them.
Your firm would be CLASSIFIED as which of the following?
A) Fully disclosed firm
B) Introducing firm
C) Limited broker-dealer
D) Carrying firm
D) Carrying firm
Explanation
Carrying firms, or CLEARING broker-dealers, can execute trades, clear and settle transactions, take custody of customer funds and securities, and handle all back-office tasks, such as sending trade confirmations and statements for themselves as well as for other broker-dealers.
A broker-dealer designated as a CARRYING FIRM would be expected to do all of the following EXCEPT
A) clear transactions for customer accounts.
B) maintain a lower net capital than noncarrying broker-dealers.
C) perform back-office functions, such as sending trade confirmations to customers.
D) take custody of customer funds and securities.
CANNOT
B) maintain a LOWER net capital than noncarrying broker-dealers.
CAN
A) clear transactions for customer accounts.
C) perform back-office functions, such as sending trade confirmations to customers.
D) take custody of customer funds and securities.
Explanation
A firm carrying customer funds and securities assumes certain RISKS and is therefore REQUIRED to MAINTAIN LEVELS OF NET CAPITAL higher than that of firms that do NOT accept custody of funds or securities (noncarrying firms).
Which of the following is TRUE regarding a member firm operating under Financial Industry Regulatory Authority (FINRA) membership or the membership of another self-regulatory organization (SRO)?
A) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a few.
B) Member firms may never incorporate proprietary trading into their business model.
C) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals.
D) Member firms are required to be full-service broker-dealers.
A) Member firms can offer ALL types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a FEW.
Explanation
Member firms can offer all types of investment products such as stocks, bonds, mutual funds, and derivatives like options and others (be full service) or limit the products they offer to only a few.
They need NOT adopt PROPRIETARY TRADING into their business model but can if they WISH TO.
Likewise, they need NOT accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors.
Carrying firms, those that carry customer accounts, must
A) not disclose its net capital if it is higher than noncarrying firms.
B) maintain levels of net capital equal to or lower than noncarrying firms.
C) commingle customer funds and securities with the firms’ funds and securities.
D) segregate customer funds and securities from the firms’ funds and securities.
D)
segregate customer funds and securities from the firms’ funds and securities.
Explanation
Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm’s and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would be required for noncarrying firms.
Your broker-dealer, rather than clear its own securities transactions, chooses to introduce its business to another firm that will clear, processes and handle all back-office operations for it. The firm receiving the business is known as
A) a receivership.
B) a fully disclosed firm.
C) a carrying firm.
D) a depository trust.
C) a carrying firm.
Explanation
A firm that chooses to INTRODUCE its customers’ business to another firm to clear and process transactions, as well as handle all back-office tasks such as sending trade confirmations and taking custody of customer funds and securities, is known as an INTRODUCING OR FULLY DISCLOSED FIRM.
The firm RECEIVING the business is known as the CARRYING OR CLEARING.
It is expected that financial markets
A) be limited to stocks and bonds and not include derivatives like options.
B) be nonregulated to allow for free trade.
C) have securities prices determined by a board of directors.
D) have transparent pricing for assets.
D) have TRANSPARENT PRICING for assets.
Explanation
A number of different assets, such as equities (stocks), debt (bonds), currencies, and derivative products like options can be offered and traded in the financial markets.
These markets are expected to have transparent pricing aligning with supply and demand and to adhere to basic rules and regulations.
When investors buy and sell securities to and from one another, these transactions occur
A) in the primary market.
B) in the over-the-counter (OTC) market only.
C) in the secondary market.
D) on exchanges only.
C) in the secondary market.
Explanation
Primary market transactions involve the issuer or someone acting on behalf of the issuer, such as an underwriter.
Secondary markets are where investors can buy and sell securities to and from one another. The secondary market includes exchanges and the OTC market.
A stock’s market value is directly determined by which of the following?
A) Vote of the stockholders
B) Supply and demand
C) Board of directors
D) Company’s financial condition
B) Supply and demand
Explanation
The market value of stock is directly determined by supply and demand and only indirectly by the remaining choices, such as a company’s financial condition.
An INSTITUTION or a PERSON responsible for making ALL investment, management, and distribution decisions in an account maintained in the BEST INTERESTS OF ANOTHER who has been LEGALLY APPOINTED to provide these services is best described as
A) a prime broker.
B) a market maker.
C) a trustee.
D) an investment advisor.
C) a trustee.
Explanation
A trustee is legally appointed to manage as a fiduciary assets in a trust.
All of the following would be secondary market transactions except
A) securities bought and sold on the OTC.
B) securities sold on both the OTC and NYSE.
C) securities bought and sold on the NYSE.
D) securities sold to the public by the issuer.
NOT SECONDARY MARKET:
D) securities sold to the public by the issuer.
SECONDARY MARKET:
A) securities bought and sold on the OTC.
B) securities sold on both the OTC and NYSE.
C) securities bought and sold on the NYSE.
Explanation Exchanges (like the NYSE and the OTC market) are part of the secondary market. The primary market is the issuer selling to the public.
