UNIT 9 QBANK Flashcards
What is the name for the legal framework of STATE LAWS for broker-dealers, registered representatives, investment advisors and investment advisor representatives?
A) The Securities Act of 1933
B) The Investment Advisor Act
C) The Uniform Securities Act
D) The Securities and Exchange Act of 1934
C) The Uniform Securities Act
Explanation
The Uniform Securities Act is a template for state securities laws in the United States.
If an associated person is barred from the securities industry, which of the following is true?
A) The individual may never associate with another member for life.
B) The individual may still serve as an officer or director of a member firm but have no sales function.
C) The individual may associate with another member firm with SEC permission.
D) The individual may still be employed as a paid adviser to a member firm.
C) The individual may associate with another member firm with SEC permission.
Explanation
If the SEC bars an associated person, no broker-dealer may allow that person to associate with it in any capacity unless the SEC has granted express permission to do so.
Which of the following pairs are not covered by the Federal Deposit Insurance Corporation (FDIC) at any level?
A) Certificates of deposit and self-directed IRAs
B) Certificates of deposit and mutual funds
C) Savings accounts and annuities
D) Mutual funds and annuities
D) Mutual funds and annuities
Explanation
Investment products that are NOT deposits are not covered by the FDIC.
This would include life insurance policies, mutual funds, annuities, and individual securities such as stocks and bonds.
At any level means NEITHER partially nor fully.
An investor has a CASH ACCOUNT with $300,000 in SECURITIES and $40,000 in CASH.
The investor also has a RESTRICTED LONG MARGIN account containing SECURITIES with a MARKET VALUE of $220,000 and EQUITY of $60,000.
What is the extent of this investor’s Securities Investor Protection Corporation (SIPC) COVERAGE?
A) $400,000
B) $620,000
C) $100,000
D) $280,000
A) $400,000
Explanation
Coverage under SIPC may NOT exceed $500,000 in CASH AND SECURITIES, of which up to $250,000 may be CASH.
In the CASH account, his coverage is $300,000 in SECURITIES plus $40,000 in CASH.
In the LONG MARGIN account, the coverage is ONLY THE EQUITY, which is $60,000.
Total: $300,000 + $40,000 + $60,000 = $400,000.
The Federal Deposit Insurance Corporation (FDIC) protects which of the following?
A) Broker-dealer clients
B) Options speculators
C) Bank depositors
D) Insurance purchasers
C) Bank depositors
Explanation
The FDIC protects bank depositors in the event the bank fails. It will cover up to $250,000 for each recognized separate account.
All of the following are self-regulatory organizations (SROs) in the securities industry that are accountable for enforcing federal securities laws, as well as supervising securities practices within an assigned jurisdiction, except
A) the SEC.
B) FINRA.
C) the MSRB.
D) the CBOE.
A) the SEC.
Explanation
All SROs, including FINRA, the MSRB, and all listed exchanges, are accountable to the Securities and Exchange Commission (SEC). The SEC is the securities industry’s primary regulatory body, not an SRO.
A customer has a significant amount of money in bank deposit accounts:
$225,000 in a savings account titled in the customer’s name;
$240,000 in a checking account titled jointly with a spouse;
and $100,000 in an account where the customer is custodian for a grandchild.
Should that bank fail, the Federal Deposit Insurance Corporation (FDIC) insurance would cover
A) a total of $250,000, divided proportionately among the three accounts.
B) $250,000 for the savings and checking accounts and $100,000 for the custodial account.
C) $225,000 for the savings account, $100,000 for the custodial account, and nothing for the checking account.
D) the entire $565,000.
D) the entire $565,000.
Explanation
The FDIC provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks up to $250,000 for EACH deposit ownership category in EACH insured bank.
Each account listed (savings, checking, and custodial) is a SEPARATE ownership category under FDIC rules, so ALL the money in each of them is covered.
Which of the following companies was created by an act of CONGRESS and provides SECURITIES INVESTORS limited financial coverage in the event that the investor’s SERVICING BROKER-DEALER fails financially?
A) Securities Information Center (SIC)
B) Federal Deposit Insurance Corporation (FDIC)
C) The Office of Foreign Assets Control (OFAC)
D) Securities Investor Protection Corporation (SIPC)
D) Securities Investor Protection Corporation (SIPC)
Explanation
The Securities Investor Protection Corporation (SIPC) was created by Congress to meet customer claims in the event of a broker-dealer bankruptcy.
All of the following are examples of SROs in the securities industry except
A) the Financial Industry Regulatory Authority (FINRA).
B) the Securities Exchange Commission (SEC).
C) the New York Stock Exchange (NYSE).
D) the Municipal Securities Rulemaking Board (MSRB).
B) the Securities Exchange Commission (SEC).
Explanation
The SEC is a government entity, not an SRO. FINRA, MSRB, and the NYSE are examples of self-regulators within the industry.
If a married couple have a JOINT ACCOUNT with a market value of $1 million and a DEBIT BALANCE of $600,000, ALL of which is in SECURITIES, how much coverage would this account have?
A) $600,000
B) $400,000
C) $500,000
D) $1 million
B) $400,000
Explanation
A JOINT ACCOUNT has a maximum coverage of $500,000;
however, in a MARGIN ACCOUNT, only the EQUITY is covered, so the DEBIT BALANCE is SUBTRACTED from the MARKET VALUE, leaving $400,000 equity.
Under the Uniform Securities Act (USA), registrations must be renewed how frequently?
A) Quarterly
B) Semiannually
C) Annually
D) Biannually
C) Annually
Explanation
State laws require that registrations must be renewed annually for broker-dealers with an office in the state or those who direct calls into the state or receive calls from the state.
Broker-dealers and registered representatives may be subject to each of the following administrative and regulatory bodies except
A) state securities administrator.
B) Financial Industry Regulatory Authority (FINRA).
C) Securities Investor Protection Corporation (SIPC).
D) NYSE.
C) Securities Investor Protection Corporation (SIPC).
Explanation
Depending on their lines of business, broker-dealers are subject to a variety of regulatory bodies, such as FINRA, the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), state administrators, and others.
Those broker-dealers that have a MUNICIPAL securities line of business must comply with Municipal Securities Rule Board (MSRB) rules which are enforced by FINRA.
However, SIPC is NOT a regulatory body; rather it provides INSURANCE PROTECTION for investors of failed broker-dealers.
The law that provides the LEGAL FRAMEWORK for STATE REGISTRATION of securities is
A) the Securities Exchange Act of 1934.
B) the Uniform Securities Act.
C) the Trust Indenture Act of 1939.
D) the Securities Act of 1933.
B) the Uniform Securities Act.
Explanation
The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the REGISTRATION REQUIREMENTS applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives.
A broker-dealer and its associated persons may be subjected to SANCTIONS for VIOLATIONS of the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) rules.
Which of the following penalties can be levied against the associated persons?
A) Loss of Securities Investor Protection Corporation (SIPC) coverage
B) Imprisonment
C) Censure
D) Limits placed on research activities
C) Censure
Explanation
There are many ways a firm and its associated persons can be sanctioned by FINRA including censure.
However, IMPRISONMENT and FORCED WITHDRAWAL from SIPC are NOT approved disciplinary actions.
An investor opens an account with BNZ GOVERNMENT Securities, a broker-dealer limiting its transactions EXCLUSIVELY to securities issued by the U.S. GOVERNMENT.
The account holds $250,000 of Treasury bonds, $250,000 of Treasury notes, and $50,000 in cash.
If BNZ’s broker-dealer business should FAIL, the investor would receive Securities Investor Protection Corporation (SIPC) protection in the amount of
A) $500,000 of the securities and none of the cash.
B) $0.
C) all of the securities and all of the cash, because U.S. government securities do not go bankrupt.
D) $50,000 of the cash and $450,000 of the securities.
B) $0.
Explanation
Although the vast majority of broker-dealers are required to be members of SIPC, those who deal EXCLUSIVELY in U.S. government securities are EXEMPT.
SIPC coverage is best described by which of the following?
A) Covers $500,000 in cash and securities
B) Covers up to $500,000 in cash and securities but no more than $250,000 in securities
C) Covers up to $500,000 in cash and $500,000 in securities
D) Covers up to $500,000 in cash and securities but no more than $250,000 in cash
D) Covers up to $500,000 in CASH AND SECURITIES but NO MORE THAN $250,000 in CASH
Explanation
The maximum coverage is up to $500,000 in cash and securities but no more than $250,000 in cash.
The PRIMARY regulatory body for the securities industry would be which of the following?
A) Federal Reserve Board (FRB)
B) Financial Industry Regulatory Authority (FINRA)
C) Municipal Securities Rule Board (MSRB)
D) Securities and Exchange Commission (SEC)
D) Securities and Exchange Commission (SEC)
Explanation
Created under the Securities Exchange Act of 1934, the overriding or primary securities industry regulatory body is the SEC.
