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Unknowns 3 Flashcards

1
Q

What functions are performed at an OSJ?

A
  • Order execution and market making
  • Structure public/private offerings
  • Custody of customer funds/securities
  • New acct forms final approval
  • Review/approve customer orders
  • Final retail comms approval
  • Responsible for supervising one or more ppl at branch offices
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2
Q

How often is an OSJ inspected?

A

Annually

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3
Q

Can an OSJ supervise a branch office and a non-branch office?

A

Yes

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4
Q

How often is a supervising branch office inspected?

A

Annually

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5
Q

How often is a non-supervising branch office inspected?

A

Every three years

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6
Q

How often is a non-brach inspected?

A

Periodically

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7
Q

How many emergency contact ppl are needed for Business Continuity Plans?

A

Two contacts but ONLY ONE must be senior management AND a registered principal

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8
Q

Bank Secrecy Act Currency Transaction Report (BCTR or CTR) is reported for transaction that exceed
____ during a business day by one customer and filed within ____ days.

A

$10k of withdrawals or deposits (CASH only) and filed within 15 calendar days

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9
Q

Suspicious Activity Report (SAR)

A

Filed for a transaction or group of transactions equals or exceeds $5k AND the firm is suspicious
Filed within 30 calendar days

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10
Q

How long are records retained for when an RR leaves the firm on BrokerCheck?

A

10 years

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11
Q

A location from which member firms effect, solicit, or induce securities transactions. Maybe supervised by a principal or an RR.

A

Branch office

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12
Q

If a branch office moves, what form and when does it need to be filed?

A

Form BR within 30 days

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13
Q

Non-Branch offices do what?

A

Back office operations (non-sales)
Sole function is ONLY soliciting investment banking services

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14
Q

Non-branch location types

A
  • back-office, operations
  • location of convenience used occasionally or by appt only
  • floor of an exchange
  • temporary or emergency office
  • temporary location used less than 30 times per year (vacation home)
  • Less than 25 trades per year
  • RR’s primary residence
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15
Q

Step out

A

a broker-dealer allocates part or all of the transaction to another broker-dealer for clearing purposes

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16
Q

Give up

A

One member agrees to permit another member to report and lock in trades on its behalf. Requires written documentation and both firms may still be held responsible if the trade is not properly reported

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17
Q

TRF and ORF operational hours

A

8a - 8p
Transactions imust be reported to FINRA no later than 10 seconds anytime the reporting systems are open

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18
Q

Under the anti-dilution provisions of the New Issue Rule, a restricted person may purchase shares of an equity IPO if

A

Held the shares for at least one year prior to the effective date and doesn’t sell the shares for three months following the effective date

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19
Q

Excused withdrawal for OTC equity and Reg M restricted period

A

Firms that are quoting OTC equity securities are permitted to withdraw their quotes without a re-registration penalty and, therefore, a request for an excused withdrawal status is not required.

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20
Q

A short position can be covered by purchasing securities in a public offering if the short sale occurred more than how many days preceding the pricing of the offering?

A

at least 5 business days

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21
Q

When must an error report be submitted to CAT by a firm?

A

The firm must submit corrected data by 8:00 a.m. ET on the third business day following the trade.

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22
Q

All of the following are required to be disclosed by a research analyst in a public appearance

A

The spouse of the research analyst has a short position in the subject company
The subject company is currently a client of the firm
A member of the research analyst’s household is an officer of the subject company
Not for public appreace: Firm makes a market in the subject security

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23
Q

When a transactions involving a restricted equity security is executed between midnight and 8:00 am under Rule 144A the trade must be reported to the ORF or TRF

A

Must be reported at any time on the same business day as the transaction. All other transactions involving equity securities that are executed between midnight and 8:00 a.m. are reported to FINRA/TRF between 8:00 a.m. and 8:15 a.m.

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24
Q

Are research reports required to be filed with FINRA?

A

No FINRA filing is required. Just approval by a Supervisory Analyst.

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25
Q

A clearing firm receives a Risk Management Alert regarding a trade entered by one of its executing brokers that exceeds the total dollar limit placed on it by the clearing broker. What can the clearing broker do?

A

The clearing firm may allow or inhibit this blockbuster trade.

A Risk Management Alert warns a clearing firm that one of its executing brokers is near or above its clearing threshold and the trade will be held.

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26
Q

A Regulation M notice is required to be filed with:

A

FINRA by the managing UW no later than one business day prior to the start of the restricted period

This notice informs FINRA of the broker-dealers that will be restricted, as well as whether the restricted period begins one or five days before pricing.

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27
Q

When does a TRACE reporting day begin and end?

A

TRACE reporting day runs between 8:00 a.m. and 6:29:59 p.m.

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28
Q

A broker-dealer has reported a trade to TRACE. FINRA will confirm that it has received notice that the trade has been accepted?

A

FINRA will confirm Immediately; after the 15 min report from the BD

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29
Q

Which of the following securities offerings would require the disclosure to FINRA that investment banking compensation was being paid to the underwriters?

A

IPOa of securities
REITs offerings
DPPs
rights offerings,
Rule 147 offerings
Regulation A offerings.

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30
Q

Who’s part of the personal trading restrictions of a firm’s research department?

A

research analyst’s account, supervisors of research analysts, as well as associated persons who have the ability to influence the content of research reports. Examples of RA accounts include members of a RA’s household, a joint account, acting as custodian for a UTMA (minor’s) account, or one in which the RA or member of her household has discretionary authority. A research analyst household includes any person whose principal address is the same as the RAs, but not an unrelated roommate.

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31
Q

A Suspicious Activity Report (SAR) must be filed within how many days?

A

30 days, at least $5k transactions

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32
Q

How many days can a MM withdraw from quoting on Nasdaq for system failures that are out of their control?

A

up to 5 business days b/c excused

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33
Q

How many days can a MM withdraw from quoting on Nasdaq for legal or regulatory issues (insider trading)?

A

up to 60 calendar days b/c excused

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34
Q

What are other examples of excused withdrawals from Nasdaq that don’t have days associated with them?

A

-Religious holidays
-Vacations w/ small firms (3 MMs or less on Level III terminals)
-Reg M b/c of UW participation

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35
Q

How many days penalty is an unexcused withdrawal from CQS?

A

1 business day

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36
Q

How many days penalty is an unexcused withdrawal from Nasdaq?

A

20 business days suspension within that stock

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37
Q

How soon does a MM need to report an accidental withdrawal to Nasdaq?

A

Within 1 hour and if Nasdaq approves, they can withdraw

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38
Q

Temporary subordinated loans

A

-Used to increase net capital for firm commitment underwriting purposes
-Max duration 45 days
-No more than 3 loans in a 12 month period

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39
Q

Min Net Cap Requirement: Prime Brokers

A

$1.5mm

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40
Q

Min Net Cap Requirement: Qualified block positioners or executing firms
in a prime brokerage arrangement

A

$1mm

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41
Q

Min Net Cap Requirement:
Carrying Broker AKA Clearing Broker

A

$250,000

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42
Q

Min Net Cap Requirement:
Underwriters and market makers
Firm commitment underwriting ONLY

A

$100,000

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43
Q

Introducing brokers clearing on a fully disclosed basis
that receives, but doesn’t hold, funds/securities

A

$50,000

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44
Q

Other broker-dealers clearing on a fully disclosed
basis that doesn’t accept funds/securities (never touch securities)

A

$5,000

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45
Q

10b-18 is what?

A

Safe harbor for an issuer purchasing its own stock

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46
Q

What is the “use of BD” guideline an issuer must follow when purchasing its own stock (10b-18)?

A

-Use: of one BD for trading during normal mkt hours and another BD in after-hours

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47
Q

What is the “Time” guideline an issuer must follow when purchasing its own stock (10b-18)?

A

-Time: Not opening trade and actively traded not the last 10 min; inactively traded not the last 30 min

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48
Q

What is the “Volume” guideline an issuer must follow when purchasing its own stock (10b-18)?

A

-Volume: limited to 25% or less of stock’s four-week ADTV or single block purchase per week

49
Q

What is the “Purchase Price” guideline an issuer must follow when purchasing its own stock (10b-18)?

A

-May not exceed the higher of the independent bid or the last transaction

50
Q

A broker-dealer that’s underwriting a new equity issue wants to publish comments about the issue. If the broker-dealer has not previously followed the company, under which of the following circumstances may the broker-dealer publish comments?

A

SEC rules permit broker-dealers not participating in a distribution to publish information, opinions, or recommendations about an issue in registration if:
-the issuer (BD) is a reporting company
-BD is participating in the distribution of common stock or convertible debt may comment on the non-convertible debt or preferred stock of the issuer
-comments are related to recommending the new issue or to the company’s projected earnings, the research report needs to be of a continuing nature not initiated during the registration period.

51
Q

A registered representative would like to lend funds to her brother. How can an RR make or receive a loan with a customer?

A

RRs may not borrow money from, or lend money to, a customer unless:
No firm approval:
-Written procedures permitting such activity and any one of these:
-customer and RR are immediate family members
-customer is a financial institution regularly involved in the business of extending credit or providing loans
Firm approval prior:
-both parties are registered with the same firm
-the loan is based on a personal relationship between the customer and the registered person
-the loan is based on a business relationship independent of the customer-BD relationship

52
Q

Who and when can a FWP be used?
If an issuer of securities is required to file reports with the SEC, but is not eligible to use Form S-3, which of the following statements is TRUE?

A

Free writing prospectus (FWP): any communication that does not meet the standards of a statutory prospectus and is a disclosure doc for new issues. (press releases, e-mails, preliminary or final term sheets, and marketing materials)
FWP may be used by:
-WKSI - prior to or after SEC filing, ASR
-seasoned issuers - post SEC filing; can use S-3/Shelf reg, PF less than $700k, Shelf reg (not auto)
-unseasoned issuers - SEC reporting co but cannot use S-3, post SEC filing, must use statutory prospectus prior or with (link ok)
-non-reporting issuers - must use statutory prospectus prior or with (link ok)
Ineligible issuer may not use FWP:
-penny stock issuer
-shell company
-blank check company (SPEC co)
-company filed for bankruptcy protection within the past 3 years

53
Q

When do retail comms not require principal preapproval?

A

-Another firm filed the material with FINRA and it has not been materially altered
-comm was posted on social media
-comm does not make a financial or investment recommendation, it does not promote the firm’s products or services, and is not a research report.

54
Q

A registered representative (RR) has full power of attorney for her father, but the RR’s father receives no material support from the RR. When the RR executes trades in her father’s account, who will receive copies of the trade confirmations?

A

Both the representative and her father w/o written authorization b/c
RR has discretion in a customer’s account.
Customers can have trade confirmations sent to third parties (e.g., investment advisers, accountants), but BD must first receive the customer’s request in writing.

55
Q

Rule 144 Restricted stock vs Control stock

An insider purchases stock of his own company in the open market. Ten months later, the insider wants to sell the stock at its current market price.

A

The sale is subject to the volume limitations under Rule 144.
Rule 144:
Control stock:
-Registered stock purchased by insiders (in the open mkt!)
-No holding period
-Volume restrictions: greater of 1% oss or 4 week avg trading volume
Restricted stock:
-Unregistered stock acquired in private placement or sr execs comp
-6 mo holding period before reselling
-Volume restrictions: greater of 1% oss or 4 week avg trading volume

56
Q

If a member firm receives an execution that it believes is clearly erroneous, a written complaint must be submitted within

A

30 minutes

57
Q

The Nasdaq inside market for RRL is 24.65 - 24.85. A Nasdaq market maker in RRL wants to enter a bid price of 24.75, while the inside market on the NYSE for RRL is 24.70 - 24.74. This is:

A

Not acceptable since this would result in a crossed market

One of the provisions of Regulation NMS is that market centers such as Nasdaq and NYSE must establish, maintain, and enforce rules that require its members to reasonably avoid displaying quotes that would lock or cross the market in any NMS stock. This would extend to other market centers that quote the same security. There is no mechanism that would automatically execute a quote or order that would lock or cross the market of another market center.

58
Q

An office of a broker-dealer that is responsible for the supervision of one or more branch offices must be managed by a:

A

Registered principal

An office of a broker-dealer that is responsible for the supervision of one or more branch offices is defined as an office of supervisory jurisdiction (OSJ). An OSJ must be supervised by a registered principal. A non-OSJ branch office may be supervised by either a registered principal or registered representative.

59
Q

A broker-dealer is conducting an internal investigation due to allegations of insider trading by one of its registered representatives. Which of the following actions should the firm take?

A

-BD must file a written report with FINRA within 10 business days of the end of each quarter with each open or completed internal investigation concerning insider trading and manipulation
-At completion of internal investigation, the firm must file a written report within 5 business days with internal investigation results.

60
Q

Non-traded (unlisted) REITs

A

-Not listed on an exchange
-Illiquid like LPPs
-Not be suitable for investors seeking liquidity
List and unlisted REITs:
-Invest in real estate
-Same tax consequences (90% distribution on taxable income)
-Both registered required to make the same disclosures to investors

61
Q

A broker-dealer has received copies of an annual report from AAA Corporation. The firm holds shares of this issuer in street name for several advisory accounts. Which of the following statements is TRUE concerning the forwarding of this information?

A

The annual reports must be forwarded.

Proxies, annual reports, and other information sent to stockholders that are forwarded to member firms by issuers must be forwarded to the beneficial owner of the stock. They do not need to be sent by the issuer. This information may be sent to the beneficial owner’s (the customer’s) designated investment adviser.

62
Q

If a broker-dealer is going to use an electronic means of storing its records, the SEC must be able to review the records:

A

Immediately

Firms that store their records electronically must have electronic backup, as well as a location at which the SEC can review these records immediately.

63
Q

A research analyst is hired by a firm and receives a list of the securities that he will be covering. If he owns 5,000 shares of one of the companies, is the analyst permitted to sell the shares and initiate coverage with a buy recommendation?

A

Yes, if the firm had a plan that was approved by legal or compliance.

FINRA permits a research analyst account to trade in a manner that’s inconsistent with the research analyst’s recommendation if the firm has instituted a policy that prohibits a research analyst from holding securities, or options on, or derivatives of, such securities of the companies in the research analyst’s coverage universe. The plan must detail the circumstances and the timing of the sell transaction relative to the buy or hold recommendation (FINRA doesn’t specify a time period). This plan must be approved by the firm’s legal or compliance department. Under no circumstances may an analyst trade against a recommendation due to significant news or a significant event concerning the subject company. The significant news provision is relevant to the three-day and 10-day quiet period for research reports and public appearances.

64
Q

When must a person who acquires more than 5% of an equity security must file Form 13D with the SEC?

A

Within five business days

65
Q

The Federal Reserve Board rules that govern the extension of credit for the purchase of securities include:

A

Regulation T, which governs broker-dealers
Regulation U, which governs non-broker-dealer lenders (e.g., banks)
Regulation X, which governs borrowers who buy securities

66
Q

A count of securities under Rule 17a-13 may be made:

A

By employees whose regular duties involve direct responsibility for the care and protection of securities under the supervision of someone who is outside the area of care and protection of securities

67
Q

Client X executes trades through Firm Y but clears through Firm Z. This is a(n):

A

Prime relationship
A prime relationship/brokerage:
-client clears all trades through a centralized firm (several executing firms)
-simplifies record-keeping process
-prevents one executing firm from knowing its trading strategy
Prime brokerage services:
Custody
Securities lending
Financing
Operational support
Customized reporting

68
Q

An offering of securities that’s sold into the secondary market, but is not sold at a fixed price, is referred to as:

A

An at-the-market offering

-securities sold (at the prevailing market price) directly into the secondary market through a designated broker-dealer
-not sold by traditional offering of a fixed number of shares at a fixed price
-WKSI and Seasoned Issuers (Form S3) use shelf registration for at the market offering b/c securities sold at various prices during the day (reflecting the supply/demand issuer profile)

69
Q

Factors that a member may consider in determining a fair markup or commission?

A

-Type of security involved (common stock higher markup than debt)
-Availability of the security (active vs inactive)
-Price of the security
-Amount of money involved in the transaction
-Disclosure made before the transaction execution
-A pattern of markups
-types of services provided to the customer
-NOT type of client (retail vs institutional)

70
Q

SEC Rule 606
How often reported?
What is reported?

A

-Requires BD report QUARTERLY non-directed customer order-routing
-Includes NYSE, NYSE American, Nasdaq,
and exchange-listed options
-NOT OTC quotes

71
Q

A promissory note is

A

-debt security used by companies to raise capital
-may be registered or unregistered
-sold by unregistered sellers and raises regulatory concerns of:
-high and guaranteed return promises, schemes targeting the elderly, and selling away violations

72
Q

Rule 504 Exemption
Part of what Reg?
Issuer rules?

A

Under Reg D - private placements, Form D filed w/in 15 days after sale
Rule 504:
-issuer’s offering cannot exceed $10 m w/in 12 mos
-issuer can sell to UNLIMITED no. of investors (no regard to their experience and sophistication)
-No required disclosure doc for investors
-Provide fed & state anti-fraud provisions
Issuers NOT permitted to use Rule 504 exemption:
1. an SEC’s reporting company
2. An investment company
3. A development stage company with no specific business plan or purpose (e.g., a blank-check company)

73
Q

Broker-dealers that hold customer stock in street name are required to forward proxy materials

A

If the issuing corporation pays the expenses

74
Q

Reserve Bank Account computation timing exception

A

Ratio of aggregate indebtedness to net capital does not exceed 800% AND the free customer credit balances held by the firm do not exceed $1,000,000:

Firm can compute reserve requirement on a MONTHLY basis, rather than weekly

75
Q

An independently prepared reprint that is sent to 50 existing retail customers is considered:

A

Retail communication and requires preapproval by a principal b/c it is an independently prepared reprint

76
Q

How does a direct owner/executive officer (CEO) get added to Form BD without taking exams and being registered?
What else doe they need to do?

A

-Direct owner/executive officer (e.g., a CEO) must be registered via a Form U4 or a Page 2 U4
-Page 2 U4 registers the individual with the firm without the individual being required to take any examination
-Does require the individual be fingerprinted.

77
Q

When is a firm permitted to trade ahead of a customer and NOT subject to the Manning obligation (limit order protection rule)?

A

-Orders for institutional accounts (bank, insurance company, S&L, registered investment company, a registered investment adviser, or any other entity with total assets of at least $50 million)
-Large orders of 10,000 shares or more, having a value of at least $100,000
-Trades done on a proprietary desk walled off from a client desk

78
Q

What is the exception for distribution ppts during the restricted period of Reg M for actively traded securities?

What makes them actively traded?
Who’s a distribution ppt?

A

-UWs and selling group members can place a bid for, or make a purchase of, an actively traded security during the restricted period.
-Actively traded: ADTV of at least $1 million and issuer’s public float market value is at least $150 million

79
Q

If an unrecognized trade is received by a firm and it cannot be confirmed, the receiving firm must provide written notification to the confirming firm within

How many days for DK notice?

A

One business day from receiving firm via certified mail to confirming firm

Two business days, the receiving firm will send a DK (don’t know) notice to the confirming firm to question whether a trade occurred

80
Q

Day-trading buying power is

A

Limited to four times the trader’s maintenance margin excess
-determined from the close of the previous day

81
Q

What BEST defines a clearing agency?

A

-Firm that acts as an intermediary in making payments, or deliveries, or both in connection with securities transactions
-Firms that provide facilities for the comparison of data for the settlement of securities transactions

82
Q

A brokerage firm is attempting to liquidate a block of distressed debt for a customer. The firm typically executes corporate bond trades as an agent but decides to send the trade to another firm that specializes in non-investment grade debt. This activity is viewed by the regulators as

A

Interpositioning

Defined as: is the insertion of a third party between the customer and the best market.
-is prohibited if it’s to the detriment of the customer.
-restriction doesn’t apply if the BD demonstrates the execution is advantageous to the customer because of the intervention of a third party

83
Q

Limited Liability Company factors:

A

-can be in any state by filing the documents with the secretary of state or other appropriate state authority
-similar tax status to partnerships: both gains and losses flow through to individual owners’ tax returns
-owners are not liable for the debts of the business
-management structures more flexible than traditional C corporations
-Permitted to have unlimited no. of participants

84
Q

Market Maker A had an order to buy 500 shares at 32.10 on the Nasdaq Market Center Execution System book. The order was executed against Market Maker B, but was cancelled within 30 minutes of the execution. Which of the following statements is TRUE?

A

Market Maker B must cancel the trade report for the execution.

85
Q

Under which condition may an investment company sell shares to a broker-dealer at a discount?

A

The broker-dealer is a member of FINRA

If a broker-dealer wishes to sell shares of an open-end investment company, it must have a signed written selling agreement with the fund. An oral agreement is not sufficient. The broker-dealer may purchase the shares only for its own investment account or to fill a customer’s existing order, and is not permitted to purchase shares for inventory purposes with the intention of selling them to a customer at a later date.

86
Q

A registered representative (RR) is about to receive a large block order from an institutional client. The RR has also begun to notify other representatives about this order and is advising them not to enter buy orders. The RR wants to avoid bidding up the price before executing the institution’s order. Which of the following statements regarding the registered representative’s actions is TRUE?

A

This action is prohibited since a representative should not disclose customer orders to other registered representatives.

This is not an example of front-running since the representative is advising other representatives to avoid buying, rather than entering new orders.

87
Q

If the complaint from a customer involves theft, forgery, or misappropriation of funds, the firm must notify the SRO ____?

Member firms are required to report to the appropriate SRO statistical and summary information regarding customer complaints on a _______ basis?

A

Promptly

Quarterly basis

88
Q

What is trade shredding?

A

Prohibited practice of splitting orders into smaller ones to earn additional compensation in the form of transaction costs (e.g., commissions) or rebates often paid to executing dealers, which are based on the number of transactions.

89
Q

What information is typically found on a new account form for a client seeking to establish a DVP account?

A

Client provides the BD with:
-Info on the bank
-clearing number
-institutional ID
-agent bank number
-internal (client) account number(s)
(The client also provides the bank with similar info on the BD)

90
Q

What is an exception to distributors being prohibited from paying non-cash compensation in connection with the distribution of investment company securities?

A

-Reimbursement of travel/lodging expenses for informational meetings
-Reimbursement cannot be conditioned on meeting a sales target
-Attendance cannot be earned through a member’s in-house incentive program
-Meeting location must be appropriate to its purpose like in the vicinity of the fund sponsor’s office

91
Q

A customer has decided to grant discretionary authority to a registered representative. How long must the broker-dealer maintain a record of the customer’s account information?

A

Six years
Account info
Blotters
Letters
Journals

92
Q

What steps must be taken if a variable annuity is purchased after an RR’s recommendation before the application is submitted to the insurance company?

A

-RR documents and signs the rec before forwarding the application to the OSJ of the member firm.
-OSJ principal reviews the application to determine suitability
-The principal must approve or reject the application within 7 business days of receipt and must document and sign the approval or rejection

93
Q

What are soft dollar examples?

A

Research Examples:
-Research reports (in-house or third party)
-Financial newsletters and trade journals
-Tuition for seminars and conferences
NOT Research Examples:
-Computer hardware
-Office overhead
-Travel expenses to seminars and conferences
If the service or product primarily benefits the adviser rather than the client, it cannot be purchased with soft dollars.
-products and services that an investment adviser receives from a BD in exchange for customer order flow
-BD provides an investment adviser with services and info that assist the adviser in making investment decisions on behalf of its clients

94
Q

A Nasdaq-listed company is selling additional shares of stock that will be priced on Wednesday, July 15. A person who is purchasing the additional shares is NOT in violation of Rule 105 of Regulation M if she sold short the stock on which of the following dates?

A

July 7

Rule 105 of Regulation M stipulates that it’s a violation for any person to sell short the security that’s the subject of an offering, and purchase the offered security from the underwriter if the short sale was executed during the period beginning five business days prior to the pricing of the offering and ending with the pricing of the issue. The five-business-day period begins on Wednesday, July 8.

95
Q

Basis for Markups and Markdowns for debt transactions

A

-prevailing market price
-the contemporaneous cost is looked at as the prevailing price,
-the cost may be overridden by market events like a change in interest rates
-A dealer’s cost is considered contemporaneous if it occurred at a time close to the transaction with the customer
-The call feature is NOT relevant to a markup or markdown on a bond trade

96
Q

Regulation S-K and the use of reference documents and registration statements?

A

Documents on file with the SEC for longer than five years may not be incorporated by reference into a registration statement, unless the company is subject to SEC reporting requirements or can specify the physical location and file reference number of the document.

97
Q

According to SRO Rule 3110(f), predispute arbitration clauses that are contained in customer account forms must be highlighted and contain certain information, including:

A

-All parties give up the right to sue in court.
-Arbitrators do not need to explain the decisions for their award.
-Within 30 days of signing the agreement, the customer must be sent a copy and, after receiving a copy, the customer must acknowledge its receipt.
Predispute arbitration clauses CANNOT prevent an arbitrator from making an award or limit the amount of the award. The signing of a pre-dispute clause is voluntary. Firms may choose to not open an account for clients who are unwilling to waive their right to sue.

98
Q

If a broker-dealer has recently become a FINRA member firm, it must execute its first compliance certification:

A

By no later than its first anniversary of becoming a member firm

99
Q

According to the Securities Exchange Act of 1934, a qualified third-market maker must meet the following conditions.

A

-a registered broker-dealer that’s subject to and in compliance with the SEC’s minimum net capital rule
-Have and maintain net capital of $500,000
-Have a reasonable average inventory turnover in such security
-Be ready to effect transactions for its own account at quoted prices with other broker-dealers

100
Q

How can a registered representatives of a brokerage office compensate the CPAs who refer new clients to them.

A

The CPAs could be compensated if they register as associated persons of a broker-dealer.

The term compensation is broadly defined and includes any compensation, fees, commissions, and discounts. If a firm wants to compensate other financial professionals (e.g., lawyers and accountants), these persons must be registered. Broker-dealers can either register these professionals directly or rely on them being associated persons of another broker-dealer.

101
Q

To be considered a regulated investment company, a mutual fund must:

A

Distribute a minimum of 90% of its investment income to its shareholders. Meeting this requirement allows the investment company to pass on distributions to shareholders without the company having to first pay taxes on the income distributed.

102
Q

A person who reports an insider trading violation to the SEC is eligible for what reward?

A

A bounty can range from 10% to 30% of the violator’s penalty.

103
Q

How long does a firm have to approve a variable annuity application?

A

7 business days

104
Q

The maximum fine that may be levied for minor violations of FINRA rules is ______.

A

$2,500.

105
Q

When does a syndicate manager of a firm-commitment public offering need to notify the Operations Dept of an anticipated delay in the closing of an offering beyond the closing date in the offering document?

A

Immediately but, in any event, no later than the scheduled closing date

106
Q

What trade is NOT required to be reported?

A

Private placements
Private placements are exempt from reporting on all of the reporting facilities

107
Q

When is an issuer required to file a Schedule 13E-3 with the SEC, and make certain disclosures to shareholders?

A

Going private
-Accomplished through tender offers
-public issuer purchases its own common stock and causes the company to become delisted from an exchange, or to be no longer considered a reporting issuer
-Going private reduces expenses and administrative burden of being a public entity. -the issuer is required:
-to file a Schedule 13E-3 with the SEC
-make certain disclosures to shareholders
-file reports and opinions by a financial adviser w/ SEC
-Issues can delist when the number of registered shareholders falls below 300.

108
Q

Early Warning Rule

A

Triggered if:
-a BD’s ratio of aggregate indebtedness-to-net capital EXCEED 12:1 (8:1for a new firm)
-its net capital is less than 120% of the required minimum.

Approaching financial or operational difficulty:
-BD’s inability to clear and settle transactions promptly
-An increase in Don’t Know (DK) notices
-A substantial change in ho the BD processes its business (increases the potential risk of loss to customers)
FINRA members who are approaching financial or operational difficulty may be prohibited from expanding their business or may be required to reduce their level of business activity.

109
Q

What must a carrying firm do after transfer validation?

A

freeze the account and cancel all open orders
no new orders accepted.
may not take exception to a transfer because of a dispute over securities positions or the money balance in the account
In such cases, the carrying firm must transfer the securities positions and/or money balance reflected on its books for the account.

110
Q

Margin disclosure agreement

A

two delivery requirements forl retail customers:
Prior to opening a new margin account and annually there after
- paper or electronic form, and in a separate document or on own page in new acct form
- on member’s website in a clear and conspicuous manner

111
Q

Exemptions found in the New Issue Rule allows an equity IPO (initial public offering) to be sold to an account

A
  • beneficial owners are restricted persons and their account ownership doesn’t exceed 10%
    -rule doesn’t distinguish between the job titles of employees of a broker-dealer
    -limited broker-dealer EEs are exempt from the definition of a restricted person, but the broker-dealer is considered restricted
112
Q

A broker-dealer has a fail-to-deliver position as a result of bona fide market-making activities and its inability to deliver stock by the settlement date. Under SEC Regulation SHO, the firm must:

A

Purchase or borrow the security within three settlement days

113
Q

SEC Rule 17a-13 requires broker-dealers to perform box counts:

A

Quarterly

114
Q

A reporting company is defined as:

A

-An issuer of securities that’s listed on a national securities exchange (e.g., NYSE or Nasdaq)
-Any other publicly traded corporation that has total assets of more than $10 million and more than 500 shareholders

115
Q

BD required disclosures when transacting business in penny stocks

A

-Both the BD and rep comp they will receive for the transaction
-NO requirement to disclose previous compensation from penny stock transactions with customers or the amount of compensation the execution system will receive from the transaction

116
Q

Rule 506

A

Under Reg D - private placements, Form D filed w/in 15 days after sale
Rule 506:
-no limit on the amount of capital an issuer can raise in a private offering
-an unlimited number of accredited investors permitted to buy
-but no more than 35 non-accredited investors

117
Q

Customer Free Credit Balances

A

Customer Free Credit Balances
-BD must advise customers on their free credit balances at least quarterly
-Customers must receive written notice of the amount due to them and a statement that the funds are payable to them upon demand.
-must state that the funds are not segregated and may be by the the broker-dealer’s business.
-If statements are sent more frequently than quarterly, free credit balances notifications must be sent with each statement
-BD is not required to comply with these provisions if it segregates customer free credit balances in such a way as to preclude their use by the broker-dealer.

118
Q

The stock loan department of Firm A loans 1,000 shares of a stock to Firm B. In this case, the lender:

A

Retains all rights of ownership with the exception of the right to vote the stock

On a loan of stock between broker-dealers, the customer who loans the stock retains all rights of ownership (e.g., collecting dividends), but doesn’t retain the right to vote. This right goes to the new owner of the stock.

119
Q

Broker-Dealer X sends its customer order flow to Market Center A. Which of the following has an obligation under the Limit Order Display rule?

A

Market Center A
If orders are routed to a third party for execution (Market Center A), the accepting entity is subject to the requirements codified under the Limit Order Display rule.

STC Numbers (7 decks)

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