Unknowns 4 Flashcards
The Customer Order Protection Rules requires firms to:
Protect customer orders in the pre-market
After a customer purchases restricted stock in the open public market, the stock:
Is no longer restricted and is not subject to volume limits under Rule 144
Once restricted stock is sold in the open market, the stock is no longer subject to the holding period or volume restrictions under Rule 144.
Which of the following persons is responsible for supervising an assistant representative?
At a non-OSJ branch, a principal or representative designated by the member
A member firm is required to designate one or more appropriately registered principals in each OSJ branch, including the main office, and one or more appropriately registered representatives or principals in each non-OSJ branch office, with authority to carry out the supervisory responsibilities assigned to that office by the member. All general securities representatives, limited securities representatives, and assistant representatives require supervision.
A Nasdaq market maker’s registration will be terminated if the market maker:
Fails to enter a quote within five business days after the market maker’s registration becomes effective
How can BD and journalist have a violation of industry rules regarding recommendations?
A payment made by a broker-dealer to a journalist for the purpose of publicizing its recommended securities without the release of any research or information about the securities is considered a deceptive practice and a violation of industry rules.
All retail communications that include a recommendation must have a reasonable basis and (if applicable) must include:
The price at the time of the recommendation (for an equity security)
Whether the member firm makes a market or intends to buy or sell the recommended security for its own account (acts in a principal capacity)
Whether the member firm or any associated person that’s directly or materially involved in the preparation of the content has a financial interest in any security of the issuer being recommended and the nature of the financial interest, unless the extent of the financial interest is nominal
Whether the member was the manager or co-manager of any of the issuer’s securities offerings within the last 12 months
Information supporting the recommendation or at least the offer to provide such information
Retail communications or correspondence cannot refer to past specific recommendations of the member firm that were or would have been profitable to any person unless the following information is provided.
A list of all recommendations for the same type of security for the past year (longer periods may be discussed if they’re listed consecutively and include the last year)
The name of each security recommended, the date and nature of each recommendation (whether it was a buy, hold, or sell), the date and the price at the time of the recommendation, as well as the price or price range on which any recommendation was to be acted
All clearing and carrying agreements between clearing and introducing firms must specify all of the following functions and responsibilities, EXCEPT the process of
Splitting commissions between the two firms
Under SRO rules all clearing and carrying agreements between clearing and introducing firms must specify the functions and responsibilities of each party. At a minimum, the agreement must specify the following.
The process of opening, approving, and monitoring customer accounts
The extension of credit
Maintenance of books and records
The receipt and delivery of funds and securities
The safeguarding of funds and securities
Customer confirmations and statements
The acceptance of orders and execution of transactions
Whether for purposes of the SEC Net Capital Rules and the Securities Investor Protection Act, all clients are considered to be customers of the clearing member (not the introducing firm).
How commissions and other types of compensation are split between the two firms are contractual business arrangements and are not required to be included in clearing arrangements.
Why are proxy statements provided to shareholders?
if shareholders would be voting on the M&A transaction.
The initial hold that’s placed on an account which is believed to be the subject of financial exploitation will expire by:
o protect an account from financial exploitation, a broker-dealer may place an initial hold on transactions or disbursements of 15 business days from the date it was first placed. If an internal review supports a reasonable belief that the account is subject to financial exploitation, the hold can be extended for an additional 10 business days. If the firm’s belief is that the potential still exists for financial exploitation, the hold can be extended an additional 30 business days. This amounts to a hold extending a total of 55 business days.
A broker-dealer with a net capital exceeding $12,000,000 must have a minimum fidelity bond coverage of:
$5,000,000
For member firms whose net capital exceeds $250,000, FINRA has a table of required coverage, with a maximum of $5,000,000 for member firms whose net capital requirement exceeds $12,000,000.
A broker-dealer purchases stock from a customer at a net price of 19.00. At the time of the purchase, the broker-dealers market for the stock is 19.35 - 19.85, and the inside market is 19.60 - 19.85. The percentage markdown is:
The markdown is 60 cents. This is determined by subtracting the price received by the customer (19.00) from the inside bid of 19.60, yielding .60, which is divided by 19.60, for a markdown of 3.06%.
On an annual basis, a corporation will be considered a Real Estate Investment Trust (REIT) if it meets the following test.
- At least 95% of its gross income is derived from real-estate (such as rental income), interest from mortgages, dividends and interest.
-Of that 95%, at least 75% must be derived solely from real-estate-related activities.
-no more than 5% of income may be derived from non-real estate business.
carrying agreements for both fully disclosed and omnibus accounts must be submitted to FINRA?
prior to becoming effective.
Broker-dealers that do not clear their own transactions are known as introducing firms. These introducing firms use the services of a clearing or carrying firm to process trades and perform other operational services. Many introducing firms operate through a clearing firm on a fully disclosed basis. This means that information about each of the customers of the introducing firm will be transmitted to the clearing firm. There can also be introducing/clearing relationships that are not fully disclosed. In this case, the introducing firm does not provide the clearing firm with any details regarding the individual clients. Instead, the firm uses a single account that is specifically designated by the clearing firm as being for customers of an introducing firm. The carrying firm is required to submit to FINRA for prior approval any agreement for the carrying of accounts, whether on an omnibus or fully disclosed basis, before such agreement may become effective. The carrying firm is also required to submit to FINRA for prior approval any material changes to an approved carrying agreement before such changes may become effective.
If a broker-dealer’s quote for a stock is $10.30 - $10.35 and the stock’s inside market is $10.33 - $10.35, which of the following customer limit orders must the broker-dealer display?
A limit order to sell at $10.34
The Limit Order Display rule requires a broker-dealer to display any order that improves the broker-dealer’s quote. A limit order to sell at $10.34 is one cent lower (i.e., better) than the broker-dealer’s offer of $10.35 and therefore must be displayed. Orders that match a broker-dealer’s quote (e.g., buy limit at $10.30), are only required to be displayed if the broker-dealer is at the inside market. In this question, the broker-dealer’s bid of $10.30 is not the inside bid, which is $10.33.
A master limited partnership (MLP) has which of the following characteristics?
In order for a business to qualify as a master limited partnership (also referred to as a publicly traded partnership), it must meet the following two tests:
the interests in the partnership must be traded on an established exchange (e.g., the NYSE or Nasdaq) or readily tradable in the secondary market, and
at least 90% of its gross income must be derived from qualified income, such as investments in real property, mineral or natural resources, commodities, interest, and dividends.
An MLP doesn’t pay dividends and all of its profits and losses are allocated among its investors.
A broker-dealer receives a written customer complaint concerning a registered representative who recently left the firm to join another broker-dealer. Which of the following would be LEAST relevant?
Sending a copy of the complaint to the RR
A broker-dealer might receive a written customer complaint after an RR has left the firm. Even if an RR is no longer registered, the RR is subject to regulatory jurisdiction for at least two years after his registration is terminated. Updating U4 and U5 forms are relevant if answers to any questions have changed on Forms U4 and U5 since an amendment to these forms must be filed within 30 days. Forms U4 and U5 both ask questions concerning whether a person has been the subject of a written complaint. Keeping a record of the complaint is relevant since written complaints must be kept for a period of four years, and notifying the new broker-dealer is relevant since the new firm would need to inform the RR of the written customer complaint. There is no requirement to send a copy of the complaint to the RR.
An account opened under the Uniform Gifts to Minors Act will contain the Social Security number of:
the minor
Which of the following statements is TRUE regarding the supervision of real-time communication through social networking sites?
This communication is regulated in a manner that’s similar to correspondence.
According to FINRA, social media sites (e.g., Instagram, Facebook, Twitter, and LinkedIn) can be used to promote products or services of a broker-dealer. Real-time communication through social media site is supervised in a manner that’s similar to correspondence. In other words, the communication is subject to review and supervision, but doesn’t require principal approval prior to use. In addition, the communication is NOT required to be filed with FINRA.
The Consolidated Tape aggregates data from Network A and Network B. What does the information from Network A represent?
The Consolidated Tape reports trading data across multiple exchanges. The data included on Network A is for trades involving stocks that are listed on the New York Stock Exchange (NYSE) regardless of where the trades occur. Network B is trading data from the NYSE American (formerly AMEX) and the regional exchanges.
What goes into an unsponsored ADR?
unsponsored ADRs are created without cooperation from the foreign issuer and trade over-the-counter in the United States.
Sponsored ADRs are created with cooperation from the foreign issuer and trade on U.S. exchanges
What are a valid reasons for the carrying firm to protest an account transfer?
An account title mismatch is a valid reason to protest a transfer. If the basic account information such as tax ID number, account title, or account number does not match the information on record at the carrying firm, the carrying firm may protest the transfer
What is the maximum fine that may be levied by a self-regulatory organization (SRO) if an RR is found guilty of unauthorized trading?
Unlimited
In order to be eligible for portfolio margin, a client must:
A portfolio margin client must be approved for uncovered writing. There are no specific financial standards and no experience level that must be met. If a customer wants to trade unlisted derivatives, the customer must maintain equity of at least $5,000,000 at all times.
According to Regulation FD, when making a purposeful disclosure of non-public information, Rule 100(b)(2) provides an exclusion for disclosure made to any of the following
Comms with ppl who owes the issuer a duty of trust or confidence (i.e., a temporary insider, such as an attorney, investment banker, or accountant)
Comms made to ppl who agree to maintain the information in confidence.
Disclosures to an entity whose primary business is the issuance of credit ratings, provided the information is disclosed solely for the purpose of developing a credit rating and the entity’s ratings are publicly available
The issuer of a security that’s publicly traded on a national securities exchange must notify FINRA of which distributions events? When?
According to the SEC, all stock or cash dividends, rights offering, or forward or reverse splits must be disclosed to FINRA 10 days prior to the record date, not prior to the ex-date.
Promissory notes are being sold by a corporate issuer to institutional investors in a block trade. If the maturity of these securities is six months, which of the following statements is TRUE?
The promissory notes are most likely not considered securities.
A promissory note is similar to other debt securities. If the maturity exceeds 270 days (nine months), the SEC typically considers the note to be a security. When promissory notes are defined as securities, they’re either subject to or exempt from SEC registration. For example, promissory notes sold in a private placement are exempt from registration.
Under the TRF reporting rules, an order-entry firm
Under the TRF rules, the order-entry side of the transaction must do one of the following.
Enter a version of the trade within 20 minutes of execution using the OE function on Nasdaq Workstation II
Accept market-maker trade entries on the TRF through ACT Trade Scan within 20 minutes of the execution
Decline incorrect market-maker trade entries on the TRF through ACT Trade Scan or cancel trade entries, when necessary
A broker-dealer using the alternative standard of calculating its minimum net capital must maintain
Some broker-dealers may elect to be governed by an alternative net capital requirement. This requirement is based on the aggregate debit items and requires net capital of $250,000 or 2% of the aggregate debit items, whichever is greater.
When an issuer is testing the waters under a Regulation A offering, there must be a minimum of how many days between the use of a solicitation statement and the first sale of securities?
Under Regulation A, issuers will often test the waters in order to get a sense of market interest before committing to the costs involved in filing an offering statement. Although general solicitation and advertising may be used prior to filing an offering statement with the SEC, there must be no fewer than 20 days between the use of solicitation material and the first sale of securities.
If a customer wishes to open an account as a guardian, the member firm would need:
A copy of the court appointment
A guardian is a court-appointed fiduciary who is instructed by the court to handle the affairs of a person who is legally disabled based on age, or physical or mental incapacity. Before opening a guardian account, a member firm must obtain a copy of the legal documentation appointing the guardian. Guardian accounts are not necessarily limited to children, so UGMA documentation is not always a requirement. The account owner (the disabled or underage person) may not legally give investment discretion to the guardian.
How often can Form 144 be filed with the SEC?
Form 144 is filed when restricted or control stock is to be sold. Once the form is filed, a person may sell the stock during a 90-day period. If the person wants to sell additional shares, he must wait until the initial 90-day period has ended before filing an additional Form 144.
The Special Reserve Bank Account is used:
To satisfy customer protection concerns
Rule 15c3-3 is the Customer Protection Rule and requires the broker-dealer to establish a Reserve Bank Account for the protection of customers. Essentially, the Reserve Bank Account consists of customer-related items found on the credit side of a broker-dealer’s trial balance, such as customer credit balances, fails to receive for the accounts of customers, securities loaned for the accounts of customers, and money borrowed using customer stock as collateral. The broker-dealer is required to segregate cash in an amount equal to the value of these items and is allowed to subtract from the amount required to be on deposit cash equal to the value of certain debit items found on the trial balance. Among these items are securities borrowed for the accounts of customers and customer-secured debit balances.
If a broker-dealer’s quote for a stock is $50.52 - $50.59 and the stock’s inside market is $50.55 - $50.56, which of the following customer limit orders must the broker-dealer display?
A limit order to sell at $50.56
The Limit Order Display rule requires a broker-dealer to display any order that improves the broker-dealer’s quote. A limit order to sell at $50.56 is lower (i.e., better) than the broker-dealer’s offer of $50.59 and therefore must be displayed. Orders that match the broker-dealer’s quote (e.g., buy limit at $50.52, sell limit at $50.59), are only required to be displayed if the broker-dealer is at the inside market. In this question, neither the broker-dealer’s bid nor offer is at the inside market, which is $50.55 - $50.56.
