Unknowns 5 Flashcards
Typically, investment companies are allowed no more than ____ days from request to complete a redemption.
7 days
Regulation M-A relaxes communication restrictions between broker-dealers and investors prior to the filing of statements in the case of ________________.
-cross-border mergers
-tender offers
-rights offerings
-other similar transactions
Generic advertising is not considered an offer to sell, provided it provides
-info on invest co.
securities
investment objectives
various products and services that do not constitute a security subject to registration
-An invitation to inquire for further information
-contains the name and address of the BD or other person sponsoring the communication.
A broker-dealer’s client has posted positive comments on the personal social networking page of a registered representative. What is that considered and not considered?
Posts made by customers, or any other third-parties, are third-party posts.
These are not considered advertising unless the firm becomes entangled or has adopted the third-party content. Since the post is not considered adverting, the positive comments (testimonial) are permitted.
Members who have failed to pay required fees and assessments may have their memberships suspended or cancelled upon _____ from FINRA.
15 days’ written notice from FINRA
When must a broker-dealer receive the signed acknowledgement of the portfolio margin disclosure from a client?
At or prior to the client’s initial transaction
A limited broker-dealer restricts its business to ___________________.
investment company/variable contract securities or direct participation programs
When may a broker-dealer perform the locate when effecting a short sale for its own account?
Prior to executing a short sale order
A broker-dealer executing a short sale in an equity security for a client must perform a locate
Prior to accepting a short sale order
Members are not permitted to execute (either directly or indirectly) any transactions in a security that’s the subject of an IPO until the security has _____________.
begun trading on its primary exchange
BD that receives and holds customer assets is a _____ with a _____ net capital.
carrying broker (general securities firm)
$250,000 net cap
What is considered MOST important for a dealer when determining the markup it may charge to a client on a transaction involving a debt security?
The dealer’s contemporaneous cost in the same security
If the dealer executes the transaction at the same price and charges the customer a markup, the capacity is disclosed as __________.
riskless principal.
A resulting statutory disqualification would only occur if the person is ultimately _____of any felony or misdemeanor involving false reports, fraud, bribery, perjury, crimes related to funds or securities. If just charged with misdemeanor or felony, the RR ________.
convicted
updates their U4
What are the time frames for a BD to receive membership from FINRA?
-FINRA must review and process a BD’s membership application within 180 calendar days.
-If the application is found to be deficient after preliminary review, the applicant is given 5 days to correct the deficiency.
-If the application is deemed substantially complete, FINRA staff is allotted 30 days to complete its review and determine whether more information is needed.
-If additional information is required, the FINRA staff must issue a written request within this time frame.
-The applicant will then have 60 calendar days to fully respond to FINRA’s initial request for additional information.
Who is responsible for sending issuer communications to objecting beneficial owners for stock held in street name?
The broker-dealer
The broker-dealer is not permitted to release confidential, personal information of objecting beneficial owners to issuers. As a result, the broker-dealer would receive the information and forward it to the beneficial owners.
Pattern day trader
-4 or more trades in 5-day period
-minimum equity requirement: $25,000
-minimum must be maintained always
-margin call must be met w/in 5 bdays
-call not met, client restricted to cash-available basis for 90-days until call met
-closing transaction is cash-available basis
If an order is filled, which time stamps must appear on the order ticket?
time entered
time executed
Regulation X
U.S. person who’s acquiring credit from a non-U.S. lender to purchase U.S. securities
SEC Rule 605, market centers must disclose execution quality statistics monthly in regard to order executions. This information includes:
-Effective spreads
-Execution comparison of market orders to public quotes
-The execution of orders:
-price improvement
-disimprovement
-fill rates
-execution speed
A stopped order is best described as:
A price guarantee for a customer’s order
order that’s received from a customer (typically an institution) which will be executed at no worse than the contra-side price at the time the order was stopped, with the understanding that the order may receive a better price.
The haircut on readily marketable equity securities is _______.
If there is a limited market for the security, with only two market makers providing quotes, the haircut required would be _______.
15%
40%
A broker-dealer may close out positions in a customer’s margin account if?
The equity falls below the $2,000 requirement in a SHORT account
DVP transactions in non-exempt securities (e.g., corporate bonds) settle on ______. BD has _______ calendar days to ______ of the security
T+1
35 calendar days to complete the delivery of the security
Under Reg M, firms that are quoting OTC equity securities are permitted to _______ their quotes without a ___________, so a request for an __________ is not required.
withdraw their quotes
re-registration penalty
excused withdrawal status
After an employee’s registration has been terminated, a broker-dealer has a/an __________ reporting obligation to update Form U5 if any information is inaccurate or incomplete.
ongoing reporting obligation
Nasdaq Global Select initial listing requirements
-public float
-stockholders’ equity
-bid price
-revenue
-number of market makers
-number of shareholders
-cash flow from operations
Which firm initiates the ACAT process?
Receiving firm enters the client’s request into the ACATs system
Certain complaints (e.g., allegations of theft) must be filed ______ after the broker-dealer receives them, but no later than _____ calendar days
Promptly
30 calendar days
RMD withdrawals from an IRA must begin by no later than ______ of the calendar year _____ the individual reaches age 73, and by _____ for subsequent years.
April 1
after
Dec 31
If the National Uniform Practice Committee has not determined a settlement date, settlement on when, as and if issued transactions is on the:
Business day following the day the seller gives the buyer written notice of its intention to deliver the securities (one day’s written notice)
A registered person employed by a member firm has been indicted for a felony. What should they do?
Form U4 must be amended within 30 days.
Hierarchy of the factors used by the broker-dealer to determine a fair transaction price for debt securities:
(A) contemporaneous interdealer transactions
(B) contemporaneous dealer transactions in the same security with institutional customers (in the absence of A)
(C) Contemporaneous quotes of the same security for actively traded securities (in the absence of both A and B)
D) no contemporaneous pricing? broker-dealer may use the prices of similar securities
Portfolio margin allows an investor to
Potentially make a smaller margin deposit
When FINRA issues a notice to a member firm regarding a disqualification, the notice must state that the member may file a written application requesting relief on behalf of itself or a person associated with the member within ________ days after service of the notice.
10 business days
If firm doesn’t file, registration of disqualified person is revoked.
The return of securities that were previously accepted for delivery is referred to as:
Reclamation
The refusal to accept delivered securities is referred to as
Rejection
If a security enters the limit state and fails to move back inside the price bands within _________, the primary listing exchange will issue a ______ trading pause in the security.
15 sec
5 minute trading pause
What risks must be disclosed to customers, prior to engaging in extended-hours trading (Nasdaq extended trading hours are prior to 9:30 a.m. and after 4:00 p.m.):
-reduced liquidity
-increased volatility
-changing prices
-unlinked markets
-wider spreads
-exaggerated effects of news announcements
Decisions regarding disciplinary actions under the Code of Procedure will be rendered within ________. These decisions become effective within _______ of the announcement.
-rendered within 60 days
-decisions become effective within 30 days of the announcement
SEC’s Early Warning rule is triggered if:
-BD’s ratio of AI-to-NC EXCEEDS 12:1
-Net Cap is less than 120% (current NC/required NC ex 114%)
Conditions under which it a firm may approaching financial or operational difficulty according to FINRA:
Firms approaching financial or operational difficulty may be prohibited from expanding their business or required to reduce their level of business activity.
-substantial change in how a firm processes its business (increases risk of loss to customers)
-books and records are not maintained
-firm is unable to clear and settle transactions promptly
A firm acting as a dual agent may:
charge each client a commission
Short interest (position) reports must be received by FINRA no later than
The second business day after the reporting settlement date (semimonthly)
What is not a DTC eligible security?
Options b/c they are cleared through the Options Clearing Corp (OCC)
Qualified independent underwriter is a member firm that has :
_been actively engaged in the investment banking or securities business for the preceding 36 months
-managed or comanaged a similar offering within the last three years
If a firm chooses to file a Membership Continuance (MC-400A) application, it must be filed:
within 10 business days
(a firm chooses to pursue eligibility proceeding on behalf of a person)
Purchaser representatives
-person who represents non-accredited purchasers under Reg D.
-cannot be an affiliate, director, officer, or employee of the issuer unless the representative is related to the purchaser by blood, marriage, or adoption
-cannot own 10% or more of the stock of the issuer
-must be knowledgeable and experienced in financial and business matters.
-must be designated in writing for each individual offering.
-No blanket approvals to represent the purchaser for all Reg D offerings
When transferring a security to a broker-dealer, which of the following is required to ensure that a security registered in a customer’s name has been signed properly?
Medallion signature guarantee
transferring broker-dealer assumes liability in the event of forgery
The National Securities Clearing Corporation clears
trades in securities qualified to be cleared through the system between members.
Broker-dealers must deliver notices to customers who carry a free credit balance __________.
at least once every three months (quarterly)
A ______ represents the balance of unused customer funds in accounts that have not been segregated and may be used by broker-dealers in the firm’s routine conduct of business.
free credit balance
Stablizing bids
-highest price that could be entered is the POP
-the syndicate may only have one stabilizing bid generally placed by the manager
-no limit as to the number of stabilizing purchases made
-managing UW must notify the principal market that it will be placing a stabilizing bid
-stabilizing is prohibited for an at-the-market offering
The minimum quote size permitted for a broker-dealer in OTC equity securities is:
Based upon the price of the quote
If securities are discovered to be missing after conducting the quarterly box count, the firm should contact
contact both the SIC and the transfer agent. The FBI only needs to be contacted if theft or other illegal activities are suspected.
Orders excluded from being displayed under the Limit Order Display Rule include:
-Odd-lot orders
-all-or-none orders
-orders executed immediately
-block size orders (at least 10,000 shares OR market value of at least $200,000
-customer requests for it to not be displayed.
Form 4
Form 3
Form 5
Form 4: filed by any insider of a corp who buys or sells shares of his company and must be filed no later than the second business day following the transaction.
Form 3: filed when a person becomes an insider.
Form 5: annual filing by insiders.
What securities offerings would require the disclosure to FINRA that investment banking compensation was being paid to the underwriters?
IPOs of securities and REITs
direct participation programs rights offerings
Rule 147 offerings
Regulation A offerings
The maximum fine that may be levied for minor violations of FINRA rules is
$2,500
A broker-dealer executes trades on a net basis for institutional clients. How does the firm report its capacity in these trades?
Principal - reports both buy and sell
What are the steps for the Certification of Compliance and Supervisory Processes
-requires each firm certify annually it has written compliance policies and procedures to comply with all applicable SEC and SRO rules and regulations
-certification is signed by the CEO or equivalent
-Final report must be submitted to the member’s BOD and audit committee (or equivalent bodies) at the earlier of their next scheduled meetings or within 45 days of the date of execution of this certification
-if no BOD or an audit committee firm submits the report to an equivalent group such as a management committee, general partner, managing member, advisory board, or financial standards committee.
Regulation A
-Issuer can have a public offering open to U.S. and foreign investors
-no requirement for the purchasers to be accredited
-the disclosure document is in offering circular and it must be provided to all purchasers
If a registered person receives a notice that an unsatisfied judgement has been levied against him:
He’s required to notify FINRA and update his Form U4
What are the FINRA Corporate Financing Rules for filing requirements based on whether the securities are registered or exempt from registration?
-registered securitie: disclosures filed with FINRA by no later than 3 business days following the filing of the issuer’s registration statement with the SEC (or any state securities commission).
-exempt from registration: disclosures must be filed with FINRA at least 15 business days prior to the anticipated offering
What is TRUE concerning private placements?
-issuer agrees to provide all relevant material info about the company to permit an investor to decide whether to invest.
-issuer usually provides a disclosure document (a private placement memorandum) to avoid violations of the antifraud provisions
-issuer may, but not obligated to, provide a public market for the securities through registration.
-investor agrees must acknowledge that he understands the risks of investing and that he may lose his entire investment
-investor also agrees not to share information found in the offering document b/c he may violate securities regulations by releasing material nonpublic information
A 13D filer is required to provide certain information such as:
-security and issuer
-identity and background of the filer (individual or a group)
-source and amount of funds, or considerations that were used for the purchase (funds used to purchase the securities were borrowed, or came from an existing cash position of the filer)
-purpose of the transaction. (if the filer wants to acquire the company, or is purchasing the shares as an investment)
-number of shares and the percentage ownership of the filer
-contracts or relationships regarding the securities of the issuer, e.g., a standstill agreement
-materials filed as exhibits, e.g., a merger agreement or a tender offer agreement
-name of the financial institution providing the funds is NOT a required disclosure
Type of office location that’s primarily used for non-securities business and from which fewer than 25 securities transactions are executed annually.
non-branch office or non-securities business office
Under Rule 17a-11, a broker-dealer that clears and carries customer accounts is required to send immediate notice to the SEC and its designated examining authority (DEA) under what?
Immediate telegraphic or facsimile notice required if:
- AI:NC ratio exceeds 15:1
-the dollar amount of net capital falls below the minimum requirement
-the BD’s subordinated loans total more than 70% of its debt and equity for a period exceeding 90 days.
Under portfolio margining rules, maintenance calls are due within
three business days
New issue (IPO) purchases allowed/not allowed
Not allowed
-accounts controlled or owned by a restricted person (custodial, IRAs or JTWROS accounts)
-de minimis exemption: beneficial owners are restricted persons and account ownership doesn’t exceed 10%
-Custodial or accounts owned by the RR’s immediate family even if the RR isn’t named on account
Free-riding violation
Client fails to pay for a security prior to its sale
not permitted to use sales proceeds to pay for the purchase
BD required to place a 90-day freeze on the account
customer must pay in advance for a period of 90 days
Transactions in restricted equity securities (ex 144A) that are executed between midnight and 8:00 a.m. must be reported
at any time on the same business day as the transaction to TRF or ORF
Section 13(d) of the Exchange Act requires any person that acquires more than 5% of an issuer’s equity securities to notify
The issuer
Each exchange on which those securities are traded
The SEC
Rule 17a-11 requires reports be sent to the SEC if:
-independent auditor finds material inadequacies in internal accounting procedures
-debt-to-equity ratio exceeds 70% for more than 90 days
-dollar amount of net capital is less than 120% of the min requirement
-ratio of aggregate indebtedness to net capital exceeds 12 to 1.
The purchase of a new issue prior to settlement with the issuer is BEST described as a:
When-issued transaction
As a general rule, a Real Estate Investment Trust (REIT) in its second taxable year must meet two ownership tests.
-at least 100 different shareholders
-5 or fewer individuals may not own more than 50% of its common stock during the last half of its taxable year
A List or Fixed Offering Price Transaction, or Takedown Transaction, is a primary market (new issue) by a sole underwriter or syndicate member, or selling group member as a discount from the offering price. These transactions must be reported no later than
T + 1 during TRACE system hours.
A member firm is required to review and update its required contact (executive representative) information within_______________. It’s also required to update its contact information to FINRA promptly, but not later than _________.
17 business days after the end of each calendar year
30 days following any change in such information
For a broker-dealer, the total amount of subordinated loans outstanding cannot exceed:
70% of the broker-dealer’s total capital for a period exceeding 90 days
Immediate notification to FINRA and SEC
An individual who has been named an officer (insider) of a publicly traded corporation is required to report to the SEC:
within 10 days of becoming an insider by filing Form 3.
The broker-dealer involved in an underwriting could disclose a control relationship to a customer over the telephone or in writing. If a broker-dealer involved in an underwriting discloses a control relationship to the client over the telephone, written notice should be made to the customer:
At or before the settlement date of the transaction
What is a transfer and hold registration instruction?
Require a broker-dealer to hold a client’s securities in safekeeping. The securities are registered in the customer’s name.
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:
The receiving firm will send a DK (don’t know) notice to the confirming party to question whether a trade occurred within:
One business day via certified mail
Two business days
Confirmations on regular-way transactions must be sent to customers no later than the
completion of the transaction
