Chapter 2 - Registered Representatives and Financial Firms

Question 1

When must Registered Reps complete the Regulatory Element of Continuing Education?

Answer 1

On the 2-year anniversary of their registration and every 3 years thereafter.

Question 2

True or False: Firm Element Continuing Education requires Broker Dealers to update employees on job and product-related subjects.

Answer 2

True

Question 3

To apply for a securities license, one must file Form ___ with FINRA.

Answer 3

To apply for a securities license, one must file Form U4 with FINRA.

Question 4

Gifts exceeding $___ are considered excessive.

Answer 4

Gifts exceeding $100 are considered excessive.

Question 5

_____ expenses are not subject to the Gift Rule.

Answer 5

Entertainment / business expenses are not subject to the Gift Rule.

Question 6

For accounts opened for employees of another member firm, what is provided to the individual’s employer upon request?

Answer 6

Duplicate confirmations and statements

Question 7

True or False: FINRA regulates accounts of member firm employees opened at another firm.

Answer 7

True.

The rule also covers accounts for the employee’s spouse or dependent children.

Question 8

A Broker Dealer must file Form U5 with FINRA when a person’s association with that firm _____.

Answer 8

A Broker Dealer must file Form U5 with FINRA when a person’s association with that firm ends/ceases.

Question 9

What are the justifiable reasons for denying an individual’s registration?

Answer 9

Conviction for any felony or securities-related misdemeanor within the last 10 years.

Question 10

How often must a Broker Dealer’s Firm Element Continuing Education program be reevaluated?

Answer 10

Annually

Question 11

Do all outside activities of an RR require notification to an employer?

Answer 11

No. Notification is only required for employment activities, not hobbies.

Question 12

What is the industry policy regarding an RR who sets up an outside business that involves paid public speaking?

Answer 12

This is considered employment and the RR must receive employer approval

Question 13

Which department of a broker-dealer makes recommendations to investors?

Answer 13

Sales

Question 14

Which department of a broker-dealer executes securities transactions?

Answer 14

Trading

Question 15

What is the role of a broker-dealer’s operations department?

Answer 15

• Process Paperwork
• Handle Funds and Securities Transfers
• Settle and Confirm Transactions

Question 16

The Maloney Act of 1938 is credited with creating which SRO?

Answer 16

The NASD.

In 2007, the regulatory units of the NASD and NYSE merged to create FINRA.

Question 17

What is the purpose of the Trust Indenture Act of 1939?

Answer 17

To provide security for corporate bond investors.

Question 18

True or False: The Investment Company Act of 1940 requires mutual fund managers to register.

Answer 18

False.

The Investment Advisers Act of 1940 is the Act that requires money managers to register.

Question 19

Which Act created SIPC?

Answer 19

Securities Investor Protection Act of 1970 (SIPA)

Question 20

List the four categories of FINRA rules.

Answer 20

1. Conduct Rules
2. Uniform Practice Code
3. Code of Procedure
4. Code of Arbitration

Question 21

Define Penny Stock

Answer 21

Non-exchange traded securities that are priced at less than $5 per share

Question 22

What is the CRD?

Answer 22

The Central Registration Depository (CRD).

CRD is FINRA’s database for member registrations.

Question 23

Who supervises a registered representative (RR)?

Answer 23

A supervising principal

Question 24

What is the purpose for obtaining a Series 9/10 or Series 24 registration?

Answer 24

The Series 9/10 or 24 the registrations required for supervising registered representatives.

Question 25

List the broker-dealer employees who need to be fingerprinted.

Answer 25

Salespersons, employees who handle money or securities, and anyone who deals with records of original entry.

Question 26

\_\_\_\_\_ is FINRA's tool for allowing public access to certain information found in the CRD.

Answer 26

**BrokerCheck** is FINRA's tool for allowing public access to certain information found in the CRD.

Question 27

Candidates who have failed a qualification exam once must wait ___ days before retaking the exam.

Answer 27

Candidates who have failed a qualification exam once must wait **30** days before retaking the exam.

Question 28

True or False: It is acceptable to disclose the content of a qualifying exam to a co-worker.

Answer 28

False. The conent of the exam is confidential.

Question 29

How often must firms conduct their compliance meeting?

Answer 29

Annually

Question 30

True or False: An RR who served in the military must retake the Series 7 when he rejoins his broker-dealer.

Answer 30

False. An RR who served in the military is put into special inactive status and is not required to retest.

Question 31

True or False: A broker-dealer may pay a commission to an unregistered individual.

Answer 31

False

Question 32

Define churning

Answer 32

Excessive trading solely for the purpose of generating commissions or fees

Question 33

True or False: RRs are always prohibited from sharing in a customer's account

Answer 33

False RRs may share in a customer's account if they have permission and sharing is proportionate to their investment.

Question 34

True or False: RRs are typically not permitted to lend money to a client.

Answer 34

True. While exceptions exist, personal loans to clients are typically prohibited.

Question 35

What must be done by the carrying firm when opening an account for an employee of another FINRA member firm?

Answer 35

The carrying firm must receive written consent from the employer.