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Question 1 of 10
1. Question
Which of the following statements is false regarding responsibilities of FCM that acts as guarantor for IB?
Correct
Responsibilities of FCM that acts as guarantor for IB
Any FCM that enters into a guaranty agreement with an IB using the required guaranty form guarantees the performance of the IB, and shall be jointly and severally liable for all obligations of the IB under the Commodity Exchange Act (CEA). In addition, National Futures Association (NFA) Compliance Rule 2-23 states that a guarantor FCM assumes responsibility for acts and omissions of the member IB that are in violation of NFA requirements and occur during the term of the guaranty agreement. In this situation, the guarantor FCM is subject to the same disciplinary action as the IB.Incorrect
Responsibilities of FCM that acts as guarantor for IB
Any FCM that enters into a guaranty agreement with an IB using the required guaranty form guarantees the performance of the IB, and shall be jointly and severally liable for all obligations of the IB under the Commodity Exchange Act (CEA). In addition, National Futures Association (NFA) Compliance Rule 2-23 states that a guarantor FCM assumes responsibility for acts and omissions of the member IB that are in violation of NFA requirements and occur during the term of the guaranty agreement. In this situation, the guarantor FCM is subject to the same disciplinary action as the IB. -
Question 2 of 10
2. Question
Regarding acceptance of customer funds by IB, which of the following statements is true?
Correct
Acceptance of customer funds by IB
An IB is required to use the services of an associated futures commission merchant (FCM) for receipt of all customer funds, including securities and property. The sole exception is receiving checks from a customer that are made payable to an FCM. In this situation, the IB must be acting as a conduit for bank deposit or delivery.Incorrect
Acceptance of customer funds by IB
An IB is required to use the services of an associated futures commission merchant (FCM) for receipt of all customer funds, including securities and property. The sole exception is receiving checks from a customer that are made payable to an FCM. In this situation, the IB must be acting as a conduit for bank deposit or delivery. -
Question 3 of 10
3. Question
From the statements below regarding capital requirements for FCM that guarantees IB, which one seems to be inappropriate to you?
Correct
Capital requirements for FCM that guarantees IB
A futures commission merchant (FCM) that wishes to affiliate with an introducing broker via a guaranty agreement is subject to additional minimum capital requirements. The minimum capital requirements for an FCM that guarantees an IB are as follows:
• 150% of the capital required for a non-guaranty FCM
• if less than $2 million, $9,000 for each remote location operated, including each guaranteed IB
• if less than $2 million, $4,500 for each sponsored AP, including each guaranteed AP
• for securities dealers, the amount required by the SEC
• 110% of the following calculated value: 8% of the total risk margin for all customer account positions plus 8% of the total risk margin for all FCM proprietary positionsIncorrect
Capital requirements for FCM that guarantees IB
A futures commission merchant (FCM) that wishes to affiliate with an introducing broker via a guaranty agreement is subject to additional minimum capital requirements. The minimum capital requirements for an FCM that guarantees an IB are as follows:
• 150% of the capital required for a non-guaranty FCM
• if less than $2 million, $9,000 for each remote location operated, including each guaranteed IB
• if less than $2 million, $4,500 for each sponsored AP, including each guaranteed AP
• for securities dealers, the amount required by the SEC
• 110% of the following calculated value: 8% of the total risk margin for all customer account positions plus 8% of the total risk margin for all FCM proprietary positions -
Question 4 of 10
4. Question
Which of the following statements is true regarding financial reporting requirements for FCMs and independent IBs?
Correct
Financial reporting requirements for FCMs and independent IBs
Both FCMs and independent IBs are subject to minimum capital requirements and, as such, are subject to the financial reporting requirements listed below. These NFA Recordkeeping Rule 2-10 requirements are above and beyond those that are applicable to all NFA members.
• Financial reports required to be filed with the Commodity Futures Trading Commission (CFTC) and/or the NFA must be prepared in English, must use U.S. dollars, and must comply with U.S. accounting standards.
• A general ledger must be maintained in English, and must use U.S. dollars.Incorrect
Financial reporting requirements for FCMs and independent IBs
Both FCMs and independent IBs are subject to minimum capital requirements and, as such, are subject to the financial reporting requirements listed below. These NFA Recordkeeping Rule 2-10 requirements are above and beyond those that are applicable to all NFA members.
• Financial reports required to be filed with the Commodity Futures Trading Commission (CFTC) and/or the NFA must be prepared in English, must use U.S. dollars, and must comply with U.S. accounting standards.
• A general ledger must be maintained in English, and must use U.S. dollars. -
Question 5 of 10
5. Question
Regarding requirements for margins expressed in foreign currencies, which of the following statements is true?
Correct
Requirements for margins expressed in foreign currencies
Initial and maintenance margin deposit levels required of customers of both futures commodity merchants (FCMs) and introducing brokers (IBs) are determined by the exchange, and are usually expressed in U.S. dollars. An FCM or an IB may accept foreign currency margin deposits if a subordination agreement is in place with the owner of the account and the FCM or IB ascertains that the rules of the exchange allow the use of such instruments.Incorrect
Requirements for margins expressed in foreign currencies
Initial and maintenance margin deposit levels required of customers of both futures commodity merchants (FCMs) and introducing brokers (IBs) are determined by the exchange, and are usually expressed in U.S. dollars. An FCM or an IB may accept foreign currency margin deposits if a subordination agreement is in place with the owner of the account and the FCM or IB ascertains that the rules of the exchange allow the use of such instruments. -
Question 6 of 10
6. Question
From the statements below regarding customer complaints, which one seems to be the most appropriate to you?
Correct
Customer complaints
A valid customer complaint must involve a registered trading professional, and must allege one or more violations of either the Commodities Exchange Act (CEA) or the regulations of the Commodity Futures Trading Commission (CFTC). Actions subject to complaint include the following:
• fraud, including false or misleading statements
• breach of fiduciary duty
• unauthorized trading
• misappropriation or diversion of funds
• churning (excessive trading)
• wrongful liquidation of an account
• failure to supervise
• nondisclosureIncorrect
Customer complaints
A valid customer complaint must involve a registered trading professional, and must allege one or more violations of either the Commodities Exchange Act (CEA) or the regulations of the Commodity Futures Trading Commission (CFTC). Actions subject to complaint include the following:
• fraud, including false or misleading statements
• breach of fiduciary duty
• unauthorized trading
• misappropriation or diversion of funds
• churning (excessive trading)
• wrongful liquidation of an account
• failure to supervise
• nondisclosure -
Question 7 of 10
7. Question
Which of the following statements is false regarding the Commodity Futures Trading Commission’s (CFTC)?
Correct
The Commodity Futures Trading Commission’s (CFTC) reparations program is designed to adjudicate customer complaints against registered professionals. The three types of proceedings that are available to claimants are as follows:
• Voluntary – Both the claimant and the respondent agree to provide written submissions to a judgment officer, who will make a decision. Any decisions made are final, and cannot be appealed.
• Summary – This type of proceeding is used in cases where claims do not exceed $30,000 and the voluntary procedure is not selected. The claimant provides written submissions to a judgment officer, who can convene an oral hearing and render a judgment at his or her discretion. The decision may be appealed.
• Formal – This type of proceeding is used in cases where claims exceed $30,000 and the voluntary procedure is not selected. The claimant provides written submissions to a judgment officer, who may convene a formal in-person hearing and render a judgment at his or her discretion. The decision may be appealed.Incorrect
The Commodity Futures Trading Commission’s (CFTC) reparations program is designed to adjudicate customer complaints against registered professionals. The three types of proceedings that are available to claimants are as follows:
• Voluntary – Both the claimant and the respondent agree to provide written submissions to a judgment officer, who will make a decision. Any decisions made are final, and cannot be appealed.
• Summary – This type of proceeding is used in cases where claims do not exceed $30,000 and the voluntary procedure is not selected. The claimant provides written submissions to a judgment officer, who can convene an oral hearing and render a judgment at his or her discretion. The decision may be appealed.
• Formal – This type of proceeding is used in cases where claims exceed $30,000 and the voluntary procedure is not selected. The claimant provides written submissions to a judgment officer, who may convene a formal in-person hearing and render a judgment at his or her discretion. The decision may be appealed. -
Question 8 of 10
8. Question
Regarding the criteria of the complaint of CFTC reparations program, which of the following statements is true?
Correct
In order to be considered for the CFTC reparations program, a complaint must meet the following criteria:
• There must be attestation that any losses claimed as damages are the result of the activities described in the complaint. AND
• The respondents named in the complaint committed the alleged activities. AND
• The alleged activities committed by the respondents appear to be in violation of the Commodity Exchange Act (CEA) or the regulations of the CFTC.Incorrect
In order to be considered for the CFTC reparations program, a complaint must meet the following criteria:
• There must be attestation that any losses claimed as damages are the result of the activities described in the complaint. AND
• The respondents named in the complaint committed the alleged activities. AND
• The alleged activities committed by the respondents appear to be in violation of the Commodity Exchange Act (CEA) or the regulations of the CFTC. -
Question 9 of 10
9. Question
Which of the following statements is false regarding documentation upon receipt of customer order?
Correct
Documentation upon receipt of customer order
An FCM who receives a customer order that is subject to margin requirements must immediately document the receipt of the order. This documentation must include certain basic information:
• customer account identification
• unique order number
• date and time (to the nearest minute) when the order was receivedIncorrect
Documentation upon receipt of customer order
An FCM who receives a customer order that is subject to margin requirements must immediately document the receipt of the order. This documentation must include certain basic information:
• customer account identification
• unique order number
• date and time (to the nearest minute) when the order was received -
Question 10 of 10
10. Question
Regarding NFA Rule 2-29, which of the following statements is true?
Correct
NFA Rule 2-29
In general, NFA Rule 2-29 regarding communication with the public prohibits information which is fraudulent or deceitful, is part of a high pressure approach, and/or states that futures trading is appropriate for all persons. Promotional materials are prohibited from including content that:
• is likely to deceive the public
• contains any material misstatement of fact or purposely omits any fact, which renders the promotional material misleading
• mentions the possibility of profit without an equally prominent statement of the risk of loss
• makes reference to actual past trading profits without a disclaimer that such results are not necessarily indicative of future results
• includes any specific numerical or statistical information regarding the past financial performance and rate of return of any actual accounts, unless such information meets specific requirements and regulations set by the CFTC
• includes any testimonial that does not prominently feature displayed statements indicating that the testimonial is neither indicative of future performance nor provided in exchange for compensation, and that the testimonial is not representative of all reasonably comparable accountsIncorrect
NFA Rule 2-29
In general, NFA Rule 2-29 regarding communication with the public prohibits information which is fraudulent or deceitful, is part of a high pressure approach, and/or states that futures trading is appropriate for all persons. Promotional materials are prohibited from including content that:
• is likely to deceive the public
• contains any material misstatement of fact or purposely omits any fact, which renders the promotional material misleading
• mentions the possibility of profit without an equally prominent statement of the risk of loss
• makes reference to actual past trading profits without a disclaimer that such results are not necessarily indicative of future results
• includes any specific numerical or statistical information regarding the past financial performance and rate of return of any actual accounts, unless such information meets specific requirements and regulations set by the CFTC
• includes any testimonial that does not prominently feature displayed statements indicating that the testimonial is neither indicative of future performance nor provided in exchange for compensation, and that the testimonial is not representative of all reasonably comparable accounts