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Question 1 of 10
1. Question
Pursuant to the Rule 9600 Series, the staff for good cause shown after taking into consideration all relevant factors, may exempt, upon application and subject to specified terms and conditions, a member alternative trading system (“ATS”) from the trade reporting obligation under paragraph (b) of Rules 6282, 6380A and 6380B, if such exemption is consistent with the protection of investors and the public interest.
Hence, the staff will grant an exemption only if which of the following criteria are satisfied?
I. Trades are between ATS subscribers that are both FINRA members
II. The ATS demonstrates that the member subscribers are fully disclosed to one another at all times on the ATS
III. The system does not permit automatic execution, and a member subscriber must take affirmative steps beyond the submission of an order to agree to a trade with another member subscriber
IV. The ATS agrees to provide to FINRA on a daily basis, or such other basis as prescribed by FINRA, data relating to the volume of trades by security executed by the ATS’s member subscribers using the ATS’s system, and the ATS acknowledges that failure to report such data to FINRA, in addition to constituting a violation of FINRA rules, will result in revocation of any exemption granted pursuant to this RuleCorrect
Pursuant to the Rule 9600 Series, the staff for good cause shown after taking into consideration all relevant factors, may exempt, upon application and subject to specified terms and conditions, a member alternative trading system (“ATS”) from the trade reporting obligation under paragraph (b) of Rules 6282, 6380A and 6380B, if such exemption is consistent with the protection of investors and the public interest.
Hence, the staff will grant an exemption only if which of the following criteria are satisfied?
I. Trades are between ATS subscribers that are both FINRA members
II. The ATS demonstrates that the member subscribers are fully disclosed to one another at all times on the ATS
III. The system does not permit automatic execution, and a member subscriber must take affirmative steps beyond the submission of an order to agree to a trade with another member subscriber
IV. The ATS agrees to provide to FINRA on a monthly basis, or such other basis as prescribed by FINRA, data relating to the volume of trades by security executed by the ATS’s member subscribers using the ATS’s system, and the ATS acknowledges that failure to report such data to FINRA, in addition to constituting a violation of FINRA rules, will result in revocation of any exemption granted pursuant to this RuleIncorrect
Pursuant to the Rule 9600 Series, the staff for good cause shown after taking into consideration all relevant factors, may exempt, upon application and subject to specified terms and conditions, a member alternative trading system (“ATS”) from the trade reporting obligation under paragraph (b) of Rules 6282, 6380A and 6380B, if such exemption is consistent with the protection of investors and the public interest.
Hence, the staff will grant an exemption only if which of the following criteria are satisfied?
I. Trades are between ATS subscribers that are both FINRA members
II. The ATS demonstrates that the member subscribers are fully disclosed to one another at all times on the ATS
III. The system does not permit automatic execution, and a member subscriber must take affirmative steps beyond the submission of an order to agree to a trade with another member subscriber
IV. The ATS agrees to provide to FINRA on a monthly basis, or such other basis as prescribed by FINRA, data relating to the volume of trades by security executed by the ATS’s member subscribers using the ATS’s system, and the ATS acknowledges that failure to report such data to FINRA, in addition to constituting a violation of FINRA rules, will result in revocation of any exemption granted pursuant to this Rule -
Question 2 of 10
2. Question
What does the term qualified client mean?
I. A natural person who, or a company that, immediately after entering into the contract has at least $500,000 under the management of the investment adviser
II. A natural person who, or a company that, the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract
III. A natural person who immediately prior to entering into the contract is an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser
IV. A natural person who immediately prior to entering into the contract is an employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser)Correct
PART 275—RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940
275.205-3 Exemption from the compensation prohibition of section 205(a)(1) for investment advisers.
The term qualified client means:
I. A natural person who, or a company that, immediately after entering into the contract has at least $1,000,000 under the management of the investment adviser
II. A natural person who, or a company that, the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract
III. A natural person who immediately prior to entering into the contract is an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser
IV. A natural person who immediately prior to entering into the contract is an employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser)Incorrect
PART 275—RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940
275.205-3 Exemption from the compensation prohibition of section 205(a)(1) for investment advisers.
The term qualified client means:
I. A natural person who, or a company that, immediately after entering into the contract has at least $1,000,000 under the management of the investment adviser
II. A natural person who, or a company that, the investment adviser entering into the contract (and any person acting on his behalf) reasonably believes, immediately prior to entering into the contract
III. A natural person who immediately prior to entering into the contract is an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser
IV. A natural person who immediately prior to entering into the contract is an employee of the investment adviser (other than an employee performing solely clerical, secretarial or administrative functions with regard to the investment adviser) -
Question 3 of 10
3. Question
Rule 5270 does not preclude transactions that the member can demonstrate are unrelated to the material, non-public market information received in connection with the customer order. Which of the following types of transactions may be included?
I. Transactions where the member has information barriers established to prevent internal disclosure of such information
II. Transactions in the same security related to a prior customer order in that security
III. Transactions to correct bona fide errors
IV. Transactions to offset odd-lot ordersCorrect
FINRA Rule 5270. Front Running of Block Transactions
.04 Permitted Transactions.(a) Rule 5270 does not preclude transactions that the member can demonstrate are unrelated to the material, non-public market information received in connection with the customer order. These types of transactions may include:
(1) transactions where the member has information barriers established to prevent internal disclosure of such information;
(2) transactions in the same security related to a prior customer order in that security;
(3) transactions to correct bona fide errors; or
(4) transactions to offset odd-lot ordersIncorrect
FINRA Rule 5270. Front Running of Block Transactions
.04 Permitted Transactions.(a) Rule 5270 does not preclude transactions that the member can demonstrate are unrelated to the material, non-public market information received in connection with the customer order. These types of transactions may include:
(1) transactions where the member has information barriers established to prevent internal disclosure of such information;
(2) transactions in the same security related to a prior customer order in that security;
(3) transactions to correct bona fide errors; or
(4) transactions to offset odd-lot orders -
Question 4 of 10
4. Question
Any member initiating or resuming quotations in reliance on the exception provided by SEA Rule 15c2-11(f)(2) must be able to demonstrate eligibility for the exception by making a contemporaneous record of:
I. The identification of each associated person who receives the unsolicited customer order or indication of interest directly from the customer, if applicable
II. The identity of the Shareholders
III. The date and time the unsolicited customer order or indication of interest was received
IV. The terms of the unsolicited customer order or indication of interest that is the subject of the quotationCorrect
6432. Compliance with the Information Requirements of SEA Rule 15c2-11
SEA Rule 15c2-11 — Initiation or Resumption of Quotations Without Specified Information
Any member initiating or resuming quotations in reliance on the exception provided by SEA Rule 15c2-11(f)(2) must be able to demonstrate eligibility for the exception by making a contemporaneous record of:(a) the identification of each associated person who receives the unsolicited customer order or indication of interest directly from the customer, if applicable;
(b) the identity of the customer;
(c) the date and time the unsolicited customer order or indication of interest was received; and
(d) the terms of the unsolicited customer order or indication of interest that is the subject of the quotationIncorrect
6432. Compliance with the Information Requirements of SEA Rule 15c2-11
SEA Rule 15c2-11 — Initiation or Resumption of Quotations Without Specified Information
Any member initiating or resuming quotations in reliance on the exception provided by SEA Rule 15c2-11(f)(2) must be able to demonstrate eligibility for the exception by making a contemporaneous record of:(a) the identification of each associated person who receives the unsolicited customer order or indication of interest directly from the customer, if applicable;
(b) the identity of the customer;
(c) the date and time the unsolicited customer order or indication of interest was received; and
(d) the terms of the unsolicited customer order or indication of interest that is the subject of the quotation -
Question 5 of 10
5. Question
Which of the following correctly describe Disruptive Quoting and Trading Activity Type 1?
I. A party enters multiple limit orders on one side of the market at various price levels (the “Displayed Orders”)
II. Following the entry of the Displayed Orders, the level of supply and demand for the security changes
III. The party enters one or more orders on the opposite side of the market of the Displayed Orders (the “Contra-Side Orders”) that are subsequently executed
IV. A party narrows the spread for a security by placing an order inside the national best bid and national best offer (“NBBO”)Correct
FINRA Rule 5210. Publication of Transactions and Quotations
.03 Disruptive Quoting and Trading Activity Prohibited
(b) Disruptive quoting and trading activity shall include a frequent pattern in which the following facts are present:
(1) Disruptive Quoting and Trading Activity Type 1:
(A) a party enters multiple limit orders on one side of the market at various price levels (the “Displayed Orders”); and
(B) following the entry of the Displayed Orders, the level of supply and demand for the security changes; and
(C) the party enters one or more orders on the opposite side of the market of the Displayed Orders (the “Contra-Side Orders”) that are subsequently executed; and
(D) following the execution of the Contra-Side Orders, the party cancels the Displayed Orders.Incorrect
FINRA Rule 5210. Publication of Transactions and Quotations
.03 Disruptive Quoting and Trading Activity Prohibited
(b) Disruptive quoting and trading activity shall include a frequent pattern in which the following facts are present:
(1) Disruptive Quoting and Trading Activity Type 1:
(A) a party enters multiple limit orders on one side of the market at various price levels (the “Displayed Orders”); and
(B) following the entry of the Displayed Orders, the level of supply and demand for the security changes; and
(C) the party enters one or more orders on the opposite side of the market of the Displayed Orders (the “Contra-Side Orders”) that are subsequently executed; and
(D) following the execution of the Contra-Side Orders, the party cancels the Displayed Orders. -
Question 6 of 10
6. Question
The Policy applies to all securities, whether oil royalties or any other security, in which of the following types of transactions?
I. A transaction which involves a small amount of money may warrant a higher percentage of mark-up to cover the expenses of handling
II. A transaction in which the member sells a security to a customer from inventory
III. A transaction in which a member purchases a security from a customer
IV. A transaction in which the member acts as agentCorrect
FINRA Rule 2121. Fair Prices and Commissions
(c) Transactions to Which the Policy is Applicable
The Policy applies to all securities, whether oil royalties or any other security, in the following types of transactions:
(1) A transaction in which a member buys a security to fill an order for the same security previously received from a customer. This transaction would include the so-called “riskless” or “simultaneous” transaction.
(2) A transaction in which the member sells a security to a customer from inventory. In such a case the amount of the mark-up would be determined on the basis of the mark-up over the bona fide representative current market. The amount of profit or loss to the member from market appreciation or depreciation before, or after, the date of the transaction with the customer would not ordinarily enter into the determination of the amount or fairness of the mark-up.
(3) A transaction in which a member purchases a security from a customer. The price paid to the customer or the mark-down applied by the member must be reasonably related to the prevailing market price of the security.
(4) A transaction in which the member acts as agent. In such a case, the commission charged the customer must be fair in light of all relevant circumstances.Incorrect
FINRA Rule 2121. Fair Prices and Commissions
(c) Transactions to Which the Policy is Applicable
The Policy applies to all securities, whether oil royalties or any other security, in the following types of transactions:
(1) A transaction in which a member buys a security to fill an order for the same security previously received from a customer. This transaction would include the so-called “riskless” or “simultaneous” transaction.
(2) A transaction in which the member sells a security to a customer from inventory. In such a case the amount of the mark-up would be determined on the basis of the mark-up over the bona fide representative current market. The amount of profit or loss to the member from market appreciation or depreciation before, or after, the date of the transaction with the customer would not ordinarily enter into the determination of the amount or fairness of the mark-up.
(3) A transaction in which a member purchases a security from a customer. The price paid to the customer or the mark-down applied by the member must be reasonably related to the prevailing market price of the security.
(4) A transaction in which the member acts as agent. In such a case, the commission charged the customer must be fair in light of all relevant circumstances. -
Question 7 of 10
7. Question
With respect to institutional customers, a member must obtain the customer’s consent prior to executing a transaction for or with the customer on a “net” basis in accordance with which of the following methods?
I. Negative consent letter that clearly discloses to the institutional customer in writing the terms and conditions for handling the customer order(s) and provides the institutional customer with a meaningful opportunity to object to the execution of transactions on a net basis.
II. Oral disclosure to and consent from the customer on an order-by-order basis. Such oral disclosure and consent must clearly explain the terms and conditions for handling the customer order and provide the institutional customer with a meaningful opportunity to object to the execution of the transaction on a net basis.
III. Written consent on an order-by-order basis prior to executing a transaction for or with the customer on a “net” basis and such consent must evidence the customer’s understanding of the terms and conditions of the order
IV. Retain and preserve all documentation relating to consent obtained pursuant to this Rule in accordance with Rule 4511.Correct
FINRA Rule 2124 Net Transactions with Customers
(c) With respect to institutional customers, a member must obtain the customer’s consent prior to executing a transaction for or with the customer on a “net” basis in accordance with one of the following methods:(1) a negative consent letter that clearly discloses to the institutional customer in writing the terms and conditions for handling the customer order(s) and provides the institutional customer with a meaningful opportunity to object to the execution of transactions on a net basis. If the customer does not object, then the member may reasonably conclude that the institutional customer has consented to the member trading on a “net” basis with the customer and the member may rely on such letter for all or a portion of the customer’s orders (as instructed by the customer) pursuant to this Rule;
(2) oral disclosure to and consent from the customer on an order-by-order basis. Such oral disclosure and consent must clearly explain the terms and conditions for handling the customer order and provide the institutional customer with a meaningful opportunity to object to the execution of the transaction on a net basis. The member also must document, on an order-by-order basis, the customer’s understanding of the terms and conditions of the order and the customer’s consent; or
(3) written consent on an order-by-order basis prior to executing a transaction for or with the customer on a “net” basis and such consent must evidence the customer’s understanding of the terms and conditions of the order.Incorrect
FINRA Rule 2124 Net Transactions with Customers
(c) With respect to institutional customers, a member must obtain the customer’s consent prior to executing a transaction for or with the customer on a “net” basis in accordance with one of the following methods:(1) a negative consent letter that clearly discloses to the institutional customer in writing the terms and conditions for handling the customer order(s) and provides the institutional customer with a meaningful opportunity to object to the execution of transactions on a net basis. If the customer does not object, then the member may reasonably conclude that the institutional customer has consented to the member trading on a “net” basis with the customer and the member may rely on such letter for all or a portion of the customer’s orders (as instructed by the customer) pursuant to this Rule;
(2) oral disclosure to and consent from the customer on an order-by-order basis. Such oral disclosure and consent must clearly explain the terms and conditions for handling the customer order and provide the institutional customer with a meaningful opportunity to object to the execution of the transaction on a net basis. The member also must document, on an order-by-order basis, the customer’s understanding of the terms and conditions of the order and the customer’s consent; or
(3) written consent on an order-by-order basis prior to executing a transaction for or with the customer on a “net” basis and such consent must evidence the customer’s understanding of the terms and conditions of the order. -
Question 8 of 10
8. Question
Which of the following correctly describe Permissible Quotation Entries?
I. A member firm that has qualified as a market maker in a particular OTCBB-eligible security may enter into the Service a priced bid and/or offer, an unpriced indication of interest (including “bid wanted” and “offer wanted” indications) or a bid or offer accompanied by a modifier to reflect unsolicited customer interest. Every quotation entry must include the appropriate telephone number for the firm’s trading desk
II. A priced bid and/or offer entered into the Service for a domestic equity security must be firm up to the minimum quotation size specified in Rule 6433. This firmness requirement applies only during normal business hours, i.e., 9:30 a.m. to 4:00 p.m. Eastern Time
III. No member or person associated with a member shall enter into the Service a priced bid and/or offer, an unpriced indication of interest (including “bid wanted” or “offer wanted” indications), or a bid or offer accompanied by a modifier to reflect unsolicited customer interest in any security that does not satisfy the requirements of Rule 6530
IV. A priced bid and/or offer entered into the Service for a Direct Participation Program security shall be non-firm.1 Moreover, a market maker is only permitted to update quotation entries in such securities twice dailyCorrect
FINRA Rule 6540. Requirements Applicable to Market Makers
(1) Permissible Quotation Entries
(A) A member firm that has qualified as a market maker in a particular OTCBB-eligible security may enter into the Service a priced bid and/or offer, an unpriced indication of interest (including “bid wanted” and “offer wanted” indications) or a bid or offer accompanied by a modifier to reflect unsolicited customer interest. Every quotation entry must include the appropriate telephone number for the firm’s trading desk.
(B) A priced bid and/or offer entered into the Service for a domestic equity security must be firm up to the minimum quotation size specified in Rule 6433. This firmness requirement applies only during normal business hours, i.e., 9:30 a.m. to 4:00 p.m. Eastern Time.
(C) A priced bid and/or offer entered into the Service for a Direct Participation Program security shall be non-firm.1 Moreover, a market maker is only permitted to update quotation entries in such securities twice daily, i.e., once between 8:30 a.m. and 9:30 a.m. Eastern Time, and once between noon and 12:30 p.m. Eastern Time.2Incorrect
FINRA Rule 6540. Requirements Applicable to Market Makers
(1) Permissible Quotation Entries
(A) A member firm that has qualified as a market maker in a particular OTCBB-eligible security may enter into the Service a priced bid and/or offer, an unpriced indication of interest (including “bid wanted” and “offer wanted” indications) or a bid or offer accompanied by a modifier to reflect unsolicited customer interest. Every quotation entry must include the appropriate telephone number for the firm’s trading desk.
(B) A priced bid and/or offer entered into the Service for a domestic equity security must be firm up to the minimum quotation size specified in Rule 6433. This firmness requirement applies only during normal business hours, i.e., 9:30 a.m. to 4:00 p.m. Eastern Time.
(C) A priced bid and/or offer entered into the Service for a Direct Participation Program security shall be non-firm.1 Moreover, a market maker is only permitted to update quotation entries in such securities twice daily, i.e., once between 8:30 a.m. and 9:30 a.m. Eastern Time, and once between noon and 12:30 p.m. Eastern Time.2 -
Question 9 of 10
9. Question
Which of the following of Transaction Reporting to the FINRA/NYSE Trade Reporting Facility Outside Normal Market Hours is correct?
I. Last sale reports of transactions in designated securities executed between 10:00 a.m. and 11:30 a.m. Eastern Time shall be reported as soon as practicable but no later than 10 seconds after execution and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours
II. Last sale reports of transactions in designated securities executed between 4:00 p.m. and 8:00 p.m. Eastern Time shall be reported as soon as practicable but no later than 10 seconds after execution and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours
III. Last sale reports of transactions in designated securities executed between midnight and 8:00 a.m. Eastern Time shall be reported by 8:15 a.m. Eastern Time on trade date and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
IV. Last sale reports of transactions in designated securities executed (i) between 8:00 p.m. and midnight Eastern Time or (ii) on any non-business day (i.e., weekend or holiday) shall be reported the following business day by 9:15 a.m. Eastern Time, be designated “as/of” trades to denote their execution on a prior day and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hoursCorrect
FINRA Rule 6380B. Transaction Reporting
(a) When and How Transactions are Reported(2) Transaction Reporting to the FINRA/NYSE Trade Reporting Facility Outside Normal Market Hours
(A) Last sale reports of transactions in designated securities executed between 8:00 a.m. and 9:30 a.m. Eastern Time shall be reported as soon as practicable but no later than 10 seconds after execution and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
(B) Last sale reports of transactions in designated securities executed between 4:00 p.m. and 8:00 p.m. Eastern Time shall be reported as soon as practicable but no later than 10 seconds after execution and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
(C) Last sale reports of transactions in designated securities executed between midnight and 8:00 a.m. Eastern Time shall be reported by 8:15 a.m. Eastern Time on trade date and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
(D) Last sale reports of transactions in designated securities executed (i) between 8:00 p.m. and midnight Eastern Time or (ii) on any non-business day (i.e., weekend or holiday) shall be reported the following business day by 8:15 a.m. Eastern Time, be designated “as/of” trades to denote their execution on a prior day and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.Incorrect
FINRA Rule 6380B. Transaction Reporting
(a) When and How Transactions are Reported(2) Transaction Reporting to the FINRA/NYSE Trade Reporting Facility Outside Normal Market Hours
(A) Last sale reports of transactions in designated securities executed between 8:00 a.m. and 9:30 a.m. Eastern Time shall be reported as soon as practicable but no later than 10 seconds after execution and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
(B) Last sale reports of transactions in designated securities executed between 4:00 p.m. and 8:00 p.m. Eastern Time shall be reported as soon as practicable but no later than 10 seconds after execution and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
(C) Last sale reports of transactions in designated securities executed between midnight and 8:00 a.m. Eastern Time shall be reported by 8:15 a.m. Eastern Time on trade date and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours.
(D) Last sale reports of transactions in designated securities executed (i) between 8:00 p.m. and midnight Eastern Time or (ii) on any non-business day (i.e., weekend or holiday) shall be reported the following business day by 8:15 a.m. Eastern Time, be designated “as/of” trades to denote their execution on a prior day and be designated with the unique trade report modifier, as specified by FINRA, to denote their execution outside normal market hours. -
Question 10 of 10
10. Question
Which of the following refer to the member firm that has been identified in the System as principal for clearing and settling a trade, whether for its own account or for a correspondent firm?
Correct
The term “Clearing Broker-Dealer” or “Clearing Broker” shall mean the member firm that has been identified in the System as principal for clearing and settling a trade, whether for its own account or for a correspondent firm
Incorrect
The term “Clearing Broker-Dealer” or “Clearing Broker” shall mean the member firm that has been identified in the System as principal for clearing and settling a trade, whether for its own account or for a correspondent firm