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Question 1 of 10
1. Question
The minimum amount of price improvement necessary for a member to execute an order on a proprietary basis when holding an unexecuted limit order in that same security, and not be required to execute the held limit order is as follows:
I. For customer limit orders priced lesser than or equal to $1.00, the minimum amount of price improvement required is $0.01 for NMS stocks and the lesser of $0.01 or one-half (1/2) of the current inside spread for OTC equity securities
II. For customer limit orders priced greater than or equal to $0.01 and less than $1.00, the minimum amount of price improvement required is the lesser of $0.01 or one-half (1/2) of the current inside spread
III. For customer limit orders priced less than $0.01 but greater than or equal to $0.001, the minimum amount of price improvement required is the lesser of $0.001 or one-half (1/2) of the current inside spread
IV. For customer limit orders priced less than $0.001 but greater than or equal to $0.0001, the minimum amount of price improvement required is the lesser of $0.0001 or one-half (1/2) of the current inside spread
Correct
FINRA Rule 5320. Prohibition Against Trading Ahead of Customer Orders
The minimum amount of price improvement necessary for a member to execute an order on a proprietary basis when holding an unexecuted limit order in that same security, and not be required to execute the held limit order is as follows:
I. For customer limit orders priced lesser than or equal to $1.00, the minimum amount of price improvement required is $0.01 for NMS stocks and the lesser of $0.01 or one-half (1/2) of the current inside spread for OTC equity securities
II. For customer limit orders priced greater than or equal to $0.01 and less than $1.00, the minimum amount of price improvement required is the lesser of $0.01 or one-half (1/2) of the current inside spread
III. For customer limit orders priced less than $0.01 but greater than or equal to $0.001, the minimum amount of price improvement required is the lesser of $0.001 or one-half (1/2) of the current inside spread
IV. For customer limit orders priced less than $0.001 but greater than or equal to $0.0001, the minimum amount of price improvement required is the lesser of $0.0001 or one-half (1/2) of the current inside spread
Incorrect
FINRA Rule 5320. Prohibition Against Trading Ahead of Customer Orders
The minimum amount of price improvement necessary for a member to execute an order on a proprietary basis when holding an unexecuted limit order in that same security, and not be required to execute the held limit order is as follows:
I. For customer limit orders priced lesser than or equal to $1.00, the minimum amount of price improvement required is $0.01 for NMS stocks and the lesser of $0.01 or one-half (1/2) of the current inside spread for OTC equity securities
II. For customer limit orders priced greater than or equal to $0.01 and less than $1.00, the minimum amount of price improvement required is the lesser of $0.01 or one-half (1/2) of the current inside spread
III. For customer limit orders priced less than $0.01 but greater than or equal to $0.001, the minimum amount of price improvement required is the lesser of $0.001 or one-half (1/2) of the current inside spread
IV. For customer limit orders priced less than $0.001 but greater than or equal to $0.0001, the minimum amount of price improvement required is the lesser of $0.0001 or one-half (1/2) of the current inside spread
Question 2 of 10
2. Question
Which of the following is correct?
The term Qualified OTC Market Maker in an over-the-counter (“OTC”) margin security means a dealer in any “OTC Margin Security” (as that term is defined in section 2(j) of Regulation U (12 CFR 221.2(j)) who (1) is a broker or dealer registered pursuant to section 15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as defined in Rule 15c3-1, of the lesser of (i) $250,000 or (ii) $25,000 plus $5,000 for each security in excess of five with regard to which the broker or dealer is, or is seeking to become a Qualified OTC Market Maker, and (4) except when such activity is unlawful, meets all of the following conditions with respect to such security:
I. He regularly publishes bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system
II. He furnishes bona fide, competitive bid and offer quotations to other brokers and dealers on request, (iii) he is ready, willing and able to effect transactions in reasonable amounts, and at his quoted prices, with other brokers and dealers
III. He has a reasonable average rate of inventory turnover in such security
IV. He sells the shares comprising the block as rapidly as possible commensurate with the circumstances
Correct
SEA Rule 3b-8 — Qualified Block Positioner
(a) The term Qualified OTC Market Maker in an over-the-counter (“OTC”) margin security means a dealer in any “OTC Margin Security” (as that term is defined in section 2(j) of Regulation U (12 CFR 221.2(j)) who (1) is a broker or dealer registered pursuant to section 15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as defined in Rule 15c3-1, of the lesser of (i) $250,000 or (ii) $25,000 plus $5,000 for each security in excess of five with regard to which the broker or dealer is, or is seeking to become a Qualified OTC Market Maker, and (4) except when such activity is unlawful, meets all of the following conditions with respect to such security: (i) He regularly publishes bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system, (ii) he furnishes bona fide, competitive bid and offer quotations to other brokers and dealers on request, (iii) he is ready, willing and able to effect transactions in reasonable amounts, and at his quoted prices, with other brokers and dealers, and (iv) he has a reasonable average rate of inventory turnover in such security.
Incorrect
SEA Rule 3b-8 — Qualified Block Positioner
(a) The term Qualified OTC Market Maker in an over-the-counter (“OTC”) margin security means a dealer in any “OTC Margin Security” (as that term is defined in section 2(j) of Regulation U (12 CFR 221.2(j)) who (1) is a broker or dealer registered pursuant to section 15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as defined in Rule 15c3-1, of the lesser of (i) $250,000 or (ii) $25,000 plus $5,000 for each security in excess of five with regard to which the broker or dealer is, or is seeking to become a Qualified OTC Market Maker, and (4) except when such activity is unlawful, meets all of the following conditions with respect to such security: (i) He regularly publishes bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system, (ii) he furnishes bona fide, competitive bid and offer quotations to other brokers and dealers on request, (iii) he is ready, willing and able to effect transactions in reasonable amounts, and at his quoted prices, with other brokers and dealers, and (iv) he has a reasonable average rate of inventory turnover in such security.
Question 3 of 10
3. 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 4 of 10
4. Question
Each confirmation or comparison covering a contract in a “when, as and if issued” or “when, as and if distributed” security shall, at a minimum, contain which of the following?
I. An adequate description of the security and the plan, if any, under which the security is proposed to be issued or distributed
II. Demographic information of the board of directors
III. Designation of FINRA as the authority which shall rule upon the performance of the contract
IV. Provision for marking the contract to the market
Correct
FINRA/Nasdaq Uniform Practice Codes
11130. When, As and If Issued/Distributed Contracts
(2) Each confirmation or comparison covering a contract in a “when, as and if issued” or “when, as and if distributed” security shall, at a minimum, contain:
(A) an adequate description of the security and the plan, if any, under which the security is proposed to be issued or distributed;
(B) designation of FINRA as the authority which shall rule upon the performance of the contract; and
(C) provision for marking the contract to the market.
Incorrect
FINRA/Nasdaq Uniform Practice Codes
11130. When, As and If Issued/Distributed Contracts
(2) Each confirmation or comparison covering a contract in a “when, as and if issued” or “when, as and if distributed” security shall, at a minimum, contain:
(A) an adequate description of the security and the plan, if any, under which the security is proposed to be issued or distributed;
(B) designation of FINRA as the authority which shall rule upon the performance of the contract; and
(C) provision for marking the contract to the market.
Question 5 of 10
5. Question
Which of the following refer to NASDAQ Stock Market, LLC other than any facilities operated by The NASDAQ Stock Market, LLC on behalf of FINRA?
Correct
FINRA Alternative Display Facility (ADF) Rule 6200 Series
6220. Definitions
“Nasdaq” means the NASDAQ Stock Market, LLC other than any facilities operated by The NASDAQ Stock Market, LLC on behalf of FINRA.
Incorrect
FINRA Alternative Display Facility (ADF) Rule 6200 Series
6220. Definitions
“Nasdaq” means the NASDAQ Stock Market, LLC other than any facilities operated by The NASDAQ Stock Market, LLC on behalf of FINRA.
Question 6 of 10
6. Question
Which of the following refers to the display of a bid for an NMS stock at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is higher than the price of an offer for such NMS stock previously disseminated pursuant to an effective NMS Plan, or the display of an offer for an NMS stock at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is lower than the price of a bid for such NMS stock previously disseminated pursuant to an effective NMS Plan?
Correct
FINRA Rule 6240. Prohibition from Locking or Crossing Quotations in NMS Stocks
The term crossing quotation shall mean the display of a bid for an NMS stock at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is higher than the price of an offer for such NMS stock previously disseminated pursuant to an effective NMS Plan, or the display of an offer for an NMS stock at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is lower than the price of a bid for such NMS stock previously disseminated pursuant to an effective NMS Plan.
Incorrect
FINRA Rule 6240. Prohibition from Locking or Crossing Quotations in NMS Stocks
The term crossing quotation shall mean the display of a bid for an NMS stock at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is higher than the price of an offer for such NMS stock previously disseminated pursuant to an effective NMS Plan, or the display of an offer for an NMS stock at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is lower than the price of a bid for such NMS stock previously disseminated pursuant to an effective NMS Plan.
Question 7 of 10
7. Question
No member or person associated with a member shall accept any payment or other consideration, directly or indirectly, from an issuer of a security, or any affiliate or promoter thereof, for publishing a quotation, acting as market maker in a security, or submitting an application in connection therewith. However, a member will not be precluded from accepting which of the following?
I. Public offerings
II. Payment for bona fide services, including, but not limited to, investment banking services (including underwriting compensation and fees)
III. Reimbursement of any payment for registration imposed by the SEC or state regulatory authorities and for listing of an issue of securities imposed by a self-regulatory organization
IV. Any payment expressly provided for under the rules of a national securities exchange that are effective after being filed with, or filed with and approved by, the SEC pursuant to the requirements of the Exchange Act
Correct
FINRA Rule 5250. Payments for Market Making
(a) No member or person associated with a member shall accept any payment or other consideration, directly or indirectly, from an issuer of a security, or any affiliate or promoter thereof, for publishing a quotation, acting as market maker in a security, or submitting an application in connection therewith.
(b) The provisions of paragraph (a) shall not preclude a member from accepting:
(1) payment for bona fide services, including, but not limited to, investment banking services (including underwriting compensation and fees);
(2) reimbursement of any payment for registration imposed by the SEC or state regulatory authorities and for listing of an issue of securities imposed by a self-regulatory organization; and
(3) any payment expressly provided for under the rules of a national securities exchange that are effective after being filed with, or filed with and approved by, the SEC pursuant to the requirements of the Exchange Act.
Incorrect
FINRA Rule 5250. Payments for Market Making
(a) No member or person associated with a member shall accept any payment or other consideration, directly or indirectly, from an issuer of a security, or any affiliate or promoter thereof, for publishing a quotation, acting as market maker in a security, or submitting an application in connection therewith.
(b) The provisions of paragraph (a) shall not preclude a member from accepting:
(1) payment for bona fide services, including, but not limited to, investment banking services (including underwriting compensation and fees);
(2) reimbursement of any payment for registration imposed by the SEC or state regulatory authorities and for listing of an issue of securities imposed by a self-regulatory organization; and
(3) any payment expressly provided for under the rules of a national securities exchange that are effective after being filed with, or filed with and approved by, the SEC pursuant to the requirements of the Exchange Act.
Question 8 of 10
8. Question
Which of the following refers to a document under the federal securities laws that is transmitted or delivered to the Commission in electronic format?
Correct
Subpart A—Rules and Regulations Under the Securities Exchange Act of 1934
Rules of General Application: Definitions
The term electronic filing means a document under the federal securities laws that is transmitted or delivered to the Commission in electronic format.
Incorrect
Subpart A—Rules and Regulations Under the Securities Exchange Act of 1934
Rules of General Application: Definitions
The term electronic filing means a document under the federal securities laws that is transmitted or delivered to the Commission in electronic format.
Question 9 of 10
9. Question
Which of the following refer to the amount, expressed as a percentage of the security’s conversion value, by which the price at issuance of a convertible security exceeds its conversion value?
Correct
Securities Act of 1933 (Securities Act)
Securities Act Rule 144A — Private Resales of Securities to Institutions:
For purposes of this section, effective conversion premium means the amount, expressed as a percentage of the security’s conversion value, by which the price at issuance of a convertible security exceeds its conversion value.
Incorrect
Securities Act of 1933 (Securities Act)
Securities Act Rule 144A — Private Resales of Securities to Institutions:
For purposes of this section, effective conversion premium means the amount, expressed as a percentage of the security’s conversion value, by which the price at issuance of a convertible security exceeds its conversion value.
Question 10 of 10
10. Question
Which of the following member that is a covered security subject to Rule 101 or 102 of SEC Regulation M and is entering quotations in such security shall, unless another member has assumed responsibility in writing for compliance with this Rule:
(1) withdraw all quotations in the OTC Equity Security to comply with the applicable restricted period under Rule 101 or 102 of SEC Regulation M; and
(2) not enter a stabilizing bid for the OTC Equity Security pursuant to Rule 104 of SEC Regulation M.
I. Financial adviser
II. A distribution participant
III. Affiliated purchaser
IV. Selling security holder
Correct
6435. Withdrawal of Quotations in an OTC Equity Security in Compliance with SEC Regulation M
(a) A member that is a distribution participant, affiliated purchaser, selling security holder or issuer in a distribution of an OTC Equity Security that is a covered security subject to Rule 101 or 102 of SEC Regulation M and is entering quotations in such security shall, , unless another member has assumed responsibility in writing for compliance with this Rule:
(1) withdraw all quotations in the OTC Equity Security to comply with the applicable restricted period under Rule 101 or 102 of SEC Regulation M; and
(2) not enter a stabilizing bid for the OTC Equity Security pursuant to Rule 104 of SEC Regulation M.
Incorrect
6435. Withdrawal of Quotations in an OTC Equity Security in Compliance with SEC Regulation M
(a) A member that is a distribution participant, affiliated purchaser, selling security holder or issuer in a distribution of an OTC Equity Security that is a covered security subject to Rule 101 or 102 of SEC Regulation M and is entering quotations in such security shall, , unless another member has assumed responsibility in writing for compliance with this Rule:
(1) withdraw all quotations in the OTC Equity Security to comply with the applicable restricted period under Rule 101 or 102 of SEC Regulation M; and
(2) not enter a stabilizing bid for the OTC Equity Security pursuant to Rule 104 of SEC Regulation M.
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