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Question 1 of 10
1. Question
FINRA Rule 5270. Front Running of Block Transactions
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:
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 orders
Correct
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.
Incorrect
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 2 of 10
2. Question
Indirect Beneficial Owners. For the purposes of Rule 5131(b), a member may rely upon a written representation obtained within the prior 12 months from a person authorized to represent an account that does not look through to the beneficial owners of any unaffiliated private fund invested in the account, except for beneficial owners that are control persons of the investment adviser to such private fund, that such unaffiliated private fund:
I. Is managed by an investment adviser
II. Has assets greater than $50 million
III. Owns more than 25% of the account and is not a fund in which a single investor has a beneficial interest of 25% or more
IV. Was not formed for the specific purpose of investing in the account.
Correct
FINRA Rule 5131. New Issue Allocations and Distributions
Indirect Beneficial Owners. For the purposes of Rule 5131(b), a member may rely upon a written representation obtained within the prior 12 months from a person authorized to represent an account that does not look through to the beneficial owners of any unaffiliated private fund invested in the account, except for beneficial owners that are control persons of the investment adviser to such private fund, that such unaffiliated private fund:
(1) is managed by an investment adviser;
(2) has assets greater than $50 million;
(3) owns less than 25% of the account and is not a fund in which a single investor has a beneficial interest of 25% or more; and
(4) was not formed for the specific purpose of investing in the account.
Incorrect
FINRA Rule 5131. New Issue Allocations and Distributions
Indirect Beneficial Owners. For the purposes of Rule 5131(b), a member may rely upon a written representation obtained within the prior 12 months from a person authorized to represent an account that does not look through to the beneficial owners of any unaffiliated private fund invested in the account, except for beneficial owners that are control persons of the investment adviser to such private fund, that such unaffiliated private fund:
(1) is managed by an investment adviser;
(2) has assets greater than $50 million;
(3) owns less than 25% of the account and is not a fund in which a single investor has a beneficial interest of 25% or more; and
(4) was not formed for the specific purpose of investing in the account.
Question 3 of 10
3. Question
Proposed Rule 15g-1 would exempt which of the following selected transactions from the proposed disclosure obligations to customers?
1. Transactions in penny stocks by a broker-dealer that does less than 5 percent of its securities business in penny stocks and that has not been a market maker, during the past year, in the penny stock that is the subject of the transactions
II. Transactions in securities the issuer of which has net tangible assets exceeding $1 million, if that issuer has been in continuous operation for at least three years, or $4 million, if the issuer has been in continuous operation for less than three years
III. Transactions in securities where the customer is an institutional accredited investor
IV. Transactions that are not recommended by the broker-dealer
Correct
Proposed SEC Rule 15g-1 (Exemptions)
Proposed Rule 15g-1 would exempt selected transactions from the proposed disclosure obligations to customers as follows: (1) transactions in penny stocks by a broker-dealer that does less than 5 percent of its securities business in penny stocks and that has not been a market maker, during the past year, in the penny stock that is the subject of the transactions; (2) transactions in securities the issuer of which has net tangible assets exceeding $2 million, if that issuer has been in continuous operation for at least three years, or $5 million, if the issuer has been in continuous operation for less than three years; (3) transactions in securities where the customer is an institutional accredited investor; (4) transactions that are not recommended by the broker-dealer; and (5) transactions in which the purchaser is the issuer of the penny stock that is the subject of the transaction.
Incorrect
Proposed SEC Rule 15g-1 (Exemptions)
Proposed Rule 15g-1 would exempt selected transactions from the proposed disclosure obligations to customers as follows: (1) transactions in penny stocks by a broker-dealer that does less than 5 percent of its securities business in penny stocks and that has not been a market maker, during the past year, in the penny stock that is the subject of the transactions; (2) transactions in securities the issuer of which has net tangible assets exceeding $2 million, if that issuer has been in continuous operation for at least three years, or $5 million, if the issuer has been in continuous operation for less than three years; (3) transactions in securities where the customer is an institutional accredited investor; (4) transactions that are not recommended by the broker-dealer; and (5) transactions in which the purchaser is the issuer of the penny stock that is the subject of the transaction.
Question 4 of 10
4. Question
Which of the following refer to any member of FINRA in good standing that uses the OTC Reporting Facility?
Correct
FINRA Rule 6420. Definitions
“OTC Reporting Facility Participant” means any member of FINRA in good standing that uses the OTC Reporting Facility.
Incorrect
FINRA Rule 6420. Definitions
“OTC Reporting Facility Participant” means any member of FINRA in good standing that uses the OTC Reporting Facility.
Question 5 of 10
5. Question
What are the full size of each customer limit order held by the OTC Market Maker?
I. Is priced equal to the bid or offer of such OTC Market Maker for such security
II. Is priced equal to the best bid or best offer of the inter-dealer quotation system in which the OTC Market Maker is quoting
III. Represents more than a de minimis change in relation to the size associated with the OTC Market Maker’s bid or offer
IV. Block size order, unless a customer placing such order requests that the order be displayed
Correct
FINRA Rule 6460. Display of Customer Limit Orders
he full size of each customer limit order held by the OTC Market Maker that:
(A) Is priced equal to the bid or offer of such OTC Market Maker for such security;
(B) Is priced equal to the best bid or best offer of the inter-dealer quotation system in which the OTC Market Maker is quoting; and
(C) Represents more than a de minimis change in relation to the size associated with the OTC Market Maker’s bid or offer.
Incorrect
FINRA Rule 6460. Display of Customer Limit Orders
he full size of each customer limit order held by the OTC Market Maker that:
(A) Is priced equal to the bid or offer of such OTC Market Maker for such security;
(B) Is priced equal to the best bid or best offer of the inter-dealer quotation system in which the OTC Market Maker is quoting; and
(C) Represents more than a de minimis change in relation to the size associated with the OTC Market Maker’s bid or offer.
Question 6 of 10
6. Question
Unless otherwise indicated, which of the following order information must be recorded under this Rule when an order is received or originated? For purposes of this Rule, the order origination or receipt time is the time the order is received from the customer.
I. Handling fees, specified by FINRA for purposes of this Rule
II. Any limit or stop price prescribed in the order;
III. The date on which the order expires, and, if the time in force is less than one day, the time when the order expires
IV. The time limit during which the order is in force
Correct
FINRA Rule 7440. Recording of Order Information
Unless otherwise indicated, the following order information must be recorded under this Rule when an order is received or originated. For purposes of this Rule, the order origination or receipt time is the time the order is received from the customer.
I. Any limit or stop price prescribed in the order;
II. The date on which the order expires, and, if the time in force is less than one day, the time when the order expires
III. The time limit during which the order is in force
Incorrect
FINRA Rule 7440. Recording of Order Information
Unless otherwise indicated, the following order information must be recorded under this Rule when an order is received or originated. For purposes of this Rule, the order origination or receipt time is the time the order is received from the customer.
I. Any limit or stop price prescribed in the order;
II. The date on which the order expires, and, if the time in force is less than one day, the time when the order expires
III. The time limit during which the order is in force
Question 7 of 10
7. Question
Which of the following refers to means a market for a security of an issuer that has been reporting under the Exchange Act for at least 90 days and is current in its reporting requirements, and whose securities are traded on a national securities exchange with an Average Daily Trading Volume (as provided by SEC Regulation M) of at least $1 million, provided that the issuer’s common equity securities have a public float value of at least $150 million?
Correct
FINRA Rule 5121. Public Offerings of Securities With Conflicts of Interest
The term “bona fide public market” means a market for a security of an issuer that has been reporting under the Exchange Act for at least 90 days and is current in its reporting requirements, and whose securities are traded on a national securities exchange with an Average Daily Trading Volume (as provided by SEC Regulation M) of at least $1 million, provided that the issuer’s common equity securities have a public float value of at least $150 million.
Incorrect
FINRA Rule 5121. Public Offerings of Securities With Conflicts of Interest
The term “bona fide public market” means a market for a security of an issuer that has been reporting under the Exchange Act for at least 90 days and is current in its reporting requirements, and whose securities are traded on a national securities exchange with an Average Daily Trading Volume (as provided by SEC Regulation M) of at least $1 million, provided that the issuer’s common equity securities have a public float value of at least $150 million.
Question 8 of 10
8. Question
Which of the following correctly describe the the term “control”?
I. Beneficial ownership of 20 percent or more of the outstanding common equity of an entity, including any right to receive such securities within 60 days of the member’s participation in the public offering
II. The right to 10 percent or more of the distributable profits or losses of an entity that is a partnership, including any right to receive an interest in such distributable profits or losses within 60 days of the member’s participation in the public offering
III. Beneficial ownership of 10 percent or more of the outstanding preferred equity of an entity, including any right to receive such preferred equity within 60 days of the member’s participation in the public offering
IV. The power to direct or cause the direction of the management or policies of an entity
Correct
FINRA Rule 5121. Public Offerings of Securities With Conflicts of Interest
(6) Control
(A) The term “control” means:
(i) beneficial ownership of 10 percent or more of the outstanding common equity of an entity, including any right to receive such securities within 60 days of the member’s participation in the public offering;
(ii) the right to 10 percent or more of the distributable profits or losses of an entity that is a partnership, including any right to receive an interest in such distributable profits or losses within 60 days of the member’s participation in the public offering;
(iii) beneficial ownership of 10 percent or more of the outstanding preferred equity of an entity, including any right to receive such preferred equity within 60 days of the member’s participation in the public offering; or
(iv) the power to direct or cause the direction of the management or policies of an entity.
Incorrect
FINRA Rule 5121. Public Offerings of Securities With Conflicts of Interest
(6) Control
(A) The term “control” means:
(i) beneficial ownership of 10 percent or more of the outstanding common equity of an entity, including any right to receive such securities within 60 days of the member’s participation in the public offering;
(ii) the right to 10 percent or more of the distributable profits or losses of an entity that is a partnership, including any right to receive an interest in such distributable profits or losses within 60 days of the member’s participation in the public offering;
(iii) beneficial ownership of 10 percent or more of the outstanding preferred equity of an entity, including any right to receive such preferred equity within 60 days of the member’s participation in the public offering; or
(iv) the power to direct or cause the direction of the management or policies of an entity.
Question 9 of 10
9. Question
Which of the following refer to an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member in connection with an offering when the securities originally sold by the syndicate member are purchased in syndicate covering transactions?
Correct
FINRA Rule 5131. New Issue Allocations and Distributions
“Penalty bid” means an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member in connection with an offering when the securities originally sold by the syndicate member are purchased in syndicate covering transactions.
Incorrect
FINRA Rule 5131. New Issue Allocations and Distributions
“Penalty bid” means an arrangement that permits the managing underwriter to reclaim a selling concession from a syndicate member in connection with an offering when the securities originally sold by the syndicate member are purchased in syndicate covering transactions.
Question 10 of 10
10. Question
No member or person associated with a member may allocate shares of a new issue to any account in which an executive officer or director of a public company or a covered non-public company, or a person materially supported by such executive officer or director, has a beneficial interest:
I. A regular report of indications of interest, including the names of interested institutional investors and the number of shares indicated by each, as reflected in the book-running lead manager’s book of potential institutional orders, and a report of aggregate demand from retail investors
II. If the company is currently an investment banking services client of the member or the member has received compensation from the company for investment banking services in the past 12 months
III. If the person responsible for making the allocation decision knows or has reason to know that the member intends to provide, or expects to be retained by the company for, investment banking services within the next 3 months
IV. n the express or implied condition that such executive officer or director, on behalf of the company, will retain the member for the performance of future investment banking services
Correct
FINRA Rule 5131. New Issue Allocations and Distributions
(b) Spinning
(1) No member or person associated with a member may allocate shares of a new issue to any account in which an executive officer or director of a public company or a covered non-public company, or a person materially supported by such executive officer or director, has a beneficial interest:
(A) if the company is currently an investment banking services client of the member or the member has received compensation from the company for investment banking services in the past 12 months;
(B) if the person responsible for making the allocation decision knows or has reason to know that the member intends to provide, or expects to be retained by the company for, investment banking services within the next 3 months; or
(C) on the express or implied condition that such executive officer or director, on behalf of the company, will retain the member for the performance of future investment banking services.
Incorrect
FINRA Rule 5131. New Issue Allocations and Distributions
(b) Spinning
(1) No member or person associated with a member may allocate shares of a new issue to any account in which an executive officer or director of a public company or a covered non-public company, or a person materially supported by such executive officer or director, has a beneficial interest:
(A) if the company is currently an investment banking services client of the member or the member has received compensation from the company for investment banking services in the past 12 months;
(B) if the person responsible for making the allocation decision knows or has reason to know that the member intends to provide, or expects to be retained by the company for, investment banking services within the next 3 months; or
(C) on the express or implied condition that such executive officer or director, on behalf of the company, will retain the member for the performance of future investment banking services.
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