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Question 1 of 10
1. 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 2 of 10
2. 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 agent
Correct
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 3 of 10
3. Question
All transactions, except “cash” transactions, in bonds or similar evidences of indebtedness which are traded “flat” shall be “ex-interest” as prescribed by which of the following provisions?
I. On the first business day preceding liquidating payments or payments on account of principal in accordance with the formula set forth in Rules 11140 and 11150
II. On the second business day preceding the record date if the record date falls on a day other than a business day
III. On the second business day preceding the date on which an interest payment is to be made if no record date has been fixed
IV. On the first business day preceding the record date if the record date falls on a business day
Correct
FINRA Rule 11150. Transactions “Ex-Interest” in Bonds Which Are Dealt in “Flat”
(a) Normal Ex-Interest Dates
All transactions, except “cash” transactions, in bonds or similar evidences of indebtedness which are traded “flat” shall be “ex-interest” as prescribed by the following provisions:
(1) On the first business day preceding the record date if the record date falls on a business day.
(2) On the second business day preceding the record date if the record date falls on a day other than a business day.
(3) On the second business day preceding the date on which an interest payment is to be made if no record date has been fixed.
Incorrect
FINRA Rule 11150. Transactions “Ex-Interest” in Bonds Which Are Dealt in “Flat”
(a) Normal Ex-Interest Dates
All transactions, except “cash” transactions, in bonds or similar evidences of indebtedness which are traded “flat” shall be “ex-interest” as prescribed by the following provisions:
(1) On the first business day preceding the record date if the record date falls on a business day.
(2) On the second business day preceding the record date if the record date falls on a day other than a business day.
(3) On the second business day preceding the date on which an interest payment is to be made if no record date has been fixed.
Question 4 of 10
4. Question
Which of the following refer to any order for withholding or garnishment of pay issued by an agency, or judicial or administrative body?
Correct
PART 204—RULES RELATING TO DEBT COLLECTION
204.62 Definitions.
Withholding order means any order for withholding or garnishment of pay issued by an agency, or judicial or administrative body. For purposes of this subpart, the terms “wage garnishment order” and “garnishment order” have the same meaning as “withholding order.”
Incorrect
PART 204—RULES RELATING TO DEBT COLLECTION
204.62 Definitions.
Withholding order means any order for withholding or garnishment of pay issued by an agency, or judicial or administrative body. For purposes of this subpart, the terms “wage garnishment order” and “garnishment order” have the same meaning as “withholding order.”
Question 5 of 10
5. Question
Which of the following information must be provided for each transaction that is reported to the System. Unless the contra side will have an opportunity to provide its own trade information, the Reporting Member is responsible for the complete and accurate submission of information for both sides of the trade?
I. Unit price, excluding commissions, mark-ups or mark-downs
II. Security identification symbol of the eligible security (SECID)
III. Number of shares
IV. Board composition
Correct
FINRA Rule 7300 — OTC Reporting Facility
7330. Trade Report Input
(d) Trade Information To Be Input
The information listed below must be provided for each transaction that is reported to the System. Unless the contra side will have an opportunity to provide its own trade information, the Reporting Member is responsible for the complete and accurate submission of information for both sides of the trade.
(1) Security identification symbol of the eligible security (SECID);
(2) Number of shares;
(3) Unit price, excluding commissions, mark-ups or mark-downs
Incorrect
FINRA Rule 7300 — OTC Reporting Facility
7330. Trade Report Input
(d) Trade Information To Be Input
The information listed below must be provided for each transaction that is reported to the System. Unless the contra side will have an opportunity to provide its own trade information, the Reporting Member is responsible for the complete and accurate submission of information for both sides of the trade.
(1) Security identification symbol of the eligible security (SECID);
(2) Number of shares;
(3) Unit price, excluding commissions, mark-ups or mark-downs
Question 6 of 10
6. 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 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
What is the information should be included in each last sale report?
I. Stock symbol of the designated security
II. Demographic information of the directors
III. A symbol indicating whether the transaction is a buy, sell or cross, and if applicable, sell short or sell short exempt
IV. The time of execution expressed in hours, minutes and seconds based on Eastern Time in military format, unless another provision of FINRA rules requires that a different time be included in the report
Correct
FINRA Rule 6280
6282. Transactions Reported by Members to the ADF
(c) Information To Be Reported
Each last sale report shall contain the following information:
(1) Stock symbol of the designated security;
(2) Number of shares or bonds;
(3) Price of the transaction as required by paragraph (d) below;
(4) A symbol indicating whether the transaction is a buy, sell or cross, and if applicable, sell short or sell short exempt
(5)The time of execution expressed in hours, minutes and seconds based on Eastern Time in military format, unless another provision of FINRA rules requires that a different time be included in the report
Incorrect
FINRA Rule 6280
6282. Transactions Reported by Members to the ADF
(c) Information To Be Reported
Each last sale report shall contain the following information:
(1) Stock symbol of the designated security;
(2) Number of shares or bonds;
(3) Price of the transaction as required by paragraph (d) below;
(4) A symbol indicating whether the transaction is a buy, sell or cross, and if applicable, sell short or sell short exempt
(5)The time of execution expressed in hours, minutes and seconds based on Eastern Time in military format, unless another provision of FINRA rules requires that a different time be included in the report
Question 9 of 10
9. 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. These types of transactions may include which of the following?
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
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
Incorrect
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
Question 10 of 10
10. Question
Which of the following in regards to Participant Obligations is correct?
I. Participants shall commence participation in the System by initially contacting FINRA Market Operations to verify authorization for submitting trade data to the System for ADF-eligible securities
II. A Participant that is a self-clearing firm shall be obligated to accept and clear each trade that the System identifies as having been effected by that Participant
III. A Participant that is an introducing broker or a correspondent executing broker shall identify its clearing broker when it becomes a System participant and notify FINRA Market Operations if its clearing broker is to be changed; this will necessitate execution of a revised Participant Application Agreement
IV. Each Participant shall be obligated to inform FINRA of non-compliance with any of the participation requirements set forth above.
Correct
FINRA Rule 7120. Trade Reporting Participation Requirements
Participant Obligations
(A) Participants shall commence participation in the System by initially contacting FINRA Market Operations to verify authorization for submitting trade data to the System for ADF-eligible securities.
(B) A Participant that is a self-clearing firm shall be obligated to accept and clear each trade that the System identifies as having been effected by that Participant.
(C) A Participant that is an introducing broker or a correspondent executing broker shall identify its clearing broker when it becomes a System participant and notify FINRA Market Operations if its clearing broker is to be changed; this will necessitate execution of a revised Participant Application Agreement.
(D) If at any time a Participant (either the Reporting Party or contra party) fails to maintain a clearing arrangement, it shall be removed from the System, and be precluded from participation in ADF until such time as a clearing arrangement is reestablished and notice of such arrangement, with an amended Participant Application Agreement, is filed with FINRA.
Incorrect
FINRA Rule 7120. Trade Reporting Participation Requirements
Participant Obligations
(A) Participants shall commence participation in the System by initially contacting FINRA Market Operations to verify authorization for submitting trade data to the System for ADF-eligible securities.
(B) A Participant that is a self-clearing firm shall be obligated to accept and clear each trade that the System identifies as having been effected by that Participant.
(C) A Participant that is an introducing broker or a correspondent executing broker shall identify its clearing broker when it becomes a System participant and notify FINRA Market Operations if its clearing broker is to be changed; this will necessitate execution of a revised Participant Application Agreement.
(D) If at any time a Participant (either the Reporting Party or contra party) fails to maintain a clearing arrangement, it shall be removed from the System, and be precluded from participation in ADF until such time as a clearing arrangement is reestablished and notice of such arrangement, with an amended Participant Application Agreement, is filed with FINRA.
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