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Question 1 of 10
1. Question
Which of the following statements is true regarding Selling dividends, withholding orders, and a refund of sales charges?
Correct
Selling dividends, withholding orders, and a refund of sales charges
“Selling dividends” means stating or implying that the purchase of a given security shortly before an ex-dividend date is advantageous to the purchaser, unless there are specific, clearly described tax advantages to the purchaser. This practice is prohibited under NASD Rule 2830. “Withholding orders,” in which a member withholds placing a customer’s order for his own profit, is prohibited under the rule. A “refund of sales charges” is required if a security issued by an open-end management company is repurchased by the issuer or the issuer’s underwriter or is tendered for redemption within seven business days of the original transaction. The broker or dealer must refund the full dealer concession to the underwriter and the underwriter must pay back to the issuer the underwriter’s share of the sales charge.Incorrect
Selling dividends, withholding orders, and a refund of sales charges
“Selling dividends” means stating or implying that the purchase of a given security shortly before an ex-dividend date is advantageous to the purchaser, unless there are specific, clearly described tax advantages to the purchaser. This practice is prohibited under NASD Rule 2830. “Withholding orders,” in which a member withholds placing a customer’s order for his own profit, is prohibited under the rule. A “refund of sales charges” is required if a security issued by an open-end management company is repurchased by the issuer or the issuer’s underwriter or is tendered for redemption within seven business days of the original transaction. The broker or dealer must refund the full dealer concession to the underwriter and the underwriter must pay back to the issuer the underwriter’s share of the sales charge. -
Question 2 of 10
2. Question
Which of the following statements is true regarding Restrictions on member compensation for the sale of Investment Company securities?
Correct
Restrictions on member compensation for the sale of Investment Company securities
FINRA Rule 2830 provides for certain restrictions and limitations on the circumstances and types of compensation that can be paid to members and
associated persons for the sale of investment company securities, as follows:
1. No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated.
2. No member or person associated with a member shall accept any compensation from an offeror in the form of securities.
3. Members are obligated to maintain records of all compensation received by the member or its associated persons and such records shall include the
names of the offerors, names of the associated persons, and amounts of cash and non-cash compensation.
4. No member shall accept any cash compensation from an offeror unless it is described in a current prospectus of the investment company.Incorrect
Restrictions on member compensation for the sale of Investment Company securities
FINRA Rule 2830 provides for certain restrictions and limitations on the circumstances and types of compensation that can be paid to members and
associated persons for the sale of investment company securities, as follows:
1. No associated person of a member shall accept any compensation from anyone other than the member with which the person is associated.
2. No member or person associated with a member shall accept any compensation from an offeror in the form of securities.
3. Members are obligated to maintain records of all compensation received by the member or its associated persons and such records shall include the
names of the offerors, names of the associated persons, and amounts of cash and non-cash compensation.
4. No member shall accept any cash compensation from an offeror unless it is described in a current prospectus of the investment company. -
Question 3 of 10
3. Question
Which of the following statements is false regarding Securities Act of 1933?
Correct
Securities Act of 1933
As provided by the Securities Exchange Commission (SEC), the two objectives of the Securities Act of 1933 are to (i) “require that investors receive financial and other significant information concerning securities being offered for public sale” and (ii) “prohibit deceit, misrepresentations, and other fraud in the sale of securities.” Issuing companies can meet these requirements by registering their securities. Registration requires that a company accurately disclose all relevant information concerning the business, the security being offered, company management, and the company’s financial position. Without registration, it would be much more difficult for an investor to obtain all of the relevant information needed to make a sound and informed decision.Incorrect
Securities Act of 1933
As provided by the Securities Exchange Commission (SEC), the two objectives of the Securities Act of 1933 are to (i) “require that investors receive financial and other significant information concerning securities being offered for public sale” and (ii) “prohibit deceit, misrepresentations, and other fraud in the sale of securities.” Issuing companies can meet these requirements by registering their securities. Registration requires that a company accurately disclose all relevant information concerning the business, the security being offered, company management, and the company’s financial position. Without registration, it would be much more difficult for an investor to obtain all of the relevant information needed to make a sound and informed decision. -
Question 4 of 10
4. Question
Which of the following statements is false regarding SEC?
Correct
SEC
The Securities Exchange Act of 1934 was responsible for the creation of the Securities and Exchange Commission (SEC). As stated by the SEC, their mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The SEC accomplishes these objectives by interpreting federal securities laws in order to issue new rules and amend existing rules. Additionally, the SEC plays a critical role in overseeing the inspection of securities firms, brokers, investment advisers, and ratings agencies as well as private regulatory organizations in the fields of securities, accounting, and auditing. The SEC is also responsible for coordinating the regulation of securities across the federal state and foreign regulatory bodies.Incorrect
SEC
The Securities Exchange Act of 1934 was responsible for the creation of the Securities and Exchange Commission (SEC). As stated by the SEC, their mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The SEC accomplishes these objectives by interpreting federal securities laws in order to issue new rules and amend existing rules. Additionally, the SEC plays a critical role in overseeing the inspection of securities firms, brokers, investment advisers, and ratings agencies as well as private regulatory organizations in the fields of securities, accounting, and auditing. The SEC is also responsible for coordinating the regulation of securities across the federal state and foreign regulatory bodies. -
Question 5 of 10
5. Question
Which of the following statements is not included in Section 10 of the Securities Exchange Act of 1934?
Correct
Section 10 of the Securities Exchange Act of 1934
Section 10 of the Securities Exchange Act of 1934, and specifically Rule 10b-5, state that it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of a national securities exchange,
i. To employ any device, scheme, or artifice to defraud,
ii. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
iii. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any personIncorrect
Section 10 of the Securities Exchange Act of 1934
Section 10 of the Securities Exchange Act of 1934, and specifically Rule 10b-5, state that it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of a national securities exchange,
i. To employ any device, scheme, or artifice to defraud,
ii. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
iii. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person -
Question 6 of 10
6. Question
Which of the following statements is true regarding Investment Company Act of 1940?
Correct
Investment Company Act of 1940
The Investment Company Act of 1940 intends to regulate investment companies, as such companies are considered to:
1. Issue securities through interstate commerce, which represent a large portion of all securities offered and traded and the national securities
exchanges
2. Invest, reinvest, and trade securities through the national securities exchanges and interstate commerce, which comprises a significant portion of
all trading activity
3. Invest and trade in significant portions of securities issued by companies who engage in interstate commerce
4. Act as a potential investment for a substantial part of the national savings, which impacts the national economy and the flow of savings into the capital markets
5. Engage in activities of interstate commerce across a geographically diverse group of stakeholders, which cannot be effectively governed through state
regulationsIncorrect
Investment Company Act of 1940
The Investment Company Act of 1940 intends to regulate investment companies, as such companies are considered to:
1. Issue securities through interstate commerce, which represent a large portion of all securities offered and traded and the national securities
exchanges
2. Invest, reinvest, and trade securities through the national securities exchanges and interstate commerce, which comprises a significant portion of
all trading activity
3. Invest and trade in significant portions of securities issued by companies who engage in interstate commerce
4. Act as a potential investment for a substantial part of the national savings, which impacts the national economy and the flow of savings into the capital markets
5. Engage in activities of interstate commerce across a geographically diverse group of stakeholders, which cannot be effectively governed through state
regulations -
Question 7 of 10
7. Question
Which of the following statements is true regarding Investment company?
Correct
Investment company
“Investment company” is defined within the Investment Company Act of 1940 to mean any issuer that meets one of the following criteria:
1. Is or holds itself out as being engaged primarily or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities
2. Is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and
has any such certificate outstanding
3. Is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire
investment securities having a value exceeding 40 percent of the value of such issuer’s total assets (exclusive of government securities and cash items)
on an unconsolidated basis.Incorrect
Investment company
“Investment company” is defined within the Investment Company Act of 1940 to mean any issuer that meets one of the following criteria:
1. Is or holds itself out as being engaged primarily or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities
2. Is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and
has any such certificate outstanding
3. Is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire
investment securities having a value exceeding 40 percent of the value of such issuer’s total assets (exclusive of government securities and cash items)
on an unconsolidated basis. -
Question 8 of 10
8. Question
Which of the following statements is false regarding the Investment Company Act of 1940?
Correct
The three principal classes of investment companies as provided in the Investment Company Act of 1940 are as follows:
1. Face-amount certificate company: an investment company that is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or which has been engaged in such business and has any such certificate outstanding.
2. Unit investment trust: an investment company that (A) is organized under a trust indenture, contract of custodianship or agency, or similar instrument,
(B) does not have a Board of Directors, and (C) issues only redeemable securities, each of which represents an undivided interest in a unit of
specified securities; but does not include a voting trust.
3. Management company: any investment company other than a face-amount certificate company or a unit investment trust.Incorrect
The three principal classes of investment companies as provided in the Investment Company Act of 1940 are as follows:
1. Face-amount certificate company: an investment company that is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or which has been engaged in such business and has any such certificate outstanding.
2. Unit investment trust: an investment company that (A) is organized under a trust indenture, contract of custodianship or agency, or similar instrument,
(B) does not have a Board of Directors, and (C) issues only redeemable securities, each of which represents an undivided interest in a unit of
specified securities; but does not include a voting trust.
3. Management company: any investment company other than a face-amount certificate company or a unit investment trust. -
Question 9 of 10
9. Question
Which of the following statements is true regarding classification of Management companies?
Correct
Management companies are classified as diversified when the following three conditions are met:
1. At least 75 percent of the company’s total assets are comprised of cash, government securities, and securities of other investment companies.
2. Securities from any one issuer do not represent more than 5 percent of the management company’s total assets.
3. Any securities held by the management company do not represent more than 10 percent of the outstanding voting securities of a given issuer.Incorrect
Management companies are classified as diversified when the following three conditions are met:
1. At least 75 percent of the company’s total assets are comprised of cash, government securities, and securities of other investment companies.
2. Securities from any one issuer do not represent more than 5 percent of the management company’s total assets.
3. Any securities held by the management company do not represent more than 10 percent of the outstanding voting securities of a given issuer. -
Question 10 of 10
10. Question
Which of the following statements is false regarding Exemptions from registration?
Correct
Exemptions from registration
The Investment Company Act of 1940 provides for five types of companies that are exempt from registration, including:
1. Any company organized or created and having its principal office and place of business in Puerto Rico, the Virgin Islands, or any other possession of the United States.
2. Any company that has gone through a reorganization in the prior five years if (i) the company was not an investment company at the onset of the reorganization, (ii) at the conclusion of the reorganization all outstanding securities were owned by creditors, and (iii) 50 percent or more of the
outstanding voting securities are owned by no more than 25 persons.
3. Any issuer for which there is an outstanding writing filed with the Commission by the Federal Savings and Loan Insurance Corporation stating
that the exemption is consistent with the public interest and the protection of investors.
4. Any wholly owned subsidiary of a face-amount certificate company organized prior to 1940 and subject to the state insurance laws of the state in
which it is organized.
5. Any company that is not engaged in the business of issuing redeemable securities.Incorrect
Exemptions from registration
The Investment Company Act of 1940 provides for five types of companies that are exempt from registration, including:
1. Any company organized or created and having its principal office and place of business in Puerto Rico, the Virgin Islands, or any other possession of the United States.
2. Any company that has gone through a reorganization in the prior five years if (i) the company was not an investment company at the onset of the reorganization, (ii) at the conclusion of the reorganization all outstanding securities were owned by creditors, and (iii) 50 percent or more of the
outstanding voting securities are owned by no more than 25 persons.
3. Any issuer for which there is an outstanding writing filed with the Commission by the Federal Savings and Loan Insurance Corporation stating
that the exemption is consistent with the public interest and the protection of investors.
4. Any wholly owned subsidiary of a face-amount certificate company organized prior to 1940 and subject to the state insurance laws of the state in
which it is organized.
5. Any company that is not engaged in the business of issuing redeemable securities.