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Question 1 of 30
1. Question
How many additional days can a firm delay the reporting of a suspicious account/transaction if the suspect is unidentified?
Correct
FCMs and IBs can delay filing a SAR for 30 days if the firm has not yet identified the suspect involved the first day the firm became aware of the suspicious activity. The delay in filing a SAR is to give the firm sufficient time for the identification of the suspect.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
Incorrect
FCMs and IBs can delay filing a SAR for 30 days if the firm has not yet identified the suspect involved the first day the firm became aware of the suspicious activity. The delay in filing a SAR is to give the firm sufficient time for the identification of the suspect.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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Question 2 of 30
2. Question
Which of the following statements describes disaster recovery and redundancies in the supervision of the use of AORS?
Correct
A Member should have contingency plans when systems go down or activity exceeds reasonably expected peak volume needs. One of these plans is to inform customers via instant messages and/or emails. Customers being educated on alternative ways to enter orders when the system goes down describes more of the advance disclosure to customers regarding the system’s performance. Members are tasked to monitor both the capacity and performance for them to be able to create contingency plans. Lastly, customers MAY follow up on their complaints but the Members should be the ones proactively doing the follow up on customer complaints (e.g. access problems, system slowdowns, or system outages).
Reference: 9046 – COMPLIANCE RULE 2-9: SUPERVISION OF THE USE OF AUTOMATED ORDER-ROUTING SYSTEMS
Incorrect
A Member should have contingency plans when systems go down or activity exceeds reasonably expected peak volume needs. One of these plans is to inform customers via instant messages and/or emails. Customers being educated on alternative ways to enter orders when the system goes down describes more of the advance disclosure to customers regarding the system’s performance. Members are tasked to monitor both the capacity and performance for them to be able to create contingency plans. Lastly, customers MAY follow up on their complaints but the Members should be the ones proactively doing the follow up on customer complaints (e.g. access problems, system slowdowns, or system outages).
Reference: 9046 – COMPLIANCE RULE 2-9: SUPERVISION OF THE USE OF AUTOMATED ORDER-ROUTING SYSTEMS
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Question 3 of 30
3. Question
Which of the following is/are violations of NFA Compliance Rule 2-4 in relation to commissions, fees, and other charges?
I. A customer was inadequately informed of the commissions, fees, and other charges where he is most likely to gain profits.
II. A member or associate recommends a retail customer trading practices that intend to increase the member’s or associate’s commissions.
III. The member provided additional information, e.g. analysis or disclosure wherein such information could significantly impact the customer’s profits.
IV. A customer has little experience in trading futures, options, and forex but the member or associate disclosed all amounts of commissions, fees, and other charges before the transaction occurred.Correct
NFA Compliance Rule 2-4 highlights the observation of high standards in commercial honor and just and equitable principles of trading which is shown through full disclosure of the amounts of commissions, fees, and other charges as well as additional information that could impact the customer’s profit. Members giving misleading and inadequate information to gain more profits or commission is against NFA Compliance Rule 2-4.
Reference: 9057 – COMMISSIONS, FEES AND OTHER CHARGES
Incorrect
NFA Compliance Rule 2-4 highlights the observation of high standards in commercial honor and just and equitable principles of trading which is shown through full disclosure of the amounts of commissions, fees, and other charges as well as additional information that could impact the customer’s profit. Members giving misleading and inadequate information to gain more profits or commission is against NFA Compliance Rule 2-4.
Reference: 9057 – COMMISSIONS, FEES AND OTHER CHARGES
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Question 4 of 30
4. Question
If asked about the confidentiality language in release agreements, which of the following would be the best explanation?
Correct
In a confidentiality agreement, it had been a practice used in settlements to use the confidentiality language to restrict customers from cooperating with NFA’s enforcement process. While it is acceptable and permissible, the use of confidentiality language emphasizes the violation of Compliance Rule 2-4 (Just and Equitable Principles of Trade). Also, these confidentiality agreements are deemed to be unethical by FINRA and void by state courts.
Reference: 9014 – NFA COMPLIANCE RULE 2-4: CONFIDENTIALITY LANGUAGE IN RELEASE AGREEMENTS
Incorrect
In a confidentiality agreement, it had been a practice used in settlements to use the confidentiality language to restrict customers from cooperating with NFA’s enforcement process. While it is acceptable and permissible, the use of confidentiality language emphasizes the violation of Compliance Rule 2-4 (Just and Equitable Principles of Trade). Also, these confidentiality agreements are deemed to be unethical by FINRA and void by state courts.
Reference: 9014 – NFA COMPLIANCE RULE 2-4: CONFIDENTIALITY LANGUAGE IN RELEASE AGREEMENTS
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Question 5 of 30
5. Question
Under the rules governing the Business Conduct of Members Registered with the Commission, which of the following information is/are obtained from an individual if the customer trades futures products?
I. Customer’s true name, address, and principal occupation or business.
II. Customer’s previous investment and futures or swaps trading experience.
III. Customer’s marital status and dependents.
IV. Customer’s estimated liquid net worthCorrect
These customer’s basic information must all be gathered so as the Member can keep records that must be verified and updated whenever there are changes in the information. The information obtained is essential for risk disclosure.
Reference: Part 2 – Rules Governing the Business Conduct of Members Registered with the Commission [RULE 2-30. CUSTOMER INFORMATION AND RISK DISCLOSURE]
Incorrect
These customer’s basic information must all be gathered so as the Member can keep records that must be verified and updated whenever there are changes in the information. The information obtained is essential for risk disclosure.
Reference: Part 2 – Rules Governing the Business Conduct of Members Registered with the Commission [RULE 2-30. CUSTOMER INFORMATION AND RISK DISCLOSURE]
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Question 6 of 30
6. Question
Which of the following is NOT a requirement in a financial institution with regard to the anti-money laundering act?
Correct
Updated profiles of members and associates are not entirely necessary for a financial institution to establish AML programs. What they need to have basically are internal policies, procedures, and control, ongoing training for employees, a designated compliance officer to oversee day-to-day operations of the program, and an audit function to test the program.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
Incorrect
Updated profiles of members and associates are not entirely necessary for a financial institution to establish AML programs. What they need to have basically are internal policies, procedures, and control, ongoing training for employees, a designated compliance officer to oversee day-to-day operations of the program, and an audit function to test the program.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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Question 7 of 30
7. Question
Which of the following is a direct responsibility of a Member in using misleading or deceptive promotional material?
Correct
The very direct responsibility of a Member in the promotion of misleading material is the preparation and the distribution of such material. However, it doesn’t mean that the member (which falls under Agency responsibility) is the sole person accountable in some instances. If the misleading promotional materials are prepared by the Member but disseminated by a third-party trading system developer, regardless if they are an NFA member or not, as long as they have an agency relationship, they would be both responsible under NFA Compliance Rule 2-29 for the misleading promotional material that was prepared and distributed.
Reference: 9055 – NFA BYLAW 1101, COMPLIANCE RULES 2-9 AND 2-29: GUIDELINES RELATING TO THE REGISTRATION OF THIRD-PARTY TRADING SYSTEM DEVELOPERS AND THE RESPONSIBILITY OF NFA MEMBERS FOR PROMOTIONAL MATERIAL THAT PROMOTES THIRD-PARTY TRADING SYSTEM DEVELOPERS AND THEIR TRADING SYSTEMS
Incorrect
The very direct responsibility of a Member in the promotion of misleading material is the preparation and the distribution of such material. However, it doesn’t mean that the member (which falls under Agency responsibility) is the sole person accountable in some instances. If the misleading promotional materials are prepared by the Member but disseminated by a third-party trading system developer, regardless if they are an NFA member or not, as long as they have an agency relationship, they would be both responsible under NFA Compliance Rule 2-29 for the misleading promotional material that was prepared and distributed.
Reference: 9055 – NFA BYLAW 1101, COMPLIANCE RULES 2-9 AND 2-29: GUIDELINES RELATING TO THE REGISTRATION OF THIRD-PARTY TRADING SYSTEM DEVELOPERS AND THE RESPONSIBILITY OF NFA MEMBERS FOR PROMOTIONAL MATERIAL THAT PROMOTES THIRD-PARTY TRADING SYSTEM DEVELOPERS AND THEIR TRADING SYSTEMS
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Question 8 of 30
8. Question
Which of the following is/are the reason/s why an FCM/an IB may rely on another financial institution?
I. the reliance of the FCM/IB is under reasonable circumstances
II. the other financial institution is subject to an AML compliance program requirement under the BSA
III. the FCM/IB who’s in contract with the financial institution will be accountable for the failure of the financial institution in fulfilling its AML program without the information that would come from the FCM/IB.
IV. the other financial institution enters into a contract requiring it to certify annually to the FCM or IB that it has implemented an AML program and that it will perform the specified requirements of its own CIP.Correct
FCMs and IBs may rely upon reasons that are reasonable such as the other financial institution is subject to an AML compliance program requirement under the BSA and is regulated by a Federal functional regulator and that the other financial institution enters into a contract requiring it to certify annually to the FCM or IB that it has implemented an AML program and that it will perform the specified requirements of its own CIP. However, an FCM/IB will not be held responsible if the financial institution fails to fulfill its obligation to the FCM/IB’s CIP obligations.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
Incorrect
FCMs and IBs may rely upon reasons that are reasonable such as the other financial institution is subject to an AML compliance program requirement under the BSA and is regulated by a Federal functional regulator and that the other financial institution enters into a contract requiring it to certify annually to the FCM or IB that it has implemented an AML program and that it will perform the specified requirements of its own CIP. However, an FCM/IB will not be held responsible if the financial institution fails to fulfill its obligation to the FCM/IB’s CIP obligations.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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Question 9 of 30
9. Question
Which of the following statements is true with regard to the registration requirements for third-party system developers?
Correct
CTA is defined by CEA as any person who engages in the business of advising others for compensation or profit. It is made directly through publications, writings, and electronic media as to the value of or the advisability of trading commodity futures. A CTA can direct a client’s account even without their specific authorization (informal agreement). They should give advice that is “based on or tailored to” the characteristics of the client to make it more contextual and responsive to the clients. Lastly, Ibs generally doesn’t need to be registered if they and the third-party developer are operated as wholly independent entities.
Reference: REGISTRATION REQUIREMENTS FOR THIRD-PARTY SYSTEM DEVELOPERS
Incorrect
CTA is defined by CEA as any person who engages in the business of advising others for compensation or profit. It is made directly through publications, writings, and electronic media as to the value of or the advisability of trading commodity futures. A CTA can direct a client’s account even without their specific authorization (informal agreement). They should give advice that is “based on or tailored to” the characteristics of the client to make it more contextual and responsive to the clients. Lastly, Ibs generally doesn’t need to be registered if they and the third-party developer are operated as wholly independent entities.
Reference: REGISTRATION REQUIREMENTS FOR THIRD-PARTY SYSTEM DEVELOPERS
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Question 10 of 30
10. Question
Which of the following statements is NOT true regarding supervision requirements on swaps?
Correct
CFTC has issued Guidance when it comes to non-U.S. SD Members with regard to requirements for Swap dealer and major swap participant members. One of these requirements in the Interpretive Guidance provides that depending on the status of the counterparty, certain non-U.S. SDs and foreign branches of U.S. banks that are SDs may substitute compliance with their home jurisdiction’s law and regulation for compliance with certain CFTC transaction-level requirements under the Commission’s regulations.
Reference: 9076 – NFA COMPLIANCE RULE 2-9(d): SUPERVISION REQUIREMENTS FOR SWAP DEALER AND MAJOR SWAP PARTICIPANT MEMBERS
Incorrect
CFTC has issued Guidance when it comes to non-U.S. SD Members with regard to requirements for Swap dealer and major swap participant members. One of these requirements in the Interpretive Guidance provides that depending on the status of the counterparty, certain non-U.S. SDs and foreign branches of U.S. banks that are SDs may substitute compliance with their home jurisdiction’s law and regulation for compliance with certain CFTC transaction-level requirements under the Commission’s regulations.
Reference: 9076 – NFA COMPLIANCE RULE 2-9(d): SUPERVISION REQUIREMENTS FOR SWAP DEALER AND MAJOR SWAP PARTICIPANT MEMBERS
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Question 11 of 30
11. Question
Which of the following is NOT true regarding customer information and risk disclosure?
I. SDs and CPOs are allowed to provide risk disclosure directly to a customer.
II. Members are not required to enforce adequate procedures to supervise the activities of its Associates in obtaining customer information and providing risk disclosure.
III. Members should review all records in relation to this rule in obtaining customer information.
IV. Members should record that a customer declined to provide information during the information obtained.Correct
Members or Associates are the ones who obtain customer information and thus, they are also the ones who are tasked to provide risk disclosure to their customers.
Reference: Part 2 – Rules Governing the Business Conduct of Members Registered with the Commission
RULE 2-30. CUSTOMER INFORMATION AND RISK DISCLOSURE.Incorrect
Members or Associates are the ones who obtain customer information and thus, they are also the ones who are tasked to provide risk disclosure to their customers.
Reference: Part 2 – Rules Governing the Business Conduct of Members Registered with the Commission
RULE 2-30. CUSTOMER INFORMATION AND RISK DISCLOSURE. -
Question 12 of 30
12. Question
Which of the following support/s the process of customer identity verification procedures for the anti-money laundering act in relation to Compliance Rule 2-9?
I. FCMs and IBs should have a written CIP, especially on customers (individuals/entities) opening new accounts that meet the requirements of BSA. /
II. Identity verification can occur before and after an opening of a customer opens an account.
III. US and non-US persons need to present TIN, SS number, and any evidence regarding their nationality and residence.
IV. FCMs and IBs should consult FATF’s public statements of jurisdictions with AML/CFT to determine whether a customer is from one of those jurisdictions.Correct
With regard to customer identity verification, FCMs and IBs must adopt a CIP for individuals opening new accounts but may not be applied to existing customers opening additional accounts. Customer information may be verified before or after an account is opened. However, with regard to requirements, U.S. and Non-U.S. persons have different requirements. For U.S. customers, a firm must obtain the customer’s social security number or taxpayer-identification number (TIN). On the other side, for a non-U.S. person, the firm must obtain one or more of the following: a TIN, a passport number and country of issuance, an alien identification card number, or the number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard. Also, for non-U.S. customers, FCMs and IBs should consult FATF’s public statements of jurisdiction to be able to verify if the customer comes from one of the jurisdictions where there are AML/CFT deficiencies.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
Incorrect
With regard to customer identity verification, FCMs and IBs must adopt a CIP for individuals opening new accounts but may not be applied to existing customers opening additional accounts. Customer information may be verified before or after an account is opened. However, with regard to requirements, U.S. and Non-U.S. persons have different requirements. For U.S. customers, a firm must obtain the customer’s social security number or taxpayer-identification number (TIN). On the other side, for a non-U.S. person, the firm must obtain one or more of the following: a TIN, a passport number and country of issuance, an alien identification card number, or the number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard. Also, for non-U.S. customers, FCMs and IBs should consult FATF’s public statements of jurisdiction to be able to verify if the customer comes from one of the jurisdictions where there are AML/CFT deficiencies.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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Question 13 of 30
13. Question
In identifying and verifying beneficial owners, which of the following does NOT define the responsibility of an FCM/IB?
Correct
FCMs and IBs can and must require that a record be kept for all identifying information obtained from customers without limitations on the certifications (if obtained).
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM – Identifying and Verifying Beneficial Owners
Incorrect
FCMs and IBs can and must require that a record be kept for all identifying information obtained from customers without limitations on the certifications (if obtained).
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM – Identifying and Verifying Beneficial Owners
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Question 14 of 30
14. Question
Which of the following are considered red flags in detecting and reporting suspicious activity with regard to AML?
I. A customer is uninformed with risks, commissions, or other costs associated with trading.
II. A customer is from or has accounts in a country identified as a haven for bank secrecy, money laundering, or narcotics production.
III. A corporate customer lacks general knowledge of its own industry.
IV. A customer engages in extensive, sudden, or unexplained wire activity.Correct
A customer being uninformed with the risks, commissions and other costs associated with trading is a Member’s responsibility. Hence, a customer should not be red-flagged if they lack knowledge of such.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM – Ongoing CDD and Detection and Reporting of suspicious Activity
Incorrect
A customer being uninformed with the risks, commissions and other costs associated with trading is a Member’s responsibility. Hence, a customer should not be red-flagged if they lack knowledge of such.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM – Ongoing CDD and Detection and Reporting of suspicious Activity
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Question 15 of 30
15. Question
Which of the following comply with the standards for supervisory responsibilities imposed by Compliance Rule 2-9 for AORS?
I. Firewalls are only needed in public and semi-private networks as these impose great risks in data security.
II. Customers are provided with a means to notify the Member that particular individuals are no longer authorized or to request authentication devices be disabled.
III. The Member should conduct and evidence periodic, reasonable reviews designed to assess the security of the AORS.
IV. The Member should adopt and enforce written procedures assigning the responsibility for overseeing the security of the AORS to appropriate supervisory personnel.Correct
Firewalls should be imposed on public, semi-private, and virtual private networks (VPN) as they are a great risk with data security.
Reference: 9046 – COMPLIANCE RULE 2-9: SUPERVISION OF THE USE OF AUTOMATED ORDER-ROUTING SYSTEMS [Security]
Incorrect
Firewalls should be imposed on public, semi-private, and virtual private networks (VPN) as they are a great risk with data security.
Reference: 9046 – COMPLIANCE RULE 2-9: SUPERVISION OF THE USE OF AUTOMATED ORDER-ROUTING SYSTEMS [Security]
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Question 16 of 30
16. Question
In the customer identification program, which of the following is NOT a/are reason/s for a firm to keep records of customers?
I. To provide FCMs and IBs copies of customers upon their request.
II. To identify significant discrepancies discovered during the verification of information obtained.
III. To retain a copy or a description of a document that verifies the identity of a customer including the document’s type, any identification number, place of issuance, and date of issuance and expiration.
IV. To identify non-documentary verification methods with its description and result.Correct
FCMs ad IBs should have their own records of customer information along with other necessary documents for five years.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
Incorrect
FCMs ad IBs should have their own records of customer information along with other necessary documents for five years.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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Question 17 of 30
17. Question
An FCM or an IB has the reason to suspect a transaction/pattern of transaction in relation to AML with the following reasons EXCEPT FOR ONE.
Correct
Frequent transfers to different foreign firms do not necessarily propose a red flag in an AML Program. However, if it also qualifies for other red flags like an unusual level of concern for secrecy, particularly with regard to the customer’s identity, type of business or source of assets, or a customer/account is from a country that is regarded as a haven for bank secrecy, etc, then that would also cause an investigation.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
Incorrect
Frequent transfers to different foreign firms do not necessarily propose a red flag in an AML Program. However, if it also qualifies for other red flags like an unusual level of concern for secrecy, particularly with regard to the customer’s identity, type of business or source of assets, or a customer/account is from a country that is regarded as a haven for bank secrecy, etc, then that would also cause an investigation.
Reference: 9045 – NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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Question 18 of 30
18. Question
Which of the following is NOT included in a daily trade record?
Correct
LIst of complaints are not needed in a daily trade report. However, these are the data that need to be in the report.
All order transaction records on a daily basis;
A list of executed trades on a daily basis;
A list of all money managers on the first day of reporting, with any changes being reported daily;
A list of all price adjustments made by the FDM on a daily basis; and
A list of any unusual events, such as a system outage or “fast market” on a daily basis as applicable.Reference: 9060 – COMPLIANCE RULE 2-36(e): SUPERVISION OF THE USE OF ELECTRONIC TRADING SYSTEMS [Reporting to NFA]
Incorrect
LIst of complaints are not needed in a daily trade report. However, these are the data that need to be in the report.
All order transaction records on a daily basis;
A list of executed trades on a daily basis;
A list of all money managers on the first day of reporting, with any changes being reported daily;
A list of all price adjustments made by the FDM on a daily basis; and
A list of any unusual events, such as a system outage or “fast market” on a daily basis as applicable.Reference: 9060 – COMPLIANCE RULE 2-36(e): SUPERVISION OF THE USE OF ELECTRONIC TRADING SYSTEMS [Reporting to NFA]
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Question 19 of 30
19. Question
Which of the following statements describe/s a deceptive or misleading promotional material?
I. A member unknowingly omitted necessary facts.
II. In the presentation of performance information, performance should be shown differently from the material of the account being promoted.
III. A member using past trading profits and revealing that future trading profits would not necessarily be the same.
IV. The discussion of risk is shorter than that of the discussion of possible profit.Correct
Members have the responsibility to make sure that all necessary facts must be included to make the facts stated not misleading. The performance being shown was different from that would apply already merits a deceptive/misleading information. However, under the Rule, a Member is free to use a sales tool performance information about accounts which differ from the accounts being promoted but must take care to ensure first, that the performance information complies with Subsection (b)(5), and second, that the differences are explained to the extent necessary to make the promotional material not misleading.
Lastly, the discussion of both the risk and the possibility of profit should be equal so as not to downplay any of the two.Reference: Content of Promotional Material
Incorrect
Members have the responsibility to make sure that all necessary facts must be included to make the facts stated not misleading. The performance being shown was different from that would apply already merits a deceptive/misleading information. However, under the Rule, a Member is free to use a sales tool performance information about accounts which differ from the accounts being promoted but must take care to ensure first, that the performance information complies with Subsection (b)(5), and second, that the differences are explained to the extent necessary to make the promotional material not misleading.
Lastly, the discussion of both the risk and the possibility of profit should be equal so as not to downplay any of the two.Reference: Content of Promotional Material
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Question 20 of 30
20. Question
Which of the following statements is/are true when it comes to the general prohibition on communication with the public as well as the routine communication with customers?
I. Only Members are subject to NFA’s rules related to fraudulent and deceptive practices.
II. A routine customer approach indicates that commodity interest trading is appropriate for all persons.
III. A routine customer contact will not violate Compliance Rule 2-29 as long as the communication is not fraudulent or deceptive.
IV. A routine customer communication should not involve using a high-pressure approach.Correct
Members and Associates alike are subject to NFA’s rules related to fraudulent and deceptive practices.
Reference: 9003 – NFA COMPLIANCE RULE 2-29: COMMUNICATIONS WITH THE PUBLIC AND PROMOTIONAL MATERIAL
Incorrect
Members and Associates alike are subject to NFA’s rules related to fraudulent and deceptive practices.
Reference: 9003 – NFA COMPLIANCE RULE 2-29: COMMUNICATIONS WITH THE PUBLIC AND PROMOTIONAL MATERIAL
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Question 21 of 30
21. Question
The following are the required delivery of a Pool Disclosure Document except for one.
I. The Statement of Additional Information may be bound together with the Disclosure Document as long as the Disclosure document comes first.
II. The CPO of a commodity pool that is not required to register its securities must deliver a separate Statement of Additional Information to a prospective participant upon the acceptance or receiving of funds from the prospective participants. [x]
III. The CPO is not required to provide the Statement of Additional Information to a prospective participant unless the prospective participant requests it if the Statement of Additional Information is separately bound.
IV. The Disclosure Document must be clear and concise using plain English and must only contain only the required information.Correct
The CPO of a commodity pool is required to register its securities (under the Securities Act of 1933) must deliver a separate Statement of Additional Information to a prospective participant prior to accepting or receiving funds. However, a CPO that is NOT required to register its securities may or may not prepare and distribute a Statement of Additional Information.
Reference: Required Delivery of Pool Disclosure Document and Statement of Additional Information
Incorrect
The CPO of a commodity pool is required to register its securities (under the Securities Act of 1933) must deliver a separate Statement of Additional Information to a prospective participant prior to accepting or receiving funds. However, a CPO that is NOT required to register its securities may or may not prepare and distribute a Statement of Additional Information.
Reference: Required Delivery of Pool Disclosure Document and Statement of Additional Information
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Question 22 of 30
22. Question
Which of the following statements is accurate in the filing of a CMIR?
Correct
A CMIR physically transported, mailed or shipped with an aggregate amount exceeding $10, 000 at any one time from the US to any place outside of the US or any place going into the US must be filed (Report of International Transportation) by an FCM. However, a CMIR does not need to be filed if the FCM is a bank or broker-dealer and the currency or other monetary instrument is mailed/shipped through the postal service or by a common carrier.
Reference: International Transportation of Currency or Monetary Instruments
Incorrect
A CMIR physically transported, mailed or shipped with an aggregate amount exceeding $10, 000 at any one time from the US to any place outside of the US or any place going into the US must be filed (Report of International Transportation) by an FCM. However, a CMIR does not need to be filed if the FCM is a bank or broker-dealer and the currency or other monetary instrument is mailed/shipped through the postal service or by a common carrier.
Reference: International Transportation of Currency or Monetary Instruments
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Question 23 of 30
23. Question
Which of the following statements support/s the disclosure guidelines for FCMS offering sweep accounts?
I. An FCM does not have any obligations if a customer transfers funds to a sweep account on their own that was not offered by the FCM.
II. FCMs should identify the entity maintaining the sweep account and whether that entity is subject to regulation, and should disclose any material terms and conditions, risks and features of their offered programs.
III. FCMs should advise customers of any conflicts of interest in connection with the offered programs including whether the FCM receives compensation or other benefits for customer balances maintained in the sweep account.
IV. FCM should disclose that by transferring excess funds from an FCM’s customer regulated commodity accounts, the customer will not receive the preferential treatment afforded funds held in a customer regulated commodity account.Correct
FCMs offering sweep accounts must always uphold the disclosure guidelines wherein customers are always educated on the terms, conditions, and risks.
Reference: 9059 – NFA COMPLIANCE RULE 2-4: DISCLOSURE GUIDELINES FOR FCMS OFFERING SWEEP ACCOUNTS
Incorrect
FCMs offering sweep accounts must always uphold the disclosure guidelines wherein customers are always educated on the terms, conditions, and risks.
Reference: 9059 – NFA COMPLIANCE RULE 2-4: DISCLOSURE GUIDELINES FOR FCMS OFFERING SWEEP ACCOUNTS
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Question 24 of 30
24. Question
Which of the following acts violate Compliance 2-4 regarding the trade secrets and proprietary information?
I. Disclosing customer order prior to execution with exemptions as permitted by exchange rules
II. Obtaining or attempting to obtain information disclosing a CTA’s historical trading positions without the CTA’s permission
III. Attempting to obtain confidential information from another Member or Associate
IV. Seeking civil remedies through NFA’s arbitration forumCorrect
Members can seek civil remedies through NFA Arbitration Forum when there is a misuse of trade secrets and proprietary information.
Reference: 9061 – NFA COMPLIANCE RULE 2-4: MISUSE OF TRADE SECRETS AND PROPRIETARY INFORMATION
Incorrect
Members can seek civil remedies through NFA Arbitration Forum when there is a misuse of trade secrets and proprietary information.
Reference: 9061 – NFA COMPLIANCE RULE 2-4: MISUSE OF TRADE SECRETS AND PROPRIETARY INFORMATION
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Question 25 of 30
25. Question
Which of the following is a reason why the NFA Board prohibits electronic funding mechanisms?
Correct
Credit cards are very convenient and accessible. However, with the nature of the commodity interests markets, total loss may occur in a short period of time.
Reference: NFA COMPLIANCE RULES 2-4 AND 2-36: PROHIBITION ON THE USE OF CERTAIN ELECTRONIC FUNDING MECHANISMS
Incorrect
Credit cards are very convenient and accessible. However, with the nature of the commodity interests markets, total loss may occur in a short period of time.
Reference: NFA COMPLIANCE RULES 2-4 AND 2-36: PROHIBITION ON THE USE OF CERTAIN ELECTRONIC FUNDING MECHANISMS
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Question 26 of 30
26. Question
What is the key difference between a credit card payment and an electronic funding payment?
Correct
An electronic funding method should be directly tied to the customer’s account at a financial institution. Also, the customer has funds on hand and those funds are immediately transferred from the customer’s bank account to the FDM or FCM, which significantly reduces the likelihood that the customer is borrowing funds to invest.
Reference: NFA COMPLIANCE RULES 2-4 AND 2-36: PROHIBITION ON THE USE OF CERTAIN ELECTRONIC FUNDING MECHANISMS
Incorrect
An electronic funding method should be directly tied to the customer’s account at a financial institution. Also, the customer has funds on hand and those funds are immediately transferred from the customer’s bank account to the FDM or FCM, which significantly reduces the likelihood that the customer is borrowing funds to invest.
Reference: NFA COMPLIANCE RULES 2-4 AND 2-36: PROHIBITION ON THE USE OF CERTAIN ELECTRONIC FUNDING MECHANISMS
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Question 27 of 30
27. Question
Which of the following describes the Broker-dealer registration requirements for security futures products?
Correct
With the CFMA, the lifting on the ban of single-stock futures and narrow-based security indices paved way for FCMs and IBs to be able to solicit or accept orders and carry accounts for security futures products. However, they are required to register as broker-dealers (under Exchange Act). They must be properly registered or notice registered.
Reference: 9044 – NFA COMPLIANCE RULE 2-4: BROKER-DEALER REGISTRATION REQUIREMENTS FOR SECURITY FUTURES PRODUCTS
Incorrect
With the CFMA, the lifting on the ban of single-stock futures and narrow-based security indices paved way for FCMs and IBs to be able to solicit or accept orders and carry accounts for security futures products. However, they are required to register as broker-dealers (under Exchange Act). They must be properly registered or notice registered.
Reference: 9044 – NFA COMPLIANCE RULE 2-4: BROKER-DEALER REGISTRATION REQUIREMENTS FOR SECURITY FUTURES PRODUCTS
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Question 28 of 30
28. Question
Which of the following are the responsibilities of a Member with regard to supervision of websites, social media, and other electronic communications?
I. Member firm must supervise the use of a site where a member or Associate maintains a website or hosts blog or forums.
II. Members must regularly monitor the content of the sites/forums they host.
III. Members should include periodic inquiries as to whether their employees and agents are monitoring the general content of the website.
IV. Members are not required to have written supervisory procedures as these will be done directly through the website they maintain.Correct
Members are still required to have written supervisory procedures in place. These procedures must be designed to achieve compliance with the NFA rules. (Compliance Rules 2-10 and 2-29)
Reference: 9037 – NFA COMPLIANCE RULES 2-9, 2-10, 2-29, 2-36 and 2-39: GUIDANCE ON THE USE AND SUPERVISION OF WEBSITES, SOCIAL MEDIA AND OTHER ELECTRONIC COMMUNICATIONS
Incorrect
Members are still required to have written supervisory procedures in place. These procedures must be designed to achieve compliance with the NFA rules. (Compliance Rules 2-10 and 2-29)
Reference: 9037 – NFA COMPLIANCE RULES 2-9, 2-10, 2-29, 2-36 and 2-39: GUIDANCE ON THE USE AND SUPERVISION OF WEBSITES, SOCIAL MEDIA AND OTHER ELECTRONIC COMMUNICATIONS
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Question 29 of 30
29. Question
What could be a violation/violations of a Member registered as a broker-dealer?
I. A member failed to staff an order room or other department assigned to execute orders.
II. A member may channel an order through a third-party without a customer’s order by showing the customer the difference of the total cost or proceeds of the transaction with and without the third-party.
III. A member does not have to ascertain the best market for a customer’s security futures if it is not in the customer’s instructions.
IV. Members must consider differences in the fees and costs to customers (e.g. transaction fees, clearing costs, and expenses) associated with executing transactions in each market.Correct
A member must always bear and execute the customer’s best interests in mind. However, a member must also follow the customer’s instructions if it says otherwise and not make decisions without a customer’s approval. Therefore, if a member failed to staff adequately an order room or other department assigned to execute orders then the member is not doing the best execution obligation as a broker-dealer. This is also true when the member takes an action without the customer’s order that resulted to the customer’s loss. In addition, a Member shall not channel an order through a third party unless the Member can show that by doing so the total cost or proceeds of the transaction were better than if the Member decided not to channel the order through the third party.
Reference: 9048 – NFA COMPLIANCE RULE 2-4: THE BEST EXECUTION OBLIGATION OF NFA MEMBERS REGISTERED AS BROKER-DEALERS UNDER SECTION 15(b)(11) OF THE SECURITIES EXCHANGE ACT OF 1934
Incorrect
A member must always bear and execute the customer’s best interests in mind. However, a member must also follow the customer’s instructions if it says otherwise and not make decisions without a customer’s approval. Therefore, if a member failed to staff adequately an order room or other department assigned to execute orders then the member is not doing the best execution obligation as a broker-dealer. This is also true when the member takes an action without the customer’s order that resulted to the customer’s loss. In addition, a Member shall not channel an order through a third party unless the Member can show that by doing so the total cost or proceeds of the transaction were better than if the Member decided not to channel the order through the third party.
Reference: 9048 – NFA COMPLIANCE RULE 2-4: THE BEST EXECUTION OBLIGATION OF NFA MEMBERS REGISTERED AS BROKER-DEALERS UNDER SECTION 15(b)(11) OF THE SECURITIES EXCHANGE ACT OF 1934
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Question 30 of 30
30. Question
What is NOT one of the reasons for the Commission’s total ban on the use of hypothetical results?
Correct
While it is true that hypothetical performance d not involve financial risk, it is not one of the main reasons why hypothetical performance was banned by the Commission. In short, hypothetical performance results often lead to misleading promotional material which is against NFA Compliances.
Reference: Interpretive Notice Relating to the Use of Promotional Materials Containing
Hypothetical Performance ResultsIncorrect
While it is true that hypothetical performance d not involve financial risk, it is not one of the main reasons why hypothetical performance was banned by the Commission. In short, hypothetical performance results often lead to misleading promotional material which is against NFA Compliances.
Reference: Interpretive Notice Relating to the Use of Promotional Materials Containing
Hypothetical Performance Results