FINRA Series 54 - Pauline - Quiz 1.new
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Question 1 of 10
1. Question
Under the disclosure practices in the municipal securities market, which of the following key areas would the timeliness and comparability of financial information fall?
Correct
The timeliness and comparability of financial information would fall under the key area of financial statements and financial information. Its area of concern is the timeliness of financial information in primary offerings and on an ongoing basis. A study has shown that there is a slow process in disclosing audited annual financial statements. The timely disclosure of annual financial information is not only called by the market participants. It also includes the disclosure for interim financial reports, such as budgets and cash flow reports. In the comparability of financial information, there are no uniformly applied accounting standards in the municipal securities markets. It also has a lack of authority to prescribe the accounting standards that municipal issuers must use. To promote consistency and comparability information, market participants adhere to the Governmental Accounting Standards Board.
Incorrect
The timeliness and comparability of financial information would fall under the key area of financial statements and financial information. Its area of concern is the timeliness of financial information in primary offerings and on an ongoing basis. A study has shown that there is a slow process in disclosing audited annual financial statements. The timely disclosure of annual financial information is not only called by the market participants. It also includes the disclosure for interim financial reports, such as budgets and cash flow reports. In the comparability of financial information, there are no uniformly applied accounting standards in the municipal securities markets. It also has a lack of authority to prescribe the accounting standards that municipal issuers must use. To promote consistency and comparability information, market participants adhere to the Governmental Accounting Standards Board.
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Question 2 of 10
2. Question
Which of the following is the percentage of the outstanding principal amount of securities held by the individuals or retail investors?
Correct
The greater 75% of the outstanding principal amount of municipal securities is held by the individuals or retail investors under the structure of the municipal securities market. The municipal securities market has been described as a “buy-and-hold” traditionally because the municipal securities are held by the investors until its maturity date. The trading of the municipal securities has been infrequent following the initial distribution period. The customer transactions are executed virtually by the brokers, dealers, and municipal securities dealers in a principal capacity, with some part of these principal trades effected on a “riskless principal” basis.
Incorrect
The greater 75% of the outstanding principal amount of municipal securities is held by the individuals or retail investors under the structure of the municipal securities market. The municipal securities market has been described as a “buy-and-hold” traditionally because the municipal securities are held by the investors until its maturity date. The trading of the municipal securities has been infrequent following the initial distribution period. The customer transactions are executed virtually by the brokers, dealers, and municipal securities dealers in a principal capacity, with some part of these principal trades effected on a “riskless principal” basis.
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Question 3 of 10
3. Question
Which of the following is not a possible action that the Commission could pursue under its existing regulatory authority to improve disclosures and practices in the municipal securities market?
Correct
The Commission should continue working with the MSRB because they are responsible for strengthening its rules and enhancing the electronic market access system. The other possible actions that the Commission could pursue to improve disclosures and practices in the municipal securities market are the following: (1) the Commission could be the host at an annual conference on the municipal securities markets for the market participants, regulators, and academics, (2) the Commission could consider issuing updated interpretative guidance regarding the disclosure obligations of municipal securities issuers, and (3) the Commission shall further improve the disclosures made regarding municipal securities under the Exchange Act Rule 15c2-12.
Incorrect
The Commission should continue working with the MSRB because they are responsible for strengthening its rules and enhancing the electronic market access system. The other possible actions that the Commission could pursue to improve disclosures and practices in the municipal securities market are the following: (1) the Commission could be the host at an annual conference on the municipal securities markets for the market participants, regulators, and academics, (2) the Commission could consider issuing updated interpretative guidance regarding the disclosure obligations of municipal securities issuers, and (3) the Commission shall further improve the disclosures made regarding municipal securities under the Exchange Act Rule 15c2-12.
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Question 4 of 10
4. Question
Which of the following is the recommendation for the municipal issuers and other market participants regarding the municipal market initiatives?
Correct
The recommendation for the municipal issuers under the municipal market initiatives is to continue working together on initiatives to improve the municipal securities market disclosures and other practices. The other choices are not recommendations for the municipal market initiatives, but rather the possible legislative approaches that could be considered in order to provide the Commission the authority to establish improved disclosures and practices in the municipal securities market. The municipal market participants shall follow and encourage others to follow the best practices and expand these practices in a number of areas to enhance disclosures in the municipal securities market.
Incorrect
The recommendation for the municipal issuers under the municipal market initiatives is to continue working together on initiatives to improve the municipal securities market disclosures and other practices. The other choices are not recommendations for the municipal market initiatives, but rather the possible legislative approaches that could be considered in order to provide the Commission the authority to establish improved disclosures and practices in the municipal securities market. The municipal market participants shall follow and encourage others to follow the best practices and expand these practices in a number of areas to enhance disclosures in the municipal securities market.
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Question 5 of 10
5. Question
Aside from being the vital aspect of promotion competition, which of the following is additional information regarding transparency?
Correct
The vital aspect of promoting competition is transparency. It enables customers and regulators in assessing whether the market professionals provide the best execution. The best execution of the market professionals is assessed through enhancing price transparency and promoting fair access to those prices that could improve market efficiency, promoting competition, and ultimate facilitation. There are also a number of recommendations that could achieve these goals. These recommendations should be given to the potential impacts on investor protection, liquidity, and dealer participation in the market.
Incorrect
The vital aspect of promoting competition is transparency. It enables customers and regulators in assessing whether the market professionals provide the best execution. The best execution of the market professionals is assessed through enhancing price transparency and promoting fair access to those prices that could improve market efficiency, promoting competition, and ultimate facilitation. There are also a number of recommendations that could achieve these goals. These recommendations should be given to the potential impacts on investor protection, liquidity, and dealer participation in the market.
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Question 6 of 10
6. Question
Which of the following is correct regarding the municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act??
I. It is a person who is not a municipal entity that provides advice to or on behalf of a municipal entity.
II. It is a person who is an employee of a municipal entity who undertakes a solicitation of a municipal entity.
III. It is a person who is an employee of a municipal entity that provides advice to or on behalf of a municipal entity.
IV. It is a person who is not an employee of a municipal entity who undertakes a solicitation of a municipal entity.Correct
According to Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a municipal advisor is a person who is not a municipal entity nor an employee of a municipal entity who undertakes a solicitation of a municipal entity. Its responsibility is to provide advice to or on behalf of a municipal entity or obligated person with respect to the issuance of municipal securities, municipal financial products, and other similar matters concerning such financial products or issues. Municipal advisor’s statutory or legal definition is broad and it includes persons that traditionally have not been considered to be municipal financial advisors.
Incorrect
According to Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a municipal advisor is a person who is not a municipal entity nor an employee of a municipal entity who undertakes a solicitation of a municipal entity. Its responsibility is to provide advice to or on behalf of a municipal entity or obligated person with respect to the issuance of municipal securities, municipal financial products, and other similar matters concerning such financial products or issues. Municipal advisor’s statutory or legal definition is broad and it includes persons that traditionally have not been considered to be municipal financial advisors.
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Question 7 of 10
7. Question
What are the three principal types of municipal advisors as stated in Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act?
I. Financial advisors, including brokers, dealers, and municipal securities dealers already registered with the Commission.
II. The third-party marketers and solicitors in the solicitation of a municipal entity or obligated person.
III. A broker, dealer, or municipal securities dealer serving as an underwriter.
IV. Investment advisers of municipal entities on the investment of public monies, including its proceeds.Correct
A broker, dealer, or municipal securities dealer serving as an underwriter is excluded from the statutory definition of municipal advisor. The three principal types of municipal advisors are (1) Investment advisers that advise municipal entities on the investment of public monies. This includes the proceeds of municipal securities; (2) Brokers, dealers, and municipal securities dealers treated as financial advisors who are already registered with the Commission. They provide advice to municipal entities with respect to their issuance of municipal securities and the function of municipal financial products; (3) The third-party marketers and solicitors.
Incorrect
A broker, dealer, or municipal securities dealer serving as an underwriter is excluded from the statutory definition of municipal advisor. The three principal types of municipal advisors are (1) Investment advisers that advise municipal entities on the investment of public monies. This includes the proceeds of municipal securities; (2) Brokers, dealers, and municipal securities dealers treated as financial advisors who are already registered with the Commission. They provide advice to municipal entities with respect to their issuance of municipal securities and the function of municipal financial products; (3) The third-party marketers and solicitors.
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Question 8 of 10
8. Question
Which of the following statements are specifically excluded in the statutory definition of a municipal advisor?
I. A person who provides advice with respect to municipal financial products or the issuance of municipal securities.
II. A municipal advisor is a broker, dealer, or municipals securities dealer serving as an underwriter in providing services that are of a traditional legal nature.
III. A municipal advisor is an investment adviser registered under the Investment Advisers Act where such provides investment advice.
IV. A municipal advisor is a commodity trading advisor under the Commodity Exchange Act who provides advice related to swaps.Correct
There are certain exclusions on the statutory definition of a municipal advisor. These exclusions are specified under Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The exclusions are the following: (1) a broker, dealer, or municipal securities dealer serving as an underwriter or attorneys who provide services of a traditional legal nature, (2) an investment adviser who provides advice in relation to investments, and (3) any commodity trading advisor who is providing advising services regarding swaps. These exclusions were interpreted through other activity-based (but no status-based) exemptions.
Incorrect
There are certain exclusions on the statutory definition of a municipal advisor. These exclusions are specified under Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The exclusions are the following: (1) a broker, dealer, or municipal securities dealer serving as an underwriter or attorneys who provide services of a traditional legal nature, (2) an investment adviser who provides advice in relation to investments, and (3) any commodity trading advisor who is providing advising services regarding swaps. These exclusions were interpreted through other activity-based (but no status-based) exemptions.
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Question 9 of 10
9. Question
Which of the following persons may be excluded from the definition of municipal advisor as a request by the Commission?
I. An broker-dealer that performs activities such as undertaking a solicitation of a municipal entity or obligated person.
II. An entity that provides advice to clients regarding investments, such as research information and generic trade ideas or commentary.
III. A broker-dealer that provides to a municipal entity a list of meetings that are readily available in the marketplace.
IV. A broker-dealer who provides advice to a municipal entity with respect to municipal financial products or issuance of municipal securities.Correct
The Commission requested comment on whether excluding various entities or activities from the definition of a municipal advisor. These persons are the following: (1) an entity that provides to clients investment advice, such as research information and generic trade ideas or commentary that does not meet the objectives and the needs of clients, and (2) a broker-dealer that provides municipal entity a list of securities meeting specified criteria which are considered readily available in the marketplace. The Commission has also requested comment on the interpretations of the municipal advisor’s definition as it needs to be modified or clarified.
Incorrect
The Commission requested comment on whether excluding various entities or activities from the definition of a municipal advisor. These persons are the following: (1) an entity that provides to clients investment advice, such as research information and generic trade ideas or commentary that does not meet the objectives and the needs of clients, and (2) a broker-dealer that provides municipal entity a list of securities meeting specified criteria which are considered readily available in the marketplace. The Commission has also requested comment on the interpretations of the municipal advisor’s definition as it needs to be modified or clarified.
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Question 10 of 10
10. Question
Which of the following are key areas for recommendations relating to the market structure of municipal securities markets?
I. The market participants continue to strive for high-quality disclosure practices through the development of the guidelines.
II. The Commission should consider improving pre-trade price transparency with the material transaction or dollar volume in municipal securities to publicly disseminate its best bid.
III. The Commission should consider improving post-trade price transparency to enhance access in pricing and other municipal securities information.
IV. The MRSB could consider requiring municipal bond dealers in reporting the “yield spread” information to supplement existing interest rates, price, and yield data.Correct
In relation to the market structure, some of the recommendations are improving pre-trade price transparency, improving post-trade price transparency, and reporting “yield spread” information. Under the improvement of post-trade price transparency, the report of “yield spread” information to its Real-Time Transaction Reporting System supplements the existing interest rate, price, and yield data. It shall also promptly pursue enhancements to the electronic website so that the retail investors have better access to pricing and other municipal securities information. Under the pre-trade price transparency, the MRSB is responsible for considering the rules which require a brokers’ broker with the material transaction or dollar volume in municipal securities in order to disseminate the best bid and offer prices to the public.
Incorrect
In relation to the market structure, some of the recommendations are improving pre-trade price transparency, improving post-trade price transparency, and reporting “yield spread” information. Under the improvement of post-trade price transparency, the report of “yield spread” information to its Real-Time Transaction Reporting System supplements the existing interest rate, price, and yield data. It shall also promptly pursue enhancements to the electronic website so that the retail investors have better access to pricing and other municipal securities information. Under the pre-trade price transparency, the MRSB is responsible for considering the rules which require a brokers’ broker with the material transaction or dollar volume in municipal securities in order to disseminate the best bid and offer prices to the public.