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FINRA Series 79 Exam
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Question 1 of 10
1. Question
When a research analyst makes a recommendation or offers an opinion concerning an equity security, how many people in presence will be considered a public appearance?
Correct
Rule: 2241. Research Analysts and Research Reports
“Public appearance” means any participation in a conference call, seminar, forum (including an interactive electronic forum) or other public speaking activity before 15 or more persons or before one or more representatives of the media, a radio, television or print media interview, or the writing of a print media article, in which a research analyst makes a recommendation or offers an opinion concerning an equity security. This term does not include a password protected Webcast, conference call or similar event with 15 or more existing customers, provided that all of the event participants previously received the most current research report or other documentation that contains the required applicable disclosures, and that the research analyst appearing at the event corrects and updates during the event any disclosures in the research report that are inaccurate, misleading or no longer applicable.Incorrect
Rule: 2241. Research Analysts and Research Reports
“Public appearance” means any participation in a conference call, seminar, forum (including an interactive electronic forum) or other public speaking activity before 15 or more persons or before one or more representatives of the media, a radio, television or print media interview, or the writing of a print media article, in which a research analyst makes a recommendation or offers an opinion concerning an equity security. This term does not include a password protected Webcast, conference call or similar event with 15 or more existing customers, provided that all of the event participants previously received the most current research report or other documentation that contains the required applicable disclosures, and that the research analyst appearing at the event corrects and updates during the event any disclosures in the research report that are inaccurate, misleading or no longer applicable. -
Question 2 of 10
2. Question
While identifying and managing conflicts of interest, a member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest. Which one of the following is not related to the written policies and procedures of his or her?
Correct
2241. Research Analysts and Research Reports
Identifying and Managing Conflicts of Interest
A member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to:
(A) the preparation, content and distribution of research reports;
(B) public appearances by research analysts; and
(C) the interaction between research analysts and those outside of the research department, including investment banking and sales and trading personnel, subject companies and customers.Incorrect
2241. Research Analysts and Research Reports
Identifying and Managing Conflicts of Interest
A member must establish, maintain and enforce written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to:
(A) the preparation, content and distribution of research reports;
(B) public appearances by research analysts; and
(C) the interaction between research analysts and those outside of the research department, including investment banking and sales and trading personnel, subject companies and customers. -
Question 3 of 10
3. Question
While identifying and managing conflicts of interest, which of the following statement(s) is/are correct when a member’s written policies and procedures must be reasonably designed to promote objective and reliable research?
Correct
2241. Research Analysts and Research Reports
Identifying and Managing Conflicts of Interest
A member’s written policies and procedures must be reasonably designed to promote objective and reliable research that reflects the truly held opinions of research analysts and to prevent the use of research reports or research analysts to manipulate or condition the market or favor the interests of the member or a current or prospective customer or class of customers. Such policies and procedures must:
(A) prohibit prepublication review, clearance or approval of research reports by persons engaged in investment banking services activities and restrict or prohibit such review, clearance or approval by other persons not directly responsible for the preparation, content and distribution of research reports, other than legal and compliance personnel;
(B) restrict or limit input by the investment banking department into research coverage decisions to ensure that research management independently makes all final decisions regarding the research coverage plan;
(C) prohibit persons engaged in investment banking activities from supervision or control of research analysts, including influence or control over research analyst compensation evaluation and determination;
(D) limit determination of the research department budget to senior management, excluding senior management engaged in investment banking services activities;
(E) prohibit compensation based upon specific investment banking services transactions or contributions to a member’s investment banking services activities;Incorrect
2241. Research Analysts and Research Reports
Identifying and Managing Conflicts of Interest
A member’s written policies and procedures must be reasonably designed to promote objective and reliable research that reflects the truly held opinions of research analysts and to prevent the use of research reports or research analysts to manipulate or condition the market or favor the interests of the member or a current or prospective customer or class of customers. Such policies and procedures must:
(A) prohibit prepublication review, clearance or approval of research reports by persons engaged in investment banking services activities and restrict or prohibit such review, clearance or approval by other persons not directly responsible for the preparation, content and distribution of research reports, other than legal and compliance personnel;
(B) restrict or limit input by the investment banking department into research coverage decisions to ensure that research management independently makes all final decisions regarding the research coverage plan;
(C) prohibit persons engaged in investment banking activities from supervision or control of research analysts, including influence or control over research analyst compensation evaluation and determination;
(D) limit determination of the research department budget to senior management, excluding senior management engaged in investment banking services activities;
(E) prohibit compensation based upon specific investment banking services transactions or contributions to a member’s investment banking services activities; -
Question 4 of 10
4. Question
While there are content and disclosure in research reports, which of the following statement(s) is/are correct when a member must disclose in any research report at the time of publication or distribution of the report?
Correct
Rule: 2241
Content and Disclosure in Research Reports
A member must disclose in any research report at the time of publication or distribution of the report:
(A) if the research analyst or a member of the research analyst’s household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
(B) if the research analyst has received compensation based upon (among other factors) the member’s investment banking revenues;
(C) if the member or any of its affiliates:
(i) managed or co-managed a public offering of securities for the subject company in the past 12 months;
(ii) received compensation for investment banking services from the subject company in the past 12 months; or
(iii) expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months;Incorrect
Rule: 2241
Content and Disclosure in Research Reports
A member must disclose in any research report at the time of publication or distribution of the report:
(A) if the research analyst or a member of the research analyst’s household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
(B) if the research analyst has received compensation based upon (among other factors) the member’s investment banking revenues;
(C) if the member or any of its affiliates:
(i) managed or co-managed a public offering of securities for the subject company in the past 12 months;
(ii) received compensation for investment banking services from the subject company in the past 12 months; or
(iii) expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months; -
Question 5 of 10
5. Question
Regarding disclosure in public appearances, which of the following statements is correct when a research analyst must disclose in public appearances?
Correct
Rule 2241:
Disclosure in Public Appearances
(1) A research analyst must disclose in public appearances:
(A) if the research analyst or a member of the research analyst’s household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
(B) if the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company;
(C) if, to the extent the research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the previous 12 months;
(D) if the research analyst received any compensation from the subject company in the previous 12 months;
(E) if, to the extent the research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of publication or distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst; or
(F) any other material conflict of interest of the research analyst or member that the research analyst knows or has reason to know at the time of the public appearance.Incorrect
Rule 2241:
Disclosure in Public Appearances
(1) A research analyst must disclose in public appearances:
(A) if the research analyst or a member of the research analyst’s household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
(B) if the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company;
(C) if, to the extent the research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the previous 12 months;
(D) if the research analyst received any compensation from the subject company in the previous 12 months;
(E) if, to the extent the research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of publication or distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst; or
(F) any other material conflict of interest of the research analyst or member that the research analyst knows or has reason to know at the time of the public appearance. -
Question 6 of 10
6. Question
Regarding distribution of third-party research reports, which of the following statement(s) is/are true?
Correct
Rule: 2241
Distribution of Third-Party Research Reports
1. A member may not distribute third-party research if it knows or has reason to know such research is not objective or reliable.
2. A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that any third-party research it distributes contains no untrue statement of material fact.
3. A member must accompany any third-party research report it distributes with, or provide a web address that directs a recipient to, disclosure of any material conflict of interest that can reasonably be expected to have influenced the choice of a third-party research provider or the subject company of a third-party research report.
4. A member must ensure that a third-party research report is clearly labeled as such and that there is no confusion on the part of the recipient as to the person or entity that prepared the research report.Incorrect
Rule: 2241
Distribution of Third-Party Research Reports
1. A member may not distribute third-party research if it knows or has reason to know such research is not objective or reliable.
2. A member must establish, maintain and enforce written policies and procedures reasonably designed to ensure that any third-party research it distributes contains no untrue statement of material fact.
3. A member must accompany any third-party research report it distributes with, or provide a web address that directs a recipient to, disclosure of any material conflict of interest that can reasonably be expected to have influenced the choice of a third-party research provider or the subject company of a third-party research report.
4. A member must ensure that a third-party research report is clearly labeled as such and that there is no confusion on the part of the recipient as to the person or entity that prepared the research report. -
Question 7 of 10
7. Question
Regarding exemption for members with limited investment banking activity, which of the members belong to this group?
Correct
Rule: 2241
Exemption for Members with Limited Investment Banking Activity
The provisions of paragraphs (b)(2)(A), (B), (C), (D), (F) and (G) shall not apply to members that over the previous three years, on average per year, have participated in 10 or fewer investment banking services transactions as manager or co-manager and generated $5 million or less in gross investment banking revenues from those transactions;Incorrect
Rule: 2241
Exemption for Members with Limited Investment Banking Activity
The provisions of paragraphs (b)(2)(A), (B), (C), (D), (F) and (G) shall not apply to members that over the previous three years, on average per year, have participated in 10 or fewer investment banking services transactions as manager or co-manager and generated $5 million or less in gross investment banking revenues from those transactions; -
Question 8 of 10
8. Question
Regarding submission of sections of a draft research reports for factual review, which of the following statement(s) is/are incorrect if some sections of a draft research report may be provided to non-investment banking personnel or to the subject company for factual review?
Correct
Rule: 2241
Submission of Sections of a Draft Research Reports for Factual Review.
Consistent with the requirements of paragraphs (b)(2)(A) and (b)(2)(N), sections of a draft research report may be provided to non-investment banking personnel or to the subject company for factual review so long as:
(a) the sections of the report submitted do not contain the research summary, the research rating or the price target;
(b) a complete draft of the report is provided to legal or compliance personnel before sections of the report are submitted to non-investment banking personnel or the subject company; and
(c) if, after submitting sections of the report to non-investment banking personnel or the subject company, the research department intends to change the proposed rating or price target, it must first provide written justification to, and receive written authorization from, legal or compliance personnel for the change. The member must retain copies of any draft and the final version of such report for three years after publication.Incorrect
Rule: 2241
Submission of Sections of a Draft Research Reports for Factual Review.
Consistent with the requirements of paragraphs (b)(2)(A) and (b)(2)(N), sections of a draft research report may be provided to non-investment banking personnel or to the subject company for factual review so long as:
(a) the sections of the report submitted do not contain the research summary, the research rating or the price target;
(b) a complete draft of the report is provided to legal or compliance personnel before sections of the report are submitted to non-investment banking personnel or the subject company; and
(c) if, after submitting sections of the report to non-investment banking personnel or the subject company, the research department intends to change the proposed rating or price target, it must first provide written justification to, and receive written authorization from, legal or compliance personnel for the change. The member must retain copies of any draft and the final version of such report for three years after publication. -
Question 9 of 10
9. Question
Which of the following statement(s) is/are true regarding distribution of member research products?
Correct
Rule: 2241
Distribution of Member Research Products.
With respect to paragraph (g), a member may provide different research products and services to different classes of customers. For example, a member may offer one research product for those with a long-term investment horizon (“investor research”) and a different research product for those customers with a short-term investment horizon (“trading research”). These products may lead to different recommendations or ratings, provided that each is consistent with the meaning of the member’s ratings system for each respective product. However, a member may not differentiate a research product based on the timing of receipt of a recommendation, rating or other potentially market moving information, nor may a member label a research product with substantially the same content as a different product as a means to allow certain customers to trade in advance of other customers. In addition, a member that provides different research products and services for different customers must inform its other customers that its alternative research products and services may reach different conclusions or recommendations that could impact the price of the equity security.Incorrect
Rule: 2241
Distribution of Member Research Products.
With respect to paragraph (g), a member may provide different research products and services to different classes of customers. For example, a member may offer one research product for those with a long-term investment horizon (“investor research”) and a different research product for those customers with a short-term investment horizon (“trading research”). These products may lead to different recommendations or ratings, provided that each is consistent with the meaning of the member’s ratings system for each respective product. However, a member may not differentiate a research product based on the timing of receipt of a recommendation, rating or other potentially market moving information, nor may a member label a research product with substantially the same content as a different product as a means to allow certain customers to trade in advance of other customers. In addition, a member that provides different research products and services for different customers must inform its other customers that its alternative research products and services may reach different conclusions or recommendations that could impact the price of the equity security. -
Question 10 of 10
10. Question
Regarding disclosure in public appearances, what must a research analyst disclose in public appearances?
Correct
Rule: 2241
Disclosure in Public Appearances
A research analyst must disclose in public appearances:
(A) if the research analyst or a member of the research analyst’s household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
(B) if the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company;
(C) if, to the extent the research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the previous 12 months;
(D) if the research analyst received any compensation from the subject company in the previous 12 months;
(E) if, to the extent the research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of publication or distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst; or
(F) any other material conflict of interest of the research analyst or member that the research analyst knows or has reason to know at the time of the public appearance.Incorrect
Rule: 2241
Disclosure in Public Appearances
A research analyst must disclose in public appearances:
(A) if the research analyst or a member of the research analyst’s household has a financial interest in the debt or equity securities of the subject company (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), and the nature of such interest;
(B) if the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company;
(C) if, to the extent the research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the previous 12 months;
(D) if the research analyst received any compensation from the subject company in the previous 12 months;
(E) if, to the extent the research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of publication or distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst; or
(F) any other material conflict of interest of the research analyst or member that the research analyst knows or has reason to know at the time of the public appearance.