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Question 1 of 10
1. Question
What factors should be considered while buying or selling securities?
I. Market conditions
II. Price of the security
III. Profit generating from the security
IV. Reasons behind previous market shiftsCorrect
FINRA rule no 2121. Fair prices and Commissions
In securities transactions, whether in “listed” or “unlisted” securities, if a member buys for his own account from his customer, or sells for his own account to his customer, he shall buy or sell at a price which is fair, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense involved, and the fact that he is entitled to a profit; and if he acts as agent for his customer in any such transaction, he shall not charge his customer more than a fair commission or service charge, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense of executing the order and the value of any service he may have rendered by reason of his experience in and knowledge of such security and the market thereforIncorrect
FINRA rule no 2121. Fair prices and Commissions
In securities transactions, whether in “listed” or “unlisted” securities, if a member buys for his own account from his customer, or sells for his own account to his customer, he shall buy or sell at a price which is fair, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense involved, and the fact that he is entitled to a profit; and if he acts as agent for his customer in any such transaction, he shall not charge his customer more than a fair commission or service charge, taking into consideration all relevant circumstances, including market conditions with respect to such security at the time of the transaction, the expense of executing the order and the value of any service he may have rendered by reason of his experience in and knowledge of such security and the market therefor -
Question 2 of 10
2. Question
What are the factors that should be considered while determining the fairness of markups?
I. The price of the security
II. The availability of the security
III. The previous price of the security
IV. The amount of money involved in a transactionCorrect
FINRA rule no 2121. Fair Prices and Commissions
Some of the factors which the Board believes that members and the Association’s committees should take into consideration in determining the fairness of a mark-up are as follows:
(1) The Type of Security Involved
Some securities customarily carry a higher mark-up than others. For example, a higher percentage of mark-up customarily applies to a common stock transaction than to a bond transaction of the same size. Likewise, a higher percentage applies to sales of units of direct participation programs and condominium securities than to sales of common stock.
(2) The Availability of the Security in the Market
In the case of an inactive security the effort and cost of buying or selling the security, or any other unusual circumstances connected with its acquisition or sale, may have a bearing on the amount of mark-up justified.
(3) The Price of the Security
While there is no direct correlation, the percentage of mark-up or rate of commission generally increases as the price of the security decreases. Even where the amount of money is substantial, transactions in lower-priced securities may require more handling and expense and may warrant a wider spread.
(4) The Amount of Money Involved in a Transaction
A transaction that involves a small amount of money may warrant a higher percentage of mark-up to cover the expenses of handling.
(5) Disclosure
Any disclosure to the customer, before the transaction is effected, of information which would indicate (A) the amount of commission charged in an agency transaction or (B) mark-up made in a principal transaction is a factor to be considered. Disclosure itself, however, does not justify a commission or mark-up which is unfair or excessive in light of all other relevant circumstances.
(6) The Pattern of Mark-Ups
While each transaction must meet the test of fairness, the Board believes that particular attention should be given to the pattern of a member’s mark-ups.
(7) The Nature of the Member’s Business
The Board is aware of the differences in the services and facilities which are needed by and provided for, customers of members. If not excessive, the cost of providing such services and facilities, particularly when they are of a continuing nature, may properly be considered in determining the fairness of a member’s mark-ups.Incorrect
FINRA rule no 2121. Fair Prices and Commissions
Some of the factors which the Board believes that members and the Association’s committees should take into consideration in determining the fairness of a mark-up are as follows:
(1) The Type of Security Involved
Some securities customarily carry a higher mark-up than others. For example, a higher percentage of mark-up customarily applies to a common stock transaction than to a bond transaction of the same size. Likewise, a higher percentage applies to sales of units of direct participation programs and condominium securities than to sales of common stock.
(2) The Availability of the Security in the Market
In the case of an inactive security the effort and cost of buying or selling the security, or any other unusual circumstances connected with its acquisition or sale, may have a bearing on the amount of mark-up justified.
(3) The Price of the Security
While there is no direct correlation, the percentage of mark-up or rate of commission generally increases as the price of the security decreases. Even where the amount of money is substantial, transactions in lower-priced securities may require more handling and expense and may warrant a wider spread.
(4) The Amount of Money Involved in a Transaction
A transaction that involves a small amount of money may warrant a higher percentage of mark-up to cover the expenses of handling.
(5) Disclosure
Any disclosure to the customer, before the transaction is effected, of information which would indicate (A) the amount of commission charged in an agency transaction or (B) mark-up made in a principal transaction is a factor to be considered. Disclosure itself, however, does not justify a commission or mark-up which is unfair or excessive in light of all other relevant circumstances.
(6) The Pattern of Mark-Ups
While each transaction must meet the test of fairness, the Board believes that particular attention should be given to the pattern of a member’s mark-ups.
(7) The Nature of the Member’s Business
The Board is aware of the differences in the services and facilities which are needed by and provided for, customers of members. If not excessive, the cost of providing such services and facilities, particularly when they are of a continuing nature, may properly be considered in determining the fairness of a member’s mark-ups. -
Question 3 of 10
3. Question
Which of the following statement is/are true about covered associate?
I. any general partner, managing member, executive officer of the Firm
II. any political action committee (“PAC”) controlled by the adviser or by any of its covered associates
III. Any associated person of a covered member who supervises, directly or indirectly, the government entity distribution or solicitation activities of a person
IV. any member associated with non-profit organizationsCorrect
FINRA rule no 2030. Engaging in Distribution and Solicitation Activities with Government Entities
“Covered associate” means:
(A) Any general partner, managing member or executive officer of a covered member, or other individual with a similar status or function;
(B) Any associated person of a covered member who engages in distribution or solicitation activities with a government entity for such covered member;
(C) Any associated person of a covered member who supervises, directly or indirectly, the government entity distribution or solicitation activities of a person in subparagraph (B) above; and
(D) Any political action committee controlled by a covered member or a covered associateIncorrect
FINRA rule no 2030. Engaging in Distribution and Solicitation Activities with Government Entities
“Covered associate” means:
(A) Any general partner, managing member or executive officer of a covered member, or other individual with a similar status or function;
(B) Any associated person of a covered member who engages in distribution or solicitation activities with a government entity for such covered member;
(C) Any associated person of a covered member who supervises, directly or indirectly, the government entity distribution or solicitation activities of a person in subparagraph (B) above; and
(D) Any political action committee controlled by a covered member or a covered associate -
Question 4 of 10
4. Question
The term “listed non-securities” means?
I. Securities listed under Bank Secrecy Act
II. Securities listed on national security exchange
III. Securities listed under Sarbanes Oxley Act
IV. Have unlisted trading privileges on a national securities exchangeCorrect
FINRA rule no 4210. Margin Requirements
The term “non-equity securities” means any securities other than equity securities as defined in Section 3(a)(11) of the Exchange Act.
The term “listed non-equity securities” means any non-equity securities that: (A) are listed on a national securities exchange; or (B) have unlisted trading privileges on a national securities exchange.Incorrect
FINRA rule no 4210. Margin Requirements
The term “non-equity securities” means any securities other than equity securities as defined in Section 3(a)(11) of the Exchange Act.
The term “listed non-equity securities” means any non-equity securities that: (A) are listed on a national securities exchange; or (B) have unlisted trading privileges on a national securities exchange. -
Question 5 of 10
5. Question
What does Index Multiplier mean?
Correct
FINRA rule no 4210. Margin Requirements
The term “index multiplier” as used in reference to an index option contract means the amount specified in the contract by which the index value is to be multiplied to arrive at the value required to be delivered to the holder of a call or by the holder of a put upon valid exercise of the contractIncorrect
FINRA rule no 4210. Margin Requirements
The term “index multiplier” as used in reference to an index option contract means the amount specified in the contract by which the index value is to be multiplied to arrive at the value required to be delivered to the holder of a call or by the holder of a put upon valid exercise of the contract -
Question 6 of 10
6. Question
Which of the following statement is/are true regarding a short position?
I. A short is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price
II. potential to earn a profit and infinite potential for losses
III. There are three types of short positions
IV. In the futures or foreign exchange markets, short positions can be created at any time.Correct
FINRA rule no 2360. Options
A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. There are two types of short positions: naked and covered. A naked short is when a trader sells a security without having possession of it. However, that practice is illegal in the U.S. for equities. A covered short is when a trader borrows the shares from a stock loan department; in return, the trader pays a borrow-rate during the time the short position is in placeIncorrect
FINRA rule no 2360. Options
A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. There are two types of short positions: naked and covered. A naked short is when a trader sells a security without having possession of it. However, that practice is illegal in the U.S. for equities. A covered short is when a trader borrows the shares from a stock loan department; in return, the trader pays a borrow-rate during the time the short position is in place -
Question 7 of 10
7. Question
Which of the following statement is/are true regarding the options contract?
I. An options contract is an agreement between two parties to facilitate a potential transaction on the underlying asset at a preset price
II. For stock options, a single contract covers 100 shares of the underlying stock
III. Options are generally used for hedging purposes but can be used for speculation
IV. Buying an option offers the right, but not the obligation to purchase or sell the underlying assetCorrect
FINRA rule no 2360. Options
Options Contract — The term “options contract” means any option as defined in paragraph (a)(21). For purposes of paragraphs (b)(3) through (12), an option to purchase or sell common stock shall be deemed to cover 100 shares of such stock at the time the contract granting such an option is written. If a stock option is granted covering some other number of shares, then for purposes of paragraphs (b)(3) through (12), it shall be deemed to constitute as many option contracts as that other number of shares divided by 100 (e.g., an option to buy or sell five hundred shares of common stock shall be considered as five option contracts). A stock option contract that, when written, grants the right to purchase or sell 100 shares of common stock shall continue to be considered as one contract throughout its life, notwithstanding that, pursuant to its terms, the number of shares that it covers may be adjusted to reflect stock dividends, stock splits, reverse splits, or other similar actions by the issuer of such stock.Incorrect
FINRA rule no 2360. Options
Options Contract — The term “options contract” means any option as defined in paragraph (a)(21). For purposes of paragraphs (b)(3) through (12), an option to purchase or sell common stock shall be deemed to cover 100 shares of such stock at the time the contract granting such an option is written. If a stock option is granted covering some other number of shares, then for purposes of paragraphs (b)(3) through (12), it shall be deemed to constitute as many option contracts as that other number of shares divided by 100 (e.g., an option to buy or sell five hundred shares of common stock shall be considered as five option contracts). A stock option contract that, when written, grants the right to purchase or sell 100 shares of common stock shall continue to be considered as one contract throughout its life, notwithstanding that, pursuant to its terms, the number of shares that it covers may be adjusted to reflect stock dividends, stock splits, reverse splits, or other similar actions by the issuer of such stock. -
Question 8 of 10
8. Question
Which of the following statement is/are true regarding “put”?
I. A put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset
II. Puts are traded on various underlying assets, which can include stocks, currencies, commodities, and indexes
III. The buyer of a put option believes that the underlying stock will drop below the market price before the expiration date
IV. The value of a put option appreciates as the price of the underlying stock depreciates relative to the strike priceCorrect
FINRA rule no 2360. Options
Put — The term “put” means an option contract under which the holder of the option has the right, in accordance with the terms of the option, to sell the number of units of the underlying security or deliver a dollar equivalent of the underlying index covered by the option contract. In the case of a “put” issued by The Options Clearing Corporation on common stock, it shall mean an option contract under which the holder of the option has the right, in accordance with terms of the option, to sell to The Options Clearing Corporation the number of units of the underlying security covered by the option contract or to tender the dollar equivalent of the underlying index.Incorrect
FINRA rule no 2360. Options
Put — The term “put” means an option contract under which the holder of the option has the right, in accordance with the terms of the option, to sell the number of units of the underlying security or deliver a dollar equivalent of the underlying index covered by the option contract. In the case of a “put” issued by The Options Clearing Corporation on common stock, it shall mean an option contract under which the holder of the option has the right, in accordance with terms of the option, to sell to The Options Clearing Corporation the number of units of the underlying security covered by the option contract or to tender the dollar equivalent of the underlying index. -
Question 9 of 10
9. Question
Which of the following statement is/are true regarding the fidelity bond?
I. A fidelity bond is a form of business insurance that offers employer protection against losses
II. Losses are caused by its employees’ fraudulent or dishonest actions
III. This form of insurance is considered a component of a company’s risk management strategy.
IV. Fidelity bonds are tradable securitiesCorrect
FINRA rule no 4360. Fidelity Bonds
A fidelity bond is a form of business insurance that offers employer protection against losses that are caused by its employees’ fraudulent or dishonest actions. This form of insurance can protect against monetary or physical losses. Fidelity bonds are often held by insurance companies and brokerage firms, which are specifically required to carry protection proportional to their net capital. Among the possible forms of loss, a fidelity bond covers include fraudulent trading, theft and forgery. Although they are called “bonds,” fidelity bonds are actually a form of insurance policy. They are typically designated as either first-party or third-party; first-party fidelity bonds are policies protecting businesses from wrongful acts committed by employees, while third-party fidelity bonds protect companies from similar acts by individuals employed on a contract basis.Incorrect
FINRA rule no 4360. Fidelity Bonds
A fidelity bond is a form of business insurance that offers employer protection against losses that are caused by its employees’ fraudulent or dishonest actions. This form of insurance can protect against monetary or physical losses. Fidelity bonds are often held by insurance companies and brokerage firms, which are specifically required to carry protection proportional to their net capital. Among the possible forms of loss, a fidelity bond covers include fraudulent trading, theft and forgery. Although they are called “bonds,” fidelity bonds are actually a form of insurance policy. They are typically designated as either first-party or third-party; first-party fidelity bonds are policies protecting businesses from wrongful acts committed by employees, while third-party fidelity bonds protect companies from similar acts by individuals employed on a contract basis. -
Question 10 of 10
10. Question
Which of the following statement is/are true regarding shelf registered securities?
I. A shelf offering is a provision that allows an issuer to register a new issue of security without selling the entire issue at once
II. The issuer can sell portions of the issue over a five-year period
III. The issuer can sell portions of the issue without re-registering the security or incurring penalties
IV. A shelf offering enables an issuer to access markets quickly, with little additional administrative paperwork, when market conditions are optimal for the issuerCorrect
FINRA rule no 4210. Margin Requirements
Shelf-Registered Securities — The equity to be maintained in margin accounts of customers for securities which are the subject of current and effective registration for a continuous or delayed offering (shelf-registered securities) shall be at least the amount of margin required by paragraph (c) of this Rule, provided the member:
(i) obtains a current prospectus in effect with the SEC, meeting the requirements of Section 10 of the Securities Act, covering such securities;
(ii) has no reason to believe the Registration Statement is not in effect or that the issuer has been delinquent in filing such periodic reports as may be required of it with the SEC and is satisfied that such registration will be kept in effect and that the prospectus will be maintained on a current basis; and
(iii) retains a copy of such Registration Statement, including the prospectus, in an easily accessible place in its files. Shelf-registered securities that do not meet all the conditions prescribed above shall have no value for purposes of this Rule. Also, see subparagraph (C) below.Incorrect
FINRA rule no 4210. Margin Requirements
Shelf-Registered Securities — The equity to be maintained in margin accounts of customers for securities which are the subject of current and effective registration for a continuous or delayed offering (shelf-registered securities) shall be at least the amount of margin required by paragraph (c) of this Rule, provided the member:
(i) obtains a current prospectus in effect with the SEC, meeting the requirements of Section 10 of the Securities Act, covering such securities;
(ii) has no reason to believe the Registration Statement is not in effect or that the issuer has been delinquent in filing such periodic reports as may be required of it with the SEC and is satisfied that such registration will be kept in effect and that the prospectus will be maintained on a current basis; and
(iii) retains a copy of such Registration Statement, including the prospectus, in an easily accessible place in its files. Shelf-registered securities that do not meet all the conditions prescribed above shall have no value for purposes of this Rule. Also, see subparagraph (C) below.