SIE Prac Exam Part 4 (sec 31-32)|57 Questions with Verified Answers,100% CORRECT, Exams of Business Fundamentals

Download SIE Prac Exam Part 4 (sec 31-32)|57 Questions with Verified Answers,100% CORRECT and more Exams Business Fundamentals in PDF only on Docsity! SIE Prac Exam Part 4 (sec 31-32)|57 Questions with Verified Answers When a registered person leaves the securities business, Financial Industry Regulatory Authority (FINRA) retains jurisdiction over that person for how long? A) 1 year B) In perpetuity C) 30 days D) 2 years - CORRECT ANSWER D Explanation If a terminated person becomes subject to a customer complaint or charges are brought against that person by FINRA, that person remains subject to FINRA jurisdiction for two years following termination. Regarding political contributions, limitations are place with the view to A) prohibit advisory services for a fee provided to any government the recipients represent for a period of 10 years after the contribution. B) allow contributions to be made to any party without any possible loss of business. C) deter gaining political favor by employing what is commonly known as pay to play. D) permit all contributions be made equally to all participating parties in an election. - CORRECT ANSWER C Explanation The rule is designed to deter what is commonly called pay to play. It makes it unlawful for an adviser to receive compensation (fee) for providing advisory services to a government entity for a two-year period after the adviser makes a political contribution to a public official of a government entity. In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct except A) the agreement must be entered into before the termination of employment. B) earnings from referred business from existing clients would be eligible for payment. C) there must be a contract in effect calling for these continuing commissions. D) it would be permissible to pay continuing commissions to a surviving spouse. - CORRECT ANSWER B Explanation Continuing commissions are permitted, but there is no requirement that they be offered. In order for a former registered representative to receive them, the terms must be spelled out in a contract entered into before termination. The contract may call for payment to heirs but cannot provide any compensation for business referred or introduced by an employee after that person ceases to be registered with the member. The regulatory element of training requires that all registered persons complete a computer-based training session how frequently? A) Within 90 days of the person's second registration anniversary and then every 3 years thereafter B) Within 120 days of the person's second registration anniversary and then every 3 years thereafter C) Within 90 days of the person's third registration anniversary and then every 2 years thereafter D) home and now has an area with a private entrance that she would like to use instead of commuting each day to her office 20 miles away. Under FINRA rules A) registered representatives may not operate out of their homes. B) this would be permitted with FINRA's approval, but she would have to work at least one day per week in the branch in order to ensure proper supervision. C) she would only be permitted to see existing customers at her home. D) this would be permitted with FINRA's approval. - CORRECT ANSWER D Explanation FINRA rules provide for the ability of registered representatives to operate out of their residence in what is known as a home office. Approval from FINRA is required and the same rules that apply to any branch office would apply here. Associated persons who wish to enter into a private securities transaction for which they will receive no compensation must A) await the employer's approval before proceeding. B) take steps to have the transaction supervised at the firm where it will occur. C) open a new account to accommodate the transaction immediately. D) provide prior written notice to their employer. - CORRECT ANSWER D Explanation Associated persons who wish to enter into a private securities transaction must provide prior written notice to their employer. Approval is only required when compensation will be paid. All supervision for the transaction is the responsibility of the employing member and not the firm accommodating the transaction. An investment company wishes to provide incentives for registered representatives of several broker-dealer firms to sell their investment products. The company proposes to send some selected representatives to a sales training seminar. Which of the following would be acceptable features of the trip? 1. The venue of the seminar is a resort in the Canary Islands. 2. There is an incidental tour the representatives may attend at their own expense. 3. The representatives may bring their spouses, whose expenses will also be paid. 4. The representatives must obtain their employing firms' permission to attend. A) II and IV B) II and III C) I and IV D) I and III - CORRECT ANSWER A Explanation The trip itself is acceptable in principle, because it has a business purpose. Having it in the Canary Islands would be inappropriate. Side tours, outings, and so on are acceptable, provided the guests pay their own expenses for them. Paying the expenses of guests would be inappropriate as well. Permission of the employing firm to attend is always required. Continuing education requirements are a part of the securities industry's ongoing commitment to furthering the knowledge base for registered representatives. Which of the following CE requirements are needed by a registered rep? 1. Blue-sky requirement 2. Registration requirement 3. Firm element training 4. Regulatory element training A) I and II B) II and IV C) I and III D) III and IV - CORRECT ANSWER D Explanation Registered persons are required to participate in continuing education (CE) programs. The CE requirement has two components: a regulatory element and a firm element. Regulatory element requires that all registered persons complete a computer-based training session within 120 days of the person's second registration anniversary and every three years thereafter. Firm element requires member firms to prepare an annual training plan that takes into account such factors as recent regulatory developments, the scope of the member's business activities, the performance of its personnel in the regulatory element, and its supervisory needs. Firm element training requires member firms to prepare training how frequently? A) Quarterly B) Biannually C) Semiannually D) Annually - CORRECT ANSWER D Explanation Firm element requires member firms to prepare an annual training plan, taking into account such factors as recent regulatory developments, the scope of the member's business activities, employee performance in the regulatory element, and its supervisory needs. Which of the following would be unacceptable reasons for an officer of a member firm to make a contribution to the election campaign of a political candidate? 1. The candidate is a member of the officer's political party. A contract must have been signed by the registered person and the firm specifying what commissions are still to be paid. B) Any contract regarding continuing commissions must include the provision that the person's spouse must receive them in the event of the person's death. C) Once the registered person has left the industry, the person must be treated like any member of the public and may not receive any further commissions. D) The person may only receive commissions from current trades done by those who were the person's customers during employment at the firm. - CORRECT ANSWER A Explanation A registered person who has left the industry, whether through retirement or otherwise, is no longer registered and may not receive commissions for any new work from a Financial Industry Regulatory Authority (FINRA) member firm. If there are commissions from work done when the person was registered that have not yet been paid, they may be paid, provided that a written contract was signed by both parties specifying precisely what is due. The contract may, but is not required to, direct that continuing commissions be paid to the person's spouse in the event of the formerly registered person's death. A U-5 form should be filed with the Central Registration Depository within how many days after termination of a registered representative? A) 10 business days B) 30 days C) Next business day D) 15 business days - CORRECT ANSWER B Explanation The U-5 form must be filed by the former employer within 30 days. All of the following statements about a home office are true except A) a home office is subject to a premise visit and review by principals of the firm and Financial Industry Regulatory Authority (FINRA) examiners. B) a home office may be widely advertised as a place of business. C) the member firm must authorize the representative to open a home office. D) home offices are restricted to servicing existing customers only. - CORRECT ANSWER D Explanation Broker-dealers often allow registered representatives to operate a home office. Approval of the member firm and registration of the location with its self- regulatory organization (SRO) is required as it would be for any office associated with the broker-dealer. All normal business activities including opening new accounts and taking customer orders for the purchase and sale of securities would be permitted. Additionally, the home office address and telephone number may be advertised in any normal manner such as on business cards or through various media venues like newspapers and websites. A broker-dealer firm managing an initial public offering (IPO) wishes to give a gift to an associated person of one of the selling group members. Which of the following would be an unacceptable gift under the rules? A) A $125 designer edition fountain pen and desk holder B) A $150 leather briefcase with the broker-dealer's name and logo on it C) A ticket to a major league ball game to attend with a principal of the broker- dealer D) A dinner at an expensive restaurant with a representative of the broker-dealer - CORRECT ANSWER A Explanation Financial Industry Regulatory Authority (FINRA) member firms may not give business-related compensation to associated persons of other firms - compensation directly tied to sales or promises of sales - but may give an individual gifts whose value does not exceed $100 in a 12-month period. Tickets to a sporting event or dinner at an expensive restaurant may exceed the $100 limit if it is occasional, someone from the rewarding firm is present, and the employing firm has given its permission. Reminder advertising, items with the broker-dealer's name and/or logo, may also exceed the $100 limit, within reason, because it has a business purpose. Gifts and gratuities directed to those who work at another firm may not be made by a member or associated person for amounts greater than A) $100 per individual per year. B) $100 per year. C) $250 per year. D) $250 per lifetime. - CORRECT ANSWER A Explanation No member or associated person may give anything of value in excess of $100 per individual per year to any person, principal, employee, or representative of another person where such payment is in relation to the business of the employer of the recipient of the payment or gratuity. If a registered representative is involved in a securities transaction outside the scope of employment with the firm, a practice known as selling away and will receive compensation for it, which of the following must see that the representative is properly supervised for the transaction? A) A Financial Industry Regulatory Authority (FINRA) examiner B) None because there is no supervisory requirement C) The firm where the trade will take place anniversary in the industry and did the required regulatory element CE, the next time she will be required to sit for the regulatory element is A) next year. B) three years from now. C) two years from now. D) within 120 days. - CORRECT ANSWER B Explanation New registered representatives are required to sit for the regulatory element as of their second anniversary. Thereafter, they are scheduled each three years. Having just completed her second anniversary regulatory element CE, she will be next scheduled in three years. While an associated person may work for an entity other than the member firm, the employing member firm's permission is A) not required. B) not requested. C) required. D) requested. - CORRECT ANSWER A Explanation If a registered person wants to be employed by or accept compensation from an entity other than the member firm, that person must provide prior written notice to the member. Note that notice must be made, but the employing member's permission is not being requested nor is it required. All of the following regarding the firm element of a broker-dealer's continuing education (CE) requirement are true except A) it comprises training for those who have direct contact with the public. B) it is prepared by Financial Industry Regulatory Authority (FINRA) for the member firm to administer. C) it must take into account the scope of the member firm's business. D) it is applicable to both registered representatives and registered principals. - CORRECT ANSWER B Explanation The firm element of a broker-dealer firm's continuing education (CE) requirement is prepared by the member firm. It comprises training for those personnel who have direct contact with the public, and it must be completed by all registered persons. Among other things, it must take into account the scope of the firm's business. A broker-dealer may allow a registered representative to work from home - that is, to have a home office. If this is the case, the registered representative must A) carry out sales presentations in some other location. B) use the office only to perform clerical functions. C) expect the office to be treated like any branch office. D) not specify the office as a place of business in advertising. - CORRECT ANSWER C Explanation If a registered representative works from home, the office must be subject to site review and visits to the premises by principals of the firm and Financial Industry Regulatory Authority (FINRA) examiners, may be specified in advertising of various kinds as a business office, and function in all ways like any other branch office of the firm. Financial Industry Regulatory Authority (FINRA) is concerned about potential conflicts of interest in providing incentives or rewards for selling a sponsor's product. Which of the following situations regarding a product sponsors product training or education for outside RRs would FINRA disallow? A) Separate outings are planned in conjunction with the training at the expense of the attendees if they wish to participate. B) A training location is chosen based on its being convenient for attendees to get to and its proximity to the main office. C) Spouses are included in the invitation with travel expenses paid for. D) A member firm's permission for its registered representatives to attend is required. - CORRECT ANSWER C Explanation FINRA deems payment or reimbursement by sponsors in connection with meetings held to train or educate representatives acceptable as long as certain requirements are met. These would include, but are not limited to, the following: the representative obtains the member firm's prior permission to attend, the location of the meeting is appropriate to the purpose of the meeting, there is no payment or reimbursement for a guest (e.g., a spouse) of the representative attending the meeting, and there is no payment or reimbursement for certain expenses incurred in connection with meetings, such as golf outings. Each of the following activities would require prior written notification by an associated person to the employing broker-dealer except A) acting as a real estate sales agent, limited to the sales of individual homes only. B) becoming a limited partner in an oil and gas drilling program. C) offering to sell a limited partnership interest in an oil and gas drilling program. D) part-time work parking cars on the weekend at a local racetrack. - CORRECT ANSWER B Explanation The Financial Industry Regulatory Authority (FINRA) - CORRECT ANSWER D Explanation Whenever a customer complaint is received, it is essential that the proper personnel are notified. Persons who should be notified may include the account's representative, the account's principal, the branch manager, or a member of the compliance department. A notice to Financial Industry Regulatory Authority (FINRA) is required only in regards to certain scenarios, such as allegations of theft, forgery, misappropriation of funds, or securities. Financial Industry Regulatory Authority (FINRA) rules regarding outside business activity (OBA) require that A) prior written notice to the employing firm be provided. B) all activities be coordinated between both employers. C) all passive investments be reported under the rule. D) approval is gotten from FINRA or another self-regulatory organization (SRO). - CORRECT ANSWER A Explanation Under FINRA's rules regarding outside business activity (OBA), prior written notice to the employing member is required. When is the electronic filing of all information on customer complaints by broker- dealers with Financial Industry Regulatory Authority (FINRA) due? A) Within 30 calendar days of receipt of the complaint B) Within 15 days of the end of each calendar year C) Semiannually, in June and December D) Within 15 days of the end of each calendar quarter - CORRECT ANSWER D Explanation Broker-dealer firms must electronically report information on all customer complaints to FINRA within 15 days of the end of each calendar quarter. Both these filings and the complaints must be retained by the firm for 4 years. Should a registered representative enter into a private securities transaction that would entail earning compensation, the employing member will A) require a compensation split of least 50-50 with the associated person. B) provide all execution services for the transaction. C) not require any notification because the compensation makes the transaction the responsibility of the accommodating firm. D) have the opportunity to approve or disapprove of the associated person's participation. - CORRECT ANSWER D Explanation If the private securities transaction involves compensation, the employing member may approve or disapprove the associated person's participation. While the employing member firm is responsible for all supervision regarding the transaction, it is not obligated and normally is not in a position to provide any services related to accommodating the transaction. A representative of a dealer who solicits municipal securities business from an official of an issuer contributes $275 to the official's city council reelection campaign during the general election. Under what circumstance would the contribution invoke a ban on the dealer's municipal securities business with that issuer? A) The representative resides in the official's city. B) The dealer seeks to engage in a competitive underwriting with the issuer. C) The dealer seeks to engage in a negotiated underwriting with the issuer. D) The representative contributed $250 during the primary election. - CORRECT ANSWER C Explanation A representative of a dealer firm who gave any amount to the election campaign and then solicits a negotiated underwriting would likely cause a two-year ban on performing any work for that municipality. There are some exceptions. For example, if the representative lives in the municipality and is eligible to vote there, he may give up to $250 per election without triggering a ban. The rules to prevent pay to play regarding contributions made to political parties, candidates, and elected officials by firms involved in the underwriting or sales of municipal securities are enforced by A) Federal Reserve Board (FRB). B) Financial Industry Regulatory Authority (FINRA). C) Securities and Exchange Commission (SEC). D) Municipal Securities Rule Board (MSRB). - CORRECT ANSWER B Explanation Having no authority to enforce the rules it enacts, the MSRB relies on FINRA to enforce its municipal securities rules. This would include the enforcement of the pay to play or play for pay rules regarding political contributions. A registered representative has left one firm to join another. Sometime later, the former employer discovers that some information on Form U-5 filed at the time of termination was inaccurate. The firm need not file an amended U-5 if at least how much time has gone by? A) 5 years B) No stated time limit C) 30 days D) Municipal securities sales to customers - CORRECT ANSWER D Explanation Associated persons whose activities are limited solely to sales or have only clerical or ministerial functions are not MFPs. All the other activities would be associated with an MFP. The firm element of a broker-dealer's continuing education (CE) requirement must be undergone by all registered persons who A) have not had such training in the past six months. B) have direct contact with the public. C) have disciplinary actions pending. D) have purely clerical duties with the firm. - CORRECT ANSWER B Explanation A broker-dealer's continuing education (CE) program has a regulatory element and a firm element. The contents of the firm element are determined by the broker-dealer and must be met annually by all registered persons who have direct contact with the public. An amended Form U-5 must be filed and a copy sent to the former employee within how many days of discovery of the inaccuracy? A) 30 B) 25 C) 90 D) 10 - CORRECT ANSWER A Explanation If a broker-dealer discovers that a filed Form U-5 was inaccurate, an amended form must be filed and sent to the former employee within 30 days of the discovery of the inaccuracy. One of the Financial Industry Regulatory Authority (FINRA) Conduct Rules is concerned with private securities transactions. Under that rule, it would be correct to state that 1. if the member approves the registered representative participating in a transaction for compensation, it must treat the transaction as if it is being done on its own behalf by entering the transaction on its own books and supervising the associated person during the transaction. 2. as long as no compensation to the registered representative is involved, notification to the member is not required. 3. sale of a securities product to the registered representative's mother where there is only nominal compensation is not covered under the rule. 4. if the member disapproves of the registered representative's participation in a transaction for compensation, the associated person may not participate in it. A) III and IV B) I and IV C) II and III D) - CORRECT ANSWER B Explanation FINRA divides private securities transactions into two categories. If the associated person will receive compensation, the rules are more comprehensive requiring approval or disapproval. If approved, the firm must record the transaction on its books and records and supervise as if it were executed on behalf of the member firm. Trades with immediate family members are not included if there is no compensation. In other transactions where there is no compensation, written notice to the employer member is still required. A registered representative has left a firm and joined another. The new firm must obtain a copy of the Form U-5 filled out by the old firm. Where might the new firm obtain a copy of the form? 1. From the new employee 2. From the Securities and Exchange Commission (SEC) 3. From Financial Industry Regulatory Authority (FINRA)'s Central Registration Depository (CRD) 4. From the representative's former employer A) II and IV B) I and IV C) I and III D) II and III - CORRECT ANSWER C Explanation Copies of a new employee's Form U-5 may be obtained from the employee, or from FINRA's Central Registration Depository (CRD). Whichever the source, the firm must obtain the copy within 60 days of filing the new Form U-4 for the new employee. An individual has been a registered representative with a national firm for the past three years. Another member firm makes an attractive offer in an attempt to lure this individual to join them. In order to do so, the paperwork necessary would be A) completing a new Form U-4 with the new employer. B) a transfer of registration on Financial Industry Regulatory Authority (FINRA) form TRF. C) a Form U-5 from the previous employer. D) No waiting period D) Six months - CORRECT ANSWER C Explanation If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a two-year waiting period because a firm that has made a political contribution might have an unfair negotiating advantage over firms that have not. A registered representative has a customer who is interested in utilizing options strategies such as spreads and straddles. The registered representative's firm does not offer options transactions as part of their existing business model. As such, the registered representative directs the customer to open an account through another broker-dealer. This would be known in the securities industry as A) placing away. B) trading away. C) selling away. D) investing away. - CORRECT ANSWER C Explanation A private securities transaction is any sale of securities outside an associated person's regular business and his employing member. Private securities transactions are also known as selling away. If an associated person wishes to enter into a private securities transaction, that person must provide prior written notice to his employer, describe in detail the proposed transaction, describe in detail the registered representative's proposed role in the transaction, and disclose whether they have or may receive compensation for the transaction. Which of the following constitute a private securities transaction, or selling away? 1. A registered representative executes a trade for a customer in securities of a type normally handled by the representative's broker-dealer. 2. A registered representative's sibling has some old bonds that the representative sells as a favor through a municipal securities broker. 3. A registered representative helps an old school friend issue securities for a small business under formation. 4. A registered representative helps an acquaintance sell some inherited stock certificates without the acquaintance becoming a customer of the firm. A) II and IV B) III and IV C) I and III D) I and II - CORRECT ANSWER B Explanation A private securities transaction is any sale of securities outside the scope of the regular business of the associated person involved and of the broker-dealer firm. Such a transaction done for an immediate family member, however, does not fall under the definition. Passive investments do not fall under the definition of an outside business activity (OBA). Which of the following investments would be considered a passive investment? A) A partnership interest in a real estate brokerage firm B) A partnership interest in a local credit union C) A partial ownership in a car dealership D) Limited partnership unit - CORRECT ANSWER D Explanation A passive investment, such as the purchase of a limited partnership unit, is not considered an outside business activity (OBA). An associated person may make a passive investment for his own account without providing written notice to the employing broker-dealer.