CEP Level 1 UPDATED Exam Questions
and CORRECT Answers
The Exchange Act rule that prohibits trading in securities by a person having "material non-
public" information is: - CORRECT ANSWER - Rule 10b-5
Which is the statute that sets forth provisions promulgated by the Board of Governors of the
Federal Reserve System to regulate the extension of credit by brokers and dealers in connection
with the purchase or carrying of securities? - CORRECT ANSWER - Regulation T
Which agency is responsible for the provision to regulate the extension of credit by brokers and
dealers in connection with the purchase or carrying of securities? - CORRECT ANSWER -
Federal Reserve
How and when do an insider's purchases under a qualified Section 423 ESPP need to be reported
to the SEC? - CORRECT ANSWER - The purchases are not required to be reported, but
the insider's holdings should be updated to reflect the purchases on the next form filed by the
insider
A public company's equity plan authorizes the delivery of previously-owned shares of stock as a
payment method for option exercises. A director of the company takes advantage of this payment
method by tendering 200 shares to exercise 500 options. What is her reporting responsibility in
connection with the award? - CORRECT ANSWER - She must report both the exercise
and the sale of the shares she used to effect the swap on a Form 4
Shares held in a brokerage account can be voted - CORRECT ANSWER - Only by the
beneficial owner
When is the grant of an equity award required to be reported for Section 16 officers, and on
which form? - CORRECT ANSWER - Within 2 business days on Form 4
Broker -assisted cashless exercises can take what kind of forms: - CORRECT ANSWER -
Same-day sales, sell-to-cover and promissory note
, Which of the following individuals would be considered an affiliate of the issuer? - CORRECT
ANSWER - All directors and certain key executive officers
During any 12-month period the aggregate sales price or amount of securities sold in reliance on
Rule 701 cannot exceed the greatest of: - CORRECT ANSWER - $1 million, 15% of the
total assets of the issuer, 15% of the outstanding amount of the class securities being offered and
sold in reliance on Rule 701
Rule 16b-3 - CORRECT ANSWER - lists matchable transactions under Section 16(b),
includes exemptions to reporting under Section 16(a), also is designed to facilitate the receipt of
stock-based compensation by reporting persons without incurring liability under Section 16(b)
In a sell-to-cover broker's transaction: - CORRECT ANSWER - shares are typically
registered electronically in the name of the broker, and held by the broker in "street name" on
behalf of the new stockholder for ease of future trading.
Which is NOT required to be reported by a public company insider on Form 4? - CORRECT
ANSWER - The expiration or cancellation of a stock option
An executive receives 300 RSA shares and 150 RSU shares. At the time of the next annual
shareholder meeting, none of the shares have vested. How many votes does the executive have
available to vote at the shareholder meeting? - CORRECT ANSWER - 300. Because the
stock is actually issued for restricted stock awards at the time of grant, all shares are eligible for
voting even before they vest. Restricted stock units are not settled in issued stock until the units
vest, so no voting rights attach to the units.
A plan prospectus is: - CORRECT ANSWER - A summary of the plan terms, description
of the options' tax consequences, and other information to help employees decide whether to
exercise options.
What is false regarding voting rights? - CORRECT ANSWER - RSUs will have have
voting rights upon vesting, RSUs will have have voting rights upon vesting
and CORRECT Answers
The Exchange Act rule that prohibits trading in securities by a person having "material non-
public" information is: - CORRECT ANSWER - Rule 10b-5
Which is the statute that sets forth provisions promulgated by the Board of Governors of the
Federal Reserve System to regulate the extension of credit by brokers and dealers in connection
with the purchase or carrying of securities? - CORRECT ANSWER - Regulation T
Which agency is responsible for the provision to regulate the extension of credit by brokers and
dealers in connection with the purchase or carrying of securities? - CORRECT ANSWER -
Federal Reserve
How and when do an insider's purchases under a qualified Section 423 ESPP need to be reported
to the SEC? - CORRECT ANSWER - The purchases are not required to be reported, but
the insider's holdings should be updated to reflect the purchases on the next form filed by the
insider
A public company's equity plan authorizes the delivery of previously-owned shares of stock as a
payment method for option exercises. A director of the company takes advantage of this payment
method by tendering 200 shares to exercise 500 options. What is her reporting responsibility in
connection with the award? - CORRECT ANSWER - She must report both the exercise
and the sale of the shares she used to effect the swap on a Form 4
Shares held in a brokerage account can be voted - CORRECT ANSWER - Only by the
beneficial owner
When is the grant of an equity award required to be reported for Section 16 officers, and on
which form? - CORRECT ANSWER - Within 2 business days on Form 4
Broker -assisted cashless exercises can take what kind of forms: - CORRECT ANSWER -
Same-day sales, sell-to-cover and promissory note
, Which of the following individuals would be considered an affiliate of the issuer? - CORRECT
ANSWER - All directors and certain key executive officers
During any 12-month period the aggregate sales price or amount of securities sold in reliance on
Rule 701 cannot exceed the greatest of: - CORRECT ANSWER - $1 million, 15% of the
total assets of the issuer, 15% of the outstanding amount of the class securities being offered and
sold in reliance on Rule 701
Rule 16b-3 - CORRECT ANSWER - lists matchable transactions under Section 16(b),
includes exemptions to reporting under Section 16(a), also is designed to facilitate the receipt of
stock-based compensation by reporting persons without incurring liability under Section 16(b)
In a sell-to-cover broker's transaction: - CORRECT ANSWER - shares are typically
registered electronically in the name of the broker, and held by the broker in "street name" on
behalf of the new stockholder for ease of future trading.
Which is NOT required to be reported by a public company insider on Form 4? - CORRECT
ANSWER - The expiration or cancellation of a stock option
An executive receives 300 RSA shares and 150 RSU shares. At the time of the next annual
shareholder meeting, none of the shares have vested. How many votes does the executive have
available to vote at the shareholder meeting? - CORRECT ANSWER - 300. Because the
stock is actually issued for restricted stock awards at the time of grant, all shares are eligible for
voting even before they vest. Restricted stock units are not settled in issued stock until the units
vest, so no voting rights attach to the units.
A plan prospectus is: - CORRECT ANSWER - A summary of the plan terms, description
of the options' tax consequences, and other information to help employees decide whether to
exercise options.
What is false regarding voting rights? - CORRECT ANSWER - RSUs will have have
voting rights upon vesting, RSUs will have have voting rights upon vesting
