FINRA Series 10 Exam 527 Questions with Verified Answers
According to MSRB rules, to be considered to be "regular way" settlement -
CORRECT ANSWER Settlement date is trade date plus three business days. Regular
way settlement for municipal bond transactions is Trade date plus 3 business days
(T+3).
Muni Firm has a control relationship with an issuer for which it is distributing a
new issue. RR wants to sell some of the securities to a discretionary client but the
client cannot be reached. What can the RR do with regard to executing the
transaction - CORRECT ANSWER The RR may not execute the transaction until the
customer can be contacted
When there is a control relationship between an issuer and a broker/dealer, the
customer must: - CORRECT ANSWER the customer must be made aware of the
relationship and approve the trade prior to executing a transaction
A broker-dealer is inspected by FINRA on a 4-year cycle. Which records must be
retained covering this entire period - CORRECT ANSWER Articles of Incorporation
Articles of incorporation must be retained for the life of the firm. - CORRECT
ANSWER
In a principal transaction, the MSRB requires that the price given to the customer
consider the dealer's - CORRECT ANSWER best judgment of the security's fair
market value; the fact that the dealer is entitled to a profit; the expenses
associated with handling the transaction; and the total dollar amount of the
transaction.
For agency transaction, the MSRB requires that the availability of the security be
considered (a "hard to find" security justifies a higher commission); - CORRECT
ANSWER as well as the expense of executing the order, the value of services
rendered by the broker; and the amount of any other compensation received by
the broker in that transaction.
,A General Sales Supervisor has worked for a broker-dealer for 11 years. He
becomes subject to statutory disqualification. Which statement is TRUE -
CORRECT ANSWER This individual may be permitted to continue working provided
the employer member files a written application to FINRA in an Eligibility
Proceeding
The Securities Exchange Act of 1934 lists the reasons why an individual associated
with a firm, or the firm itself, may be subject to "statutory disqualification" -
meaning that they cannot be involved in the securities business. These include
situations where the individual or member firm: - CORRECT ANSWER has been
suspended or expelled from any other Self Regulatory Organization, either
domestic or foreign;
is the subject of an SEC order suspending or revoking registration or by his
conduct while associated with a firm has caused that firm's suspension or
expulsion;
willfully filed a false or misleading application or has omitted to state material
facts in the application;
willfully violated federal securities or commodities laws, willfully aided, abetted,
counseled, commanded or procured such violations, or failed to supervise those
who commit such law violations;
has been convicted of any securities or "money" related offense (such as
embezzlement) within the past 10 years; or
has been temporarily or permanently enjoined from engaging in the securities
business.
Generally speaking, a person subject to statutory disqualification may not be
associated with a member in any capacity. However, FINRA permits a disqualified
person to request permission to enter into, or remain in, the securities industry.
To do so, the member firm must file an application seeking approval of a new or
continued registration in an "Eligibility Proceeding."
The application is a package of all relevant information surrounding the
disqualification. FINRA looks at the nature and gravity of the event; the length of
time since the event occurred; any mitigating or aggravating circumstances; and
the disciplinary history of the member firm and associated person. If FINRA
approves an application, the SEC is also required to review and approve that
decision; and if FINRA denies an application, an appeal may be filed with the SEC.
,Confirmation contents are regulated by MSRB Rule G15 and therefore, - CORRECT
ANSWER cannot be changed by an agreement between Municipal Dealers.
A MFP was associated with Dealer A at the time he made a political contribution
which resulted in the dealer being prohibited from engaging in muni securities
business with the issuer for 2 years. Then, less than 2 years after making the
contribution, the MFP becomes associated with Dealer B. Which dealer(s) is
subject to the prohibition on engaging in muni business? - CORRECT ANSWER
Dealer A and Dealer B. Both dealers are subject to the prohibition for two years
from the date of the contribution. Dealer B's probation only begins when the MFP
joins Dealer B.
All monies due as the result of a buy-in are due - CORRECT ANSWER All monies
are due as a result of a buy in within 10 business days of execution
Which of the following branch functions can be outsourced to a third party
provider - CORRECT ANSWER New account processing & New account customer
I.D. verification. Customer account processing & verification of customer identity
are functions that can be outsourced - there is no requirement for these to be
performed by a registered person.
FINRA does NOT allow functions that must be performed by a registered person
to be outsourced unless - CORRECT ANSWER Unless the third party firm to whom
the functions are outsourced is itself a registered broker-dealer
New account approval must be performed by a registered principal and suitability
determinations can only be made by registered representatives (or registered
principals). - CORRECT ANSWER
A customer has a NMFBA at your firm with $400,000 in assets. For the past 2
years, there has been no activity in the account and the customer has been
charged a $6,000 annual flat fee during each of those years for account
maintenance. As the BOM, you should - CORRECT ANSWER Non-Managed Fee
Based Accounts (NMFBAs) are typically only suitable for active traders. This
customer is paying a very high annual fee for very little trading. The best answer is
that the BOM should have the representative discuss the situation with the
customer and explain the differences between maintaining the account as a
, NMFBA or converting it back to a per-trade commission charge account. Also note
that FINRA permits the account to be maintained as a NMFBA, even if this is more
expensive, if the customer places a high value on aligning his or her interests with
those of the broker (e.g., he knows with the NMFBA that the broker will not make
recommendations just to induce trades for commissions).
A broker-dealer making a PIPE offering under Rule 506 of Regulation D is required
to complete a - CORRECT ANSWER "reasonable basis" suitability determination
that determines that the offering is suitable for at least some investors &
customer level suitability for both the accredited and non-accredited investors
A "PIPE" offering is a Private Investment in Public Equity conducted under
Regulation D. FINRA views private placements as - CORRECT ANSWER as "non-
standard" offerings and applies 2 levels of suitability - both product level and
customer level.
As with any "non-standard" investment, when offering a private placement,
FINRA requires the broker-dealer first to conduct a "reasonable basis" suitability
determination that the investment will be suitable for at least some clients. This
investigation must look at the: - CORRECT ANSWER issuer and its management;
business prospects of the issuer; assets held or to be acquired by the issuer;
claims being made; & intended use of the proceeds of the offering. Once a
reasonable basis suitability determination has been completed & documented,
demonstrating that the investment is suitable for at least some customers, then a
second level of suitability is required
second level of suitability is required. This is "customer level" suitability, which
applies to both accredited (wealthy) and non-accredited investors in the offering.
Just because an investor is accredited does not obviate this requirement. -
CORRECT ANSWER This is "customer level" suitability, which applies to both
accredited (wealthy) and non-accredited investors in the offering. Just because an
investor is accredited does not obviate this requirement.
To complete customer level suitability, the broker-dealer must - CORRECT
ANSWER must gather & analyze information about the customer's other holdings,
financial situation & needs, tax status, risk tolerance, investment objectives, & any
other information that would enable the firm to make its suitability
According to MSRB rules, to be considered to be "regular way" settlement -
CORRECT ANSWER Settlement date is trade date plus three business days. Regular
way settlement for municipal bond transactions is Trade date plus 3 business days
(T+3).
Muni Firm has a control relationship with an issuer for which it is distributing a
new issue. RR wants to sell some of the securities to a discretionary client but the
client cannot be reached. What can the RR do with regard to executing the
transaction - CORRECT ANSWER The RR may not execute the transaction until the
customer can be contacted
When there is a control relationship between an issuer and a broker/dealer, the
customer must: - CORRECT ANSWER the customer must be made aware of the
relationship and approve the trade prior to executing a transaction
A broker-dealer is inspected by FINRA on a 4-year cycle. Which records must be
retained covering this entire period - CORRECT ANSWER Articles of Incorporation
Articles of incorporation must be retained for the life of the firm. - CORRECT
ANSWER
In a principal transaction, the MSRB requires that the price given to the customer
consider the dealer's - CORRECT ANSWER best judgment of the security's fair
market value; the fact that the dealer is entitled to a profit; the expenses
associated with handling the transaction; and the total dollar amount of the
transaction.
For agency transaction, the MSRB requires that the availability of the security be
considered (a "hard to find" security justifies a higher commission); - CORRECT
ANSWER as well as the expense of executing the order, the value of services
rendered by the broker; and the amount of any other compensation received by
the broker in that transaction.
,A General Sales Supervisor has worked for a broker-dealer for 11 years. He
becomes subject to statutory disqualification. Which statement is TRUE -
CORRECT ANSWER This individual may be permitted to continue working provided
the employer member files a written application to FINRA in an Eligibility
Proceeding
The Securities Exchange Act of 1934 lists the reasons why an individual associated
with a firm, or the firm itself, may be subject to "statutory disqualification" -
meaning that they cannot be involved in the securities business. These include
situations where the individual or member firm: - CORRECT ANSWER has been
suspended or expelled from any other Self Regulatory Organization, either
domestic or foreign;
is the subject of an SEC order suspending or revoking registration or by his
conduct while associated with a firm has caused that firm's suspension or
expulsion;
willfully filed a false or misleading application or has omitted to state material
facts in the application;
willfully violated federal securities or commodities laws, willfully aided, abetted,
counseled, commanded or procured such violations, or failed to supervise those
who commit such law violations;
has been convicted of any securities or "money" related offense (such as
embezzlement) within the past 10 years; or
has been temporarily or permanently enjoined from engaging in the securities
business.
Generally speaking, a person subject to statutory disqualification may not be
associated with a member in any capacity. However, FINRA permits a disqualified
person to request permission to enter into, or remain in, the securities industry.
To do so, the member firm must file an application seeking approval of a new or
continued registration in an "Eligibility Proceeding."
The application is a package of all relevant information surrounding the
disqualification. FINRA looks at the nature and gravity of the event; the length of
time since the event occurred; any mitigating or aggravating circumstances; and
the disciplinary history of the member firm and associated person. If FINRA
approves an application, the SEC is also required to review and approve that
decision; and if FINRA denies an application, an appeal may be filed with the SEC.
,Confirmation contents are regulated by MSRB Rule G15 and therefore, - CORRECT
ANSWER cannot be changed by an agreement between Municipal Dealers.
A MFP was associated with Dealer A at the time he made a political contribution
which resulted in the dealer being prohibited from engaging in muni securities
business with the issuer for 2 years. Then, less than 2 years after making the
contribution, the MFP becomes associated with Dealer B. Which dealer(s) is
subject to the prohibition on engaging in muni business? - CORRECT ANSWER
Dealer A and Dealer B. Both dealers are subject to the prohibition for two years
from the date of the contribution. Dealer B's probation only begins when the MFP
joins Dealer B.
All monies due as the result of a buy-in are due - CORRECT ANSWER All monies
are due as a result of a buy in within 10 business days of execution
Which of the following branch functions can be outsourced to a third party
provider - CORRECT ANSWER New account processing & New account customer
I.D. verification. Customer account processing & verification of customer identity
are functions that can be outsourced - there is no requirement for these to be
performed by a registered person.
FINRA does NOT allow functions that must be performed by a registered person
to be outsourced unless - CORRECT ANSWER Unless the third party firm to whom
the functions are outsourced is itself a registered broker-dealer
New account approval must be performed by a registered principal and suitability
determinations can only be made by registered representatives (or registered
principals). - CORRECT ANSWER
A customer has a NMFBA at your firm with $400,000 in assets. For the past 2
years, there has been no activity in the account and the customer has been
charged a $6,000 annual flat fee during each of those years for account
maintenance. As the BOM, you should - CORRECT ANSWER Non-Managed Fee
Based Accounts (NMFBAs) are typically only suitable for active traders. This
customer is paying a very high annual fee for very little trading. The best answer is
that the BOM should have the representative discuss the situation with the
customer and explain the differences between maintaining the account as a
, NMFBA or converting it back to a per-trade commission charge account. Also note
that FINRA permits the account to be maintained as a NMFBA, even if this is more
expensive, if the customer places a high value on aligning his or her interests with
those of the broker (e.g., he knows with the NMFBA that the broker will not make
recommendations just to induce trades for commissions).
A broker-dealer making a PIPE offering under Rule 506 of Regulation D is required
to complete a - CORRECT ANSWER "reasonable basis" suitability determination
that determines that the offering is suitable for at least some investors &
customer level suitability for both the accredited and non-accredited investors
A "PIPE" offering is a Private Investment in Public Equity conducted under
Regulation D. FINRA views private placements as - CORRECT ANSWER as "non-
standard" offerings and applies 2 levels of suitability - both product level and
customer level.
As with any "non-standard" investment, when offering a private placement,
FINRA requires the broker-dealer first to conduct a "reasonable basis" suitability
determination that the investment will be suitable for at least some clients. This
investigation must look at the: - CORRECT ANSWER issuer and its management;
business prospects of the issuer; assets held or to be acquired by the issuer;
claims being made; & intended use of the proceeds of the offering. Once a
reasonable basis suitability determination has been completed & documented,
demonstrating that the investment is suitable for at least some customers, then a
second level of suitability is required
second level of suitability is required. This is "customer level" suitability, which
applies to both accredited (wealthy) and non-accredited investors in the offering.
Just because an investor is accredited does not obviate this requirement. -
CORRECT ANSWER This is "customer level" suitability, which applies to both
accredited (wealthy) and non-accredited investors in the offering. Just because an
investor is accredited does not obviate this requirement.
To complete customer level suitability, the broker-dealer must - CORRECT
ANSWER must gather & analyze information about the customer's other holdings,
financial situation & needs, tax status, risk tolerance, investment objectives, & any
other information that would enable the firm to make its suitability
