Series 24 - Review
A registered representative at your firm borrows $9,000 from another
representative in the same branch office. As the principal, you become aware
of this at the next scheduled compliance meeting of your firm. What action
should you take?
A. No action needs to be taken
B. This is a "reportable event" that must be filed with FINRA promptly
C. You should determine that one representative was not the customer of the
other representative
D. You should advise the representatives that such a loan requires each to
amend their U4
The best answer is C.
Registered representatives cannot borrow from customers. Exceptions are
given if the:
- customer is an immediate family member;
- customer is a bank making a loan on the same terms and conditions that it
gives the general public;
- customer is another registered employee of the same broker-dealer;
- lending arrangement is based on a personal relationship with the customer
that is outside of the broker-customer relationship; or
- lending arrangement is based on a business arrangement that is outside of
the broker-customer relationship.
The key point is that the rule applies to borrowing from customers. The rule
states that the firm must have policies and procedures covering borrowing
from customers and that items 3, 4 and 5 require prior notice and approval
,from the firm. Regarding items 1 and 2, it is up to the firm whether it wants to
require prior notice and approval.
So, if one representative is borrowing from another, the next question is: "Is
there a customer relationship there?" For example, someone who is
registered with a Series 99 back office license could have an account with the
firm managed by someone with a Series 7 license. If that is the case, then the
rule would apply and prior written notice to the firm and firm approval is
required. Also note that if there is no "customer relationship," then the firm can
still put in an internal procedure where any borrowing by a representative
must be reported to the firm and approved by the firm - since heavy borrowing
by a representative is a "red flag."
As a result of a finding against a member firm in a hearing conducted under
the Code of Procedure, FINRA can take all of the following actions EXCEPT:
A. Expulsion
B. Fine
C. Cease and desist order
D. public announcement of wrongdoing
The best answer is C.
As a result of a finding against a member firm or associated person by the
Hearing Panel, FINRA can censure, suspend, or expel the associated person
or firm; can impose a fine of any dollar amount; and can make of public
announcement of the actions taken and why.
FINRA also has the right to issue a cease and desist order against an
associated person or firm, but these are issued to "maintain the status quo
while an underlying disciplinary proceeding is being litigated." So FINRA
would issue a cease and desist order as the hearings are occurring to stop
"further violative conduct." Once the Hearing Panel has made a finding and
,taken action such as a fine, suspension, or expulsion, there is no longer a
need for such a "cease and desist" order.
An associated person has completed a deferred variable annuity application
for a customer and has received the customer's check made payable to the
insurance company. The application and check are forwarded to the principal
for review. Once the application is approved, the check must be transmitted to
the insurance company:
A. By the close of business that day
B. No later than 12 noon the next business day
C. By the close of business on the 2nd business day after principal approval
D. by the close of business on the 7th day after principal approval
The best answer is B.
Under FINRA rules, once a variable annuity application lands on the desk of
the principal, it must be reviewed and approved within 7 business days.
Once it is approved by the principal, the broker-dealer must promptly forward
the check to the insurance company, defined by FINRA as no later than noon
the next business day.
This interpretation is based on the fact that mutual fund and variable annuity
broker-dealers are only required to maintain $25,000 of net capital, as long as
they do not hold customer funds or securities. If they were to hold these, they
would need $250,000 of net capital. So FINRA said that they will not consider
the broker-dealer to be holding customer funds as long as the check is
submitted to the insurance company no later than noon on the business day
after the principal approves the VA application.
, In order to be regulated under Subchapter M of the Internal Revenue Code,
REITs are required to distribute at least what minimum percentage of their Net
Investment Income?
A. 75%
B. 85%
C. 90%
D. 100%
The best answer is C.
REITs and registered investment companies get "conduit" tax treatment under
Subchapter M if they distribute at least 90% of their Net Investment Income to
shareholders. This means that the REIT does not pay tax on the distributed
income - it is only taxed at the shareholder level.
Under NYSE rules, the latest time that an MOC order can be entered or
canceled is:
A. 3:30 PM ET
B. 3:50 PM ET
C. 3:55 PM ET
D. 4:00 PM ET
The best answer is B.
The NYSE allows "MOC" - Market On Close - orders to be entered, or
canceled, until 3:50 PM ET. Note, in contrast, that NASDAQ allows MOC
orders to be entered or canceled until 3:55 PM ET. Also note that the NYSE
and NASDAQ extended these times by 5 minutes in early 2019 from the
previous 3:45 PM (NYSE) and 3:50 PM (NASDAQ) cutoffs.
A registered representative at your firm borrows $9,000 from another
representative in the same branch office. As the principal, you become aware
of this at the next scheduled compliance meeting of your firm. What action
should you take?
A. No action needs to be taken
B. This is a "reportable event" that must be filed with FINRA promptly
C. You should determine that one representative was not the customer of the
other representative
D. You should advise the representatives that such a loan requires each to
amend their U4
The best answer is C.
Registered representatives cannot borrow from customers. Exceptions are
given if the:
- customer is an immediate family member;
- customer is a bank making a loan on the same terms and conditions that it
gives the general public;
- customer is another registered employee of the same broker-dealer;
- lending arrangement is based on a personal relationship with the customer
that is outside of the broker-customer relationship; or
- lending arrangement is based on a business arrangement that is outside of
the broker-customer relationship.
The key point is that the rule applies to borrowing from customers. The rule
states that the firm must have policies and procedures covering borrowing
from customers and that items 3, 4 and 5 require prior notice and approval
,from the firm. Regarding items 1 and 2, it is up to the firm whether it wants to
require prior notice and approval.
So, if one representative is borrowing from another, the next question is: "Is
there a customer relationship there?" For example, someone who is
registered with a Series 99 back office license could have an account with the
firm managed by someone with a Series 7 license. If that is the case, then the
rule would apply and prior written notice to the firm and firm approval is
required. Also note that if there is no "customer relationship," then the firm can
still put in an internal procedure where any borrowing by a representative
must be reported to the firm and approved by the firm - since heavy borrowing
by a representative is a "red flag."
As a result of a finding against a member firm in a hearing conducted under
the Code of Procedure, FINRA can take all of the following actions EXCEPT:
A. Expulsion
B. Fine
C. Cease and desist order
D. public announcement of wrongdoing
The best answer is C.
As a result of a finding against a member firm or associated person by the
Hearing Panel, FINRA can censure, suspend, or expel the associated person
or firm; can impose a fine of any dollar amount; and can make of public
announcement of the actions taken and why.
FINRA also has the right to issue a cease and desist order against an
associated person or firm, but these are issued to "maintain the status quo
while an underlying disciplinary proceeding is being litigated." So FINRA
would issue a cease and desist order as the hearings are occurring to stop
"further violative conduct." Once the Hearing Panel has made a finding and
,taken action such as a fine, suspension, or expulsion, there is no longer a
need for such a "cease and desist" order.
An associated person has completed a deferred variable annuity application
for a customer and has received the customer's check made payable to the
insurance company. The application and check are forwarded to the principal
for review. Once the application is approved, the check must be transmitted to
the insurance company:
A. By the close of business that day
B. No later than 12 noon the next business day
C. By the close of business on the 2nd business day after principal approval
D. by the close of business on the 7th day after principal approval
The best answer is B.
Under FINRA rules, once a variable annuity application lands on the desk of
the principal, it must be reviewed and approved within 7 business days.
Once it is approved by the principal, the broker-dealer must promptly forward
the check to the insurance company, defined by FINRA as no later than noon
the next business day.
This interpretation is based on the fact that mutual fund and variable annuity
broker-dealers are only required to maintain $25,000 of net capital, as long as
they do not hold customer funds or securities. If they were to hold these, they
would need $250,000 of net capital. So FINRA said that they will not consider
the broker-dealer to be holding customer funds as long as the check is
submitted to the insurance company no later than noon on the business day
after the principal approves the VA application.
, In order to be regulated under Subchapter M of the Internal Revenue Code,
REITs are required to distribute at least what minimum percentage of their Net
Investment Income?
A. 75%
B. 85%
C. 90%
D. 100%
The best answer is C.
REITs and registered investment companies get "conduit" tax treatment under
Subchapter M if they distribute at least 90% of their Net Investment Income to
shareholders. This means that the REIT does not pay tax on the distributed
income - it is only taxed at the shareholder level.
Under NYSE rules, the latest time that an MOC order can be entered or
canceled is:
A. 3:30 PM ET
B. 3:50 PM ET
C. 3:55 PM ET
D. 4:00 PM ET
The best answer is B.
The NYSE allows "MOC" - Market On Close - orders to be entered, or
canceled, until 3:50 PM ET. Note, in contrast, that NASDAQ allows MOC
orders to be entered or canceled until 3:55 PM ET. Also note that the NYSE
and NASDAQ extended these times by 5 minutes in early 2019 from the
previous 3:45 PM (NYSE) and 3:50 PM (NASDAQ) cutoffs.
