SIE Practice Exam 4

Splitting a stock provides each shareholder with more shares and the CMV (current market value) of the stock will decline proportionately. Because of the reduced price in the market, it becomes more ‘affordable.’

SIPC was never intended to guarantee customers against investment loss. It’s an insurance program providing ½ million dollars of account insurance in the event a customer’s brokerage firm goes bankrupt, with the maximum CASH coverage the same as bank FDIC coverage: $250K.

The stock split lowers the market price of a stock, which makes buying a round lot (100 sh.) more ‘affordable.’

All State securities Administrators are part of the North American Securities Administrators Association (NASAA).

Firm commitment implies the syndicate is purchasing the new issue from the issuer with a view to retailing it to the investing public….this is acting in a principal/dealer capacity. Best efforts underwritings are being done on an agency/brokerage basis.

The Office of Financial Asset Control (OFAC) maintains the list.

Only employee deferrals, not employer contributions, may go into the Roth account. All employer contributions go into the regular 401(k).

Ginnie Mae is a government agency that has the explicit backing of the US Government, while Fannie Mae and Freddie Mac have an ‘implied’ backing of the US government.

The 529 plans are considered by the SEC and FINRA to be municipal fund securities.

Hurricanes, tornadoes, earthquakes, floods, the electric grid going down, disasters which disrupt business operations for long periods of time….. FINRA requires every brokerage firm to have a plan in place so that investors can have access to their accounts as quickly as possible —-FINRA calls it a business continuity plan.

Corporate securities are not exempt from registration under the Securities Act of 1933. They must be SEC-registered.

Whether one considers answers A, B, or C partially accurate, the last answer, D is the most complete therefore best answer.

Acting as an agent, broker-dealers normally charge commissions. Acting as principals, they markup securities sold from their own inventory

Hedging investment risks involves strategies to mitigate and to reduce exposure to investment loss. Hedging is not a concept of maximizing profits.

The MSRB creates rules, but does not enforce its own rules. The MSRB rules are enforced by FINRA for securities firms. Within banks, they are enforced by the Federal Reserve, Comptroller of the Currency, and the FDIC.

A notice of sale is an advertisement published by a municipality in order to get bids from interested broker-dealers who wish to underwrite the sale of that issuer’s upcoming bond offering. The other answers are different names for documents which make full disclosure to purchases of securities.

A statutory disqualification occurs if the individual has been convicted a felony or a securities related misdemeanor within the past 10 years.

The options account agreement must be signed and returned within 15 days of account approval.

The regulatory element of continuing education must be completed on the second anniversary of initial registration, and every third year thereafter.

The discount rate is set by the Fed, and is the rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility–the discount window. The Fed influences the Fed Funds Rate, but does not actually set the rate – it is set by the market. The prime rate is set by banks.

SIPC was set up to protect customer ACCOUNTS in the event of a broker-dealer bankruptcy, not protect investments against loss. Be careful of the wording in this question. Cash & securities in customer accounts are ‘insured’ up to $500,000 in the event the B/D goes bankrupt and the cash and securities can’t be located and properly returned to the customer.

Each of these answers is a true statement.

Only the closed-end investment company trades at supply & demand pricing on an Exchange, and has no specific relationship to the fund’s underlying asset value.

Preferred stock pays dividends if declared by the Board of Directors. Preferred stock generally does not have voting rights. While it has priority over common stock in the event of a corporate liquidation, it does not have priority over corporate debt, including debentures.

The SEC reviews the information in a registration statement, it does not approve or disapprove of the information, nor does it guarantee the accuracy of the information disclosures. Therefore no sales agent can say to a prospect that these are ‘government approved’ securities.

Businesses can take advantage of annual tax-deductible write-offs according to specific schedules in the internal revenue code, referred to as depreciation schedules.

SIPC coverage protects customers from financial loss in the event of the financial failure of a broker-dealer. It protects each separate customer for up to $500,000 total, but no more than $250,000 in cash. Importantly, SIPC does not protect against market losses.

You cannot lose more than you’ve put at risk. A common stockholder cannot be held liable for any debts of the corporation, therefore they have limited liability.

A communication made available to retail investors cannot be classified as institutional. If the number of retail recipients is up to and including 25 persons, it is classified as correspondence. For larger audiences (more than 25 retail persons), it is considered retail communication.

The federal funds rate of interest is the interbank overnight loan rate.

Restricted persons include immediate family members of restricted persons. Immediate family members under this rule include spouses, siblings, children, parents, and in-laws. Grandparents, aunts, uncles, cousins, and ex-spouses are not considered restricted persons and therefore can freely invest in IPOs.

Government budget, spending and taxation policies are fiscal policies. Federal Reserve policies are monetary.

Selling away is a violation. It means selling securities which are not authorized to be sold by the employing broker-dealer.

Roth contributions are always made with after-tax dollars and are never tax-deductible.

Slowdown in the economy implies the economy is contracting, beginning to ‘shrink.’

FINRA gives a candidate three tries before imposing a six month waiting period. Each failure from the 4th failure on requires another six-month waiting period.

The SEC never approves or disapproves of securities. Instead, the SEC clears the distribution for public sale.

Securities Investor Protection Act of 1970 created an insurance entity called the Securities Investor Protection Corporation. Its purpose is to provide protection to customers of bankrupt brokerage firms in the event the customers’ cash and or securities have not been found during the bankruptcy proceedings. It is not investment insurance.

Roth IRAs are not available to everyone with earned income. Instead, only individuals who earn below a certain threshold can contribute to a Roth. In contrast, any investor with earned income is eligible to invest in a traditional IRA.

QIBs generally are institutions or other entities that, in aggregate, own and invest (on a discretionary basis) at least $100 million in securities. Under Rule 144A, QIBs can freely trade private placements among themselves.