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Series 24 - Review questions well answered to pass
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Series 24 - Review questions well answered to pass
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Series 24 - ReviewA 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 - correct
answer ✔✔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 - correct answer ✔✔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 - correct answer ✔✔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% - correct answer ✔✔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 - correct answer ✔✔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.
The required quarterly physical securities count must include all of the following EXCEPT:
, A. Securities in transit
B. Securities in reclamation
C. Securities in transfer
D. Securities failed to receive - correct answer ✔✔The best answer is B.
The required quarterly "box" count must also include securities that the firm does not physically have,
but which are under the firm's control. These include securities in transfer, securities in transit, securities
sold subject to repurchase agreements, fails to receive and fails to deliver. The rule does not include
securities in reclamation, which are mainly securities returned for technical corrections such as a missing
signature guarantee.
A FINRA member is OBLIGATED to accept which of the following orders for a NASDAQ security?
A. Market
B. Marketable limit
C. Limit stop
D. All of the above - correct answer ✔✔The best answer is A.
FINRA members are only obligated to accept market orders from customers. They can accept limit
orders, subject to the execution restrictions of the limit order protection rule - if the firm does not wish
to comply with the limit order protection rule, it simply can refuse to accept limit orders from
customers!
Regarding stop orders, a trade must occur at the stop (trigger) price for the order to become executable.
Some FINRA member firms accept these orders; others will not. Also note that while the NASDAQ
System has the capability of handling market and limit orders, market makers and order entry firms are
only obligated to take market orders under NASDAQ rules. They accept limit orders at their own
discretion for entry in the System. Currently, the NASDAQ System does not accept stop orders; however,
a member firm can accept a stop order at its own discretion placing it on its internal order book for
execution if the market moves to or through the stop price.
An OTC trader at a large market making firm routinely telephones his counterparts at smaller firms to
inquire as to why they don't route their non-NMS orders to his firm, stating that:
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