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Series 24 Chapter 11 questions well answered graded A+
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Series 24 Chapter 11 questions well answered graded A+
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Series 24 Chapter 11The SEC's Net Capital Rule (5): - correct answer ✔✔- Covers the financial responsibility of brokerdealers.
- Net Capital rule is a Liquidity rule
- intended to protect customers and other BDs by requiring that all BDs have sufficient liquid capital (net
capital) on hand at all times.
- requires BDs to provide a cushion of liquid assets in excess of liabilities to cover risks.
Total assets - total liabilities = tentative net capital. - haircut (shaves off part of value of securities) = net
capital
The minimum requirement for firms that carry customer accounts (2): - correct answer ✔✔- $250k for
firms that:
a. carry own customer accounts or carry accounts of other broker dealers
b. receive or hold funds or securities for customers or other BDs
c. BD must not allow its aggregate indebtedness to exceed 1,500% of its Net Capital (15:1)
d. 8:1 is imposed for 'newly formed bd's' operating in their first 12 months.
- $100,000 for a carrying firm that does NOT hold customer funds or securities beyond settlement of a
transaction and is exempt from net capital rules by using K(2)(i) exemptions.
Market Makers minimum requirement is: - correct answer ✔✔the GREATER of:
- $100k for firm engaged in market making or firm commitment underwritings or that executes more
than 10 trades per year for own account. (firms which also carry customer accounts are subject to the
250k requirement)
- $2500 for each security which it makes a market with a market value of more than $5 per share and
$1000 for each security with a market value of $5 per share or less, with a max requirement of
$1,000,000.
,Introducing firms or fully disclosed firms are firms which do NOT carry their own customer accounts and
have a minimum requirement of: - correct answer ✔✔- $50k for fully disclosed firms which receive but
do not hold customer securities (such firms MAY participate in firm commitment underwritings but only
as selling group members)
- $5k for fully disclosed firms which do NOT receive or owe funds or securities from or for customers and
do not participate in firm commitment underwritings, act as a market maker, or handle wire order
mutual funds.
A broker dealer with a $5k net capital requirement can (5): - correct answer ✔✔- participate in
underwritings on a best efforts or all or none basis
- effect an occasional transaction in securities for their own investment account
- act as a floor broker on an exchange.
- a $5k BD CANNOT act as a MM.
- A $5k BD engaged in underwriting must promptly forward all customer checks to an escrow agent and
checks must be made payable to the escrow agent.
When an introducing member firm and a clearing member firm enter into a fully disclosed clearing
agreement, the clearing member and the introducing firm must: - correct answer ✔✔- submit the
agreement to FINRA for review and approval. this agreement must be disclosed in writing to customers
when they open a new account
- a clearing firm would only be allowed to solicit transactions from customers of an introducing firm if
the introducing firm gives their consent to the clearing firm.
Clearing/carrying member firms additional components (4): - correct answer ✔✔- clearing members do
NOT have to inspect or audit introducing firms books and records
- fully disclosed sharing agreements will not include a list of all clearing member's introducing firms.
- if introducing firm is given authority to issue checks to customers from clearing firm's checking account,
clearing firm must review and accept introducing firm's procedures for safeguarding of checks and
issuance of checks.
- carrying BDs are responsible for sending customer account statements for their fully disclosed firms.
, Minimum requirements for firms that transact business in mutual fund shares ONLY & process wire
orders through a bank (k)(1) account: - correct answer ✔✔$25k for firms that are engaged in this activity
only and do not engage in any other dealer activity.
Qualified block positioner & its minimum net capital requirement: - correct answer ✔✔- engages in
buying and selling from or for a customer a block of stock with a current market value of 200k or more in
a single transaction or in several transactions done at same time from a single source to facilitate a sale
or purchase by such customer, and sells the shares as rapidly as possible depending on circumstances.
- minimum net capital requirement of $1,000,000.
International prime broker-dealers have a minimum net capital requirement of: - correct answer
✔✔$1,500,000
Capital Acquisition Brokers (CABs) (2): - correct answer ✔✔- firms that engage in limited range of
activities, essentially advising companies and private equity funds on capital raising and corporate
restructuring, and acting as placement agents for sales of unregistered securities to institutional
investors under limited conditions.
- firms that elect to be governed under the CAB rule set are NOT permitted to carry or maintain
customer accounts, handle customer's funds or securities, accept customers trading orders, or engage in
proprietary trading or market making.
The term 'capital acquisition broker' means any broker that SOLELY engages in any one or more of the
following activities: (6,long) - correct answer ✔✔- advising an issuer, including a private fund, concerning
its securities offerings or other capital raising activities.
- advising company on purchase or sale of business or assets or regarding its corporate restructuring,
including going private transaction, divestiture or merger
- advising company regarding its selection of investment banker
- assisting in prep of offering materials on behalf of issuer
- providing fairness opinions, valuation services, expert testimony, litigation support, and negotiation and
structuring services, or with respect to which company files, reports under section 15 of the exchange
act.
- effecting securities transactions solely in connection w/ the transfer of ownership and control of a
privately held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or
a business combo involving securities or assets of the company, to a buyer that will actively operate the
company or the business conducted with the assets of the company, in accordance with terms and
conditions of the SEC rule
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