Series 79 Exam || with 100% Verified Solutions.
Trust indenture correct answers A trust indenture cannot mandate that a trustee repay all
creditors in full in an event of default, because this is not feasible.
Cross-default clause correct answers A cross-default clause triggers a debt default if the issuer
defaults on any of its other debt obligations. Its purpose is to protect lenders from a default
elsewhere in the borrower's capital structure.
Insider trading; what is allowed? correct answers While in possession of inside information, a
rep or broker-dealer can accept an unsolicited order from a customer to purchase that particular
security. However, the rep cannot recommend (i.e., solicit) the security.
Insider trading: Firm defense correct answers Broker-dealers must have procedures in place to
prevent insider trading. If a rep is accused of insider trading, the firm can avoid liability by
showing 1) effective supervisory procedures were in place, and 2) those procedures were
willfully ignored.
Insider trading: Individuals correct answers Individuals with inside information cannot trade on
that information while it remains undisclosed. It is the fact that the information is undisclosed to
the investing public that makes it illegal insider trading.
Reg FD correct answers Regulation FD aims to promote the full and fair disclosure of material
information to all investors at the same time. It requires simultaneous access to information for
all investors, including retail and professional investors, such as stock analysts, research analysts,
credit agencies, or large institutional investors.
An issuer can satisfy Reg FD by publicly disclosing material information via an SEC filing (e.g.,
8-K) or a combination of methods, including a press release, a news conference, a webcast,
and/or social media. Disclosing the information in the next 10-K would typically not be
sufficient.
Statutory disqualification correct answers A person subject to a statutory disqualification cannot
be employed (as a rep or in a clerical position) by a member firm, unless the firm applies for and
receives a waiver from FINRA.
A person banned, expelled, barred, or suspended from membership by a foreign regulator is
subject to a statutory disqualification in the US.
An arrest is not grounds for a statutory disqualification. If a rep were arrested for shoplifting,
compliance may be notified, but the legal process would be allowed to run its course.
Form U-4 correct answers 10 years of employment history, and the firm must verify the most
recent three years
Settlements of securities-related litigation involving a registered rep of $15,000 or more
,Settlements of securities-related litigation involving a firm of $25,000 or more
Settlements below these amounts do not require public disclosure.
CE Inactive correct answers A rep who does not complete Regulatory Element continuing
education within 120 days of her second anniversary, and every third anniversary thereafter (i.e.,
in years 2, 5, 8, 11, 14, etc.), is CE inactive. The rep can work in a clerical role but cannot act in
a registered capacity or receive compensation for activities that require registration.
An individual who is CE inactive for two years or longer will have all licenses (e.g., Series 79)
administratively terminated and must requalify by exam.
Office inspection correct answers a) Offices of supervisory jurisdiction (OSJs) and supervisory
branch offices are subject to annual inspection
b) non-supervisory branch offices must be inspected every three years
c) non-branch offices must be inspected periodically.
Annual compliance meeting correct answers Broker-dealers must conduct an annual compliance
meeting for both registered reps and registered principals. Key characteristics include:
- It may be held at a branch office.
- It can include a discussion of non-compliance matters.
- It can be recorded and delivered on-demand, but only if the participants have an opportunity to
discuss the issues raised with compliance personnel.
Parking a registration correct answers Firms may not maintain, or park, any person's registration
unless it is for bona fide business purposes.
An issuer may not "park" a registration statement at a broker-dealer to solicit investors itself and
avoid hiring an underwriter.
Instant messaging correct answers If a firm cannot record instant messaging communications
("IMs") between its employees and clients, IMs are not permitted
Selling away correct answers Private securities transactions (selling away) without compensation
require written notice to the firm but do not require firm permission.
Those selling away without cash compensation but who will receive future deal flow (or any
other type of non-cash compensation) must receive permission and be supervised by their firm.
Examples of private securities transactions include:
- Direct sales of securities that are not SEC registered
- A registered rep at one firm selling securities at another firm for compensation (for example,
commercial paper)
- A registered rep selling limited partnership units to investors on behalf of a client outside the
firm's supervision
,Outside business activities (OBA) correct answers A registered rep engaging in outside business
activities (OBAs) or outside employment that is unrelated to the securities industry must provide
the full details of the outside activity to the firm. Not providing notification is a violation.
Borrowing and lending correct answers Registered reps are permitted to borrow money from or
lend money to customers who are family members or banks (financial institutions) without
notice or permission from the firm. Reps may borrow from clients based on an outside business
relationship (i.e., unrelated to the brokerage account) with notice to the firm. Firms and reps may
not make a loan to a client so the client can meet a margin call.
Gifts correct answers Gifts to a client are limited to $100 per client per year. Typically this is per
calendar year, unless the firm states otherwise (e.g., fiscal year or rolling year) in its written
supervisory procedures.
T&E correct answers Entertainment expenses—events where the rep attends—are not considered
gifts. If a rep takes a client to dinner and the bill is $250, this is permitted. Likewise, a golf
outing that costs more than $100 is permitted provided the rep attends.
Joint accounts correct answers A joint investment account between a rep and a client (i.e.,
sharing an account) requires the firm's permission and that the sharing be in proportion to each
person's financial contribution to the account.
The proportionality requirement does not apply for joint accounts between family members.
Broker-dealer recordkeeping correct answers Broker-dealers are required to maintain most
records for three years from the date of last use. This includes all written agreements, such as
underwriting agreements and agreements among underwriters.
Anti-money laundering (AML) correct answers Each firm must design and maintain an AML
program, and provide FINRA with the contact information for the individual responsible for
implementing and monitoring the firm's AML program. The plan, however, is not approved by
FINRA or the SEC.
The AML policy must be tested annually. The testing can be done by either an outside party or
by member personnel other than the person responsible for the AML program.
Suspicious activity report (SAR) correct answers A firm may not disclose to a client that a SAR
was filed with regard to that client's activities.
A SAR must be filed within 30 calendar days of learning of any suspicious activity by a
customer.
Currency Transaction Report (CTR) correct answers A CTR must be filed with FinCEN anytime
a customer makes a cash deposit in excess of $10,000 in a single day. CTRs are not secret
filings, so customers may be made aware of their existence.
, Office of Foreign Assets Control (OFAC) correct answers OFAC maintains the Specially
Designated Nationals (SDN) List. This is a list of people and organizations with whom US
citizens and businesses are prohibited from doing business.
Any transaction with or transfer of funds from a country on OFAC's SDN list, or a country that
has embargoes or sanctions in place against it (e.g., North Korea, Iran, etc.), must be blocked and
reported to OFAC within 10 days.
Foreign Corrupt Practices Act correct answers If a broker-dealer learns that a client is paying
kickbacks or bribes to foreign government officials to win lucrative contracts, the firm is
required to notify the Justice Department under the FCPA.
Relationship between investment banking and equity research departments correct answers
FINRA has detailed rules relating to a firm's investment banking and equity research
departments:
- Physical (e.g., different floors, locked doors) and electronic (information barriers or "firewalls")
separation of the departments is required.
- All communications, verbal or written, between non-research personnel (e.g., investment
bankers) and research analysts must be reviewed and chaperoned by legal or compliance
personnel.
- Investment bankers cannot attend a research analyst teach-in (forum).
- Equity research analysts cannot attend an investment banking road show to market a new issue,
such as common stock, preferred stock, or debt. An exception is available for Emerging Growth
Companies (firms with less than $1 billion in revenue).
- Firms may not retaliate against any research analyst who publishes an unfavorable research
report on an investment banking client (i.e., an investment banker cannot bully research analysts
for downgrading a client company).
Front running correct answers A front-running violation occurs when a broker-dealer executes a
trade for its own account before filling a customer's existing order.
Similarly, no orders to buy or sell can be made by a member firm that has information about an
imminent block trade in the security or a related security. A "block trade" is generally described
as a transaction of a large quantity of stock (10,000 shares) or involving a large dollar amount
(>$200,000).
Code of procedure penalties correct answers Penalties under the Code of Procedure include
censure (a warning), fines, and suspension, but FINRA may not imprison or terminate a
registered rep.
Arbitration (firms/reps) correct answers Arbitration, which is mandatory between firms and reps,
can result in a monetary reward paid from one party to another; it cannot result in imprisonment,
and payment must be made within 30 days of the decision date. Arbitration awards are binding;
there is no appeal.
