Question 1

Mr. Noah Scruples is a registered representative with CanDo Broker-Dealers. A client calls and wants Noah to purchase shares of a mutual fund the client has read about. CanDo is not authorized by this particular fund to effect purchases or sales of the fund shares. Can Noah execute the order anyway?

Options :

A : No. This would be considered money laundering, which is highly illegal.

B : No. This is a prohibited practice known as selling away.

C : No. This is a prohibited practice known as front running.

D : Yes. Since this is an unsolicited trade, Noah can execute the transaction on behalf of his client.

Answer: B

Question 2

Big Bo is an investment adviser representative who has a lot of the members of a well-known professional football team as clients. In advertising his services, Big Bo can one has invested with him.

Options :

A : list the names of the players he’s advising as long as he lists the names of all his other clients, too.

B :

list the names of the players he’s advising as long as he doesn’t provide any other specifics, such as the amount each one has invested with him.

C : list the names of the players he’s advising as long as he has their written permission to do so.

D : use testimonials from any of the players who willingly provide them without compensation.

Answer: C

Question 3

A hypothecation agreement refers to

Options :

A :

an agreement wherein a client gives his broker-dealer discretion to purchase securities that the broker-dealer deems appropriate in whatever quantity the broker-dealer feels appropriate and at a time and price the broker-dealer believes is a good deal.

B : an agreement that a client must sign prior to executing any short sales with the broker-dealer.

C :

an agreement signed by a client who is executing a margin transaction that allows the broker to hold the margined securities in street name as collateral for the loan.

D :

a document signed by a client indicating that he or she understands that some of the charts and examples presented in a broker-dealer’s advertising literature are based on hypothetical trades.

Answer: C

Question 4

Individual states are prohibited from requiring a broker-dealer or investment adviser to file financial reports more frequently than:

Options :

A : once a year.

B : twice a year.

C : four times a year.

D : twelve times a year.

Answer: C

Question 5

While on vacation in Colorado, Mr. Moneybags became interested in the stock of a company called SafeAway, which designs and installs customized high-tech security systems in the multimillion dollar mansions located in Colorado’s pricier ski resort areas, such as Vail and Aspen. Upon returning to his home in Boston, he calls his broker-dealer with an order to purchase 10,000 shares of the stock, which he learned trades in the over-the-counter market. Fast Eddie, a registered agent with his broker-dealer, discovers that SafeAway’s stock is registered only in the states of Colorado and Wyoming. Neither Fast Eddie nor his broker-dealer are registered to do business in either of those states. Under these circumstances,

Options :

A :

Fast Eddie cannot effect Mr. Moneybags purchase of SafeAway stock since neither he nor his broker are registered to do business in Colorado or Wyoming, and SafeAway stock is not registered for sale in the state of Massachusetts.

B :

Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is a private placement.

C :

Fast Eddie should contact a broker-dealer that is registered in either Colorado or Wyoming and negotiate a finder’s fee for referring Mr. Moneybags to them.

D :

Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is an unsolicited transaction.

Answer: D

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