Chapter 9 Practice Questions
- 1. A member firm’s advertisements contain paid endorsements from customers, one of which compares its services favorably against another broker, a nationally known competitor. The testimonials must be accompanied by each of these disclaimers and disclosures except:
- A. These testimonials may not represent the views of other clients.
- B. The experience of these customers is no guarantee of future performance.
- C. The amount of customers’ payments for their endorsement must be footnoted.
- D. Material differences between the two brokerages’ services must be disclosed.
- 2. Except in certain circumstances, FINRA rules do not allow a member firm to trade ahead of:
- A. A customer’s limit order
- B. A customer’s market order
- C. A research report containing nonpublic information
- D. All of these choices
- 3. A broker receives Paul’s market order to sell shares of Ziploc. He holds Ziploc shares himself in his own account and decides it would be good to sell. He executes a market order to sell his shares, and after a short coffee break, executes the customer’s market order, receiving a higher price on the customer’s order than he received himself. Which of the following statements is most accurate?
- A. The broker traded ahead of a customer’s market order in violation of FINRA rules.
- B. The action of trading ahead would have been legal if the broker had informed Paul of his intent ahead of time.
- C. Trading ahead would have been perfectly all right if the broker had given Paul an opportunity to forbid the action.
- D. The broker did not violate FINRA rules because the customer received a better price.
- 4. A broker-dealer becomes aware of a nonpublic research report that warns of serious problems with company GHI. The broker-dealer buys several puts on GHI stock. This is:
- A. Trading ahead of a research report