Chapter 10 Practice Question Answers
- 1. Answer: A. A member firm must preserve records of customer complaints for at least four years from the date of the complaint. FINRA extended the preservation time period from three years to four years, effective on December 5, 2011, through FINRA Rule 4513. The records may be kept at the Office of Supervisory Jurisdiction (OSJ) that supervises the particular office out of which the complaint came. If the OSJ does not wish to keep the records on site, it may keep the records in a place that allows the records to become promptly available to FINRA upon request.
- 2. Answer: A. A registered person of a FINRA member firm must provide prior written notice to her firm if she operates as an employee, independent contractor, officer, or partner of another person, or if she is compensated as a result of any business activity outside the scope of the member firm. In turn, the firm must evaluate the notice and either approve or reject the proposal. Passive investments, such as REITs and private securities transactions, are exempt from this requirement.
- 3. Answer: A. If the representative attends an entertainment event with a customer, it is considered “business entertainment” and is exempt from the $100 gift rule. Two $75 tickets to an event that a representative does not attend would not be considered business entertainment and would be subject to the $100 gift rule—and would, at a total of $150, exceed the limit. A $125 holiday basket would exceed the $100 gift limit, as would a $150 stroller.
- 4. Answer: A. If a registered representative offers any security outside of the firm’s knowledge and control, the agent is selling away. In this case, since Jim ends up owning a security that was arranged by Sandra outside of Strong Brokers’ knowledge, Sandra is selling away. Engaging in arbitrage is not correct, as arbitrage involves exploiting the slight difference in price for the same stock on various exchange