Chapter 1 Practice Question Answers
- 1. Answer: A. Shares held through direct registration will be transferred by the Direct Registration System, which is a subsidiary of the DTC.
- 2. Answer: C. All shares of mutual funds must be sold at the public offering price that is stated in the prospectus, unless they are shares purchased through a reinvestment plan.
- 3. Answer: D. A single stock or bond power can be used for any number of certificates of the same security, but separate powers are needed for each security.
- 4. Answer: C. Reclamation is a claim for the right to return or to demand the return of a security that was originally accepted but later determined to not be in good form. All of the following are legitimate reasons why a security may be later rejected by the buyer: the certificate was mutilated or contained irregularities, the certificate did not have a proper assignment (the name on the certificate did not exactly match the signature or the signature wasn’t guaranteed), or the certificate was counterfeit or stolen or was rejected by the transfer agent. Good delivery requirements do not protect a buyer from default risk.
- 5. Answer: D. If prior to the delivery of a bond, a coupon bond is missing interest coupons, a broker-dealer should deduct the cash value amount of the missing coupon(s) from the sales proceeds to the customer. The company should then attach a check in the amount of the bond(s) to ensure good delivery.
- 6. Answer: B. Late arrival is not a factor used to determine if securities were not delivered in “good delivery form.” However, if the security certificate is mutilated, it has coupons that have been cancelled in error, or it has improper endorsements or units, it may be rejected by the receiving party.
- 7. Answer: C. In cases where a stock or bond is not endorsed or not endorsed properly, the stockholder can send a stock or bond power to validate the signature.
- 8. Answer: C. According to the Securities