Chapter 3 Practice Question Answers
- 1. Answer: B. Insider trading involves trading on material, nonpublic information for profit. Both the person who reveals the information and the person who trades on the information can be charged with insider trading. Rumors or other such insights are considered public information whether they are true or not. Material, nonpublic information may come only from a person aware of the private dealings of a company—an “insider.” So trading on a rumor or a tip from the Motley Fool would not be considered insider trading because the information would be considered public. Also the information must be material.
- 2. Answer: C. Contact information of an objecting beneficial owner (OBO) must not be provided to the issuer for delivery of proxy mailings or other shareholder communications, but contact information of a non-objecting beneficial owner (NOBO) can be given. A beneficial owner is the person who receives the benefits of owning the security, such as dividends and voting power. The beneficial owner may differ from the owner of record, who is the legal owner of a security. When a security is held in street name, the beneficial owner is the customer and the broker-dealer is the legal owner.
- 3. Answer: B. A member firm’s written supervisory procedures must be kept at each office of supervisory jurisdiction
- 4. Answer: D. Under FINRA Rules, a written inspection report must include testing and verification of the following: safeguarding of customer funds and securities, maintaining books and records, supervision of customer accounts serviced by branch office managers, transmittal of funds between customers and registered representatives and between customers and third parties, validation of customer address changes, and validation of changes in customer account information.
- 5. Answer: D. OSJ offices and branch offices that supervise one or more non-branch office locations must be inspected at least ann