Chapter 3 Practice Question Answers
1. Answer: B. According to SEC Rule 10b-10, a brokerage company must send a trade confirmation to its customers at or before the completion of the transaction. When a customer purchases a security through a broker-dealer, the completion of the transaction is the later of when the customer pays the broker-dealer and when the broker-dealer delivers the security to the customer. When a customer sells a security, the completion of the transaction is the later of when the customer delivers the security to the broker-dealer and when the broker-dealer pays the customer.
2. Answer: D. The broker or dealer must send written notification to the customer at or before completion of a transaction of certain information. This information is provided in the customer trade confirmation. This information includes: date and time of transaction, name and price of security, number of shares involved in the transaction; whether or not the broker or dealer was acting as agent for customer, as agent for some other person, as agent for both the customer and some other person, or as a principal for its own account; and whether the broker or dealer (if acting as principal) is a market maker in the security. Also, whether the broker-dealer receives payment for order flow and if the broker-dealer is not a member of SIPC.
3. Answer: A. SEC Rule 10b-10 is concerned with commissions, markups, and markdowns, but not the market or exchange that the security is traded on. Rule 10b-10 is also concerned with the capacity of the broker-dealer—if it acted as agent, principal or in a dual-agency capacity.
4. Answer: D. For mutual fund securities that are purchased through an investment company plan, a written confirmation is not always required. However the broker must provide the customer with a written statement disclosing the required confirmation information within five business days after the end of each quarterly period. To do this, the broker must