Chapter 7 Practice Question Answers
1. Answer: C. In 1938, a law called the Maloney Act required that broker-dealers register with the SEC and become members of an SEC-recognized “national securities association.” Currently, FINRA is the only such national securities association. Although it is recognized by the SEC, FINRA is not a government agency. FINRA also establishes and interprets the rules that govern the over-the-counter markets, and it is charged with ensuring industry compliance with those rules.
A national securities association is one particular type of self-regulatory organization (SRO). Securities exchanges, such as NYSE and NASDAQ, are another type of SRO recognized by the SEC. FINRA is a private not-for-profit that relies on recognition from the SEC for its authority.
2. Answer: D. The Commission has 45 days from the date of filing an application to either grant registration to a broker-dealer or institute proceedings to determine whether registration should be denied. The proceedings will include notice as to grounds for denial, as well as an opportunity for a hearing. After such proceedings, the Commission will either grant or deny a broker-dealer’s registration.
3. Answer: B. Form U4 is the document used to register a person as an agent of a FINRA member broker-dealer firm or a representative of an investment advisory firm. Among the information disclosed in Form U4 are the applicant’s residential, employment, and criminal histories and financial disclosures, such as prior bankruptcies.
4. Answer: C. Employees that fail the exam must wait 30 days after each of their first and second attempts. After their third attempt, they will be required to wai