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 wait 180 days for each attempt thereafter.
5. Answer: C. FINRA provides licensing relief to registered representatives who are called into or volunteer for active military service. Once his tour of service ends, Richar