Exercise
Choose the correct answer.
1. Which of the following statements about control relationships are correct?
I. A dealer must disclose a control relationship at or before the completion of the transaction.
II. A dealer must disclose a control relationship to a customer verbally or in writing.
III. A dealer in a control relationship with an issuer may not make a transaction in a discretionary account of a customer unless expressly authorized.
IV. A dealer serving on the governing body of an issuer automatically triggers a control relationship.
A. I and II
B. II and III
C. I and III
D. III and IV
2. Which of the following is true in regard to fair pricing for a security?
A. As long as a broker-dealer restricts its profit to a reasonable percentage, it will not have violated the fairness rule.
B. A dealer is not entitled to a profit.
C. The availability of the security in the market is not relevant to pricing.
D. The total dollar amount of a transaction must be considered when determining a fair and reasonable mark-up.
3. Andrew, an agent at Brilliant Brokerage has a long-time friend and client named Phil. Which of the following would not be an acceptable gift according to MSRB Rule G-20 on limiting gifts, gratuities, and non-cash compensation?
A. Andrew takes Phil and his wife out for dinner and Brilliant Brokerage pays the bill.
B. Brilliant Brokerage hosts an event for several of their best clients at a Red Sox game.
C. Brilliant Brokerage buys Phil cufflinks that cost $149 for his birthday.
D. Andrew buys Phil cufflinks that cost $149 for his birthday.
Answers
1. C. According to MSRB Rule G-22, a control relationship, with respect to a municipal security, exists when a dealer controls, is controlled by, or is under common control with the issuer of a security. A dealer may not effect municipal security transactions in a customer’s account unless it first discloses t