FINRA

Study Question of the Week: February 19, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99):

Richard had just returned to the States from his third tour of duty in Afghanistan. After relaxing with family and friends for a couple of months, he re-registers with his old employer where he had worked as a broker. In the meantime his license:

Answers:

A. Expired after his second year-long tour of duty

B. Expired ninety days after completing his second tour of duty

C. Remains current

D. Expires in 30 days unless Richard successfully completes his continuing education program

Correct Answer: C

Rationale: FINRA provides licensing relief to registered representatives who are called into or volunteer for active military service. Richard’s license will expire ninety days after completion of active service, unless he re-registers with a member firm before that time. Since he took only two months off before re-registering, Richard’s license is still current and will remain so.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Join Solomon Exam Prep at the LAMP Conference in sunny San Diego, CA

Solomon Exam Prep is excited to announce its appearance at LAMP March 10-13, 2013 at the Manchester Grand Hyatt in sunny San Diego, CA. Continue reading

Solomon Exam Prep is excited to announce its appearance at LAMP March 10-13, 2013 at the Manchester Grand Hyatt in sunny San Diego, CA. LAMP is GAMA International’s annual Leadership and Management Program meeting.

GAMA International is an association committed to developing future leaders in the financial services and insurance industry. “LAMP is where industry leaders come to connect with colleagues, learn from industry’s best and brightest, and recharge and reinvigorate themselves for the coming year. It’s an annual must for those field leaders who are serious about working on their business, not just in it.” (http://gamaweb.com/lampconf/)

Come by our booth to learn more about Solomon’s corporate study solutions for the Series 6, Series 63 and Life & Health licensing exams. We will be showcasing our new website & giving away some great licensing exam swag!

Study Question of the Week: February 13, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 65, and Series 66. — ANSWER POSTED — Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7, Series 65, and Series 66):

Which of the following situations would avoid the 10% penalty on an early withdrawal from an annuity?

I. Setting up a SEPP program and staying on it for at least 5 years

II. Utilizing IRS rule 72(t)

III. Withdrawal for first time home purchase up to $10,000

IV. The annuitant turning 55 1/2 years old

Answers:

A. II

B. I and II

C. III and IV

D. I, II, and IV

Answer: B

Rationale: Setting up a SEPP (Substantially Equal Periodic Payment) program and staying on it for 5 years and utilizing IRS rule 72(t) are essentially the same thing. When an individual takes a series of substantially equal and periodic payments for a minimum of 5 years or until the individual turns 59 1/2, whichever comes last, he is not subject to the 10% penalty for an early withdrawal. An investor does not get a 10% penalty for withdrawing up to $10,000 for a first home purchase out of an IRA, but this is not true for a withdrawal from an annuity.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA revises inspection rule

Effective February 25, 2013, FINRA will modify its rule that covers its ability to request information and inspect books and records. Continue reading

Effective February 25, 2013, FINRA will modify its rule that covers its ability to request information and inspect books and records. The rule will:

-specify that FINRA may inspect and copy information that is in a person’s “possession, custody, or control” if the person is subject to FINRA’s jurisdiction

-identify that books and records are subject the rule if they relate to a broker-dealer’s business or to a person’s association with a member

-describe how FINRA will contact unregistered associated persons at either a business or home address

-permit FINRA to provide an inspection request to a person’s attorney, assuming the person is being represented by the attorney in responding to the request

Source: Regulatory Notice 13-06: SEC Approves Amendments to Rule 8210

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, and Series 82.

Study Question of the Week: February 7, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, Series 66, and Series 99. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 62, Series 65, Series 66, and Series 99):

Your client is short 100 XOM at $75, and wants to hedge his position. To protect him from the risk that XOM’s stock price may rise, you recommend that he:

Answers:

A. Buy a put

B. Sell a put

C. Sell a call

D. Buy a call

Correct Answer: D, Buy a call

“To hedge” means to put limits on how much you can gain or lose from an investment by taking the opposite position from your current position.

When it comes to options, an investor can hedge a position in two ways:

Buying an option to buy protection. In this specific question, buying a call buys protection from a rise in the share price. If it were a long position, the investor could buy a put to protect against a decline in the share price.
Selling an option to gain income. In this question, by selling an option the investor gains income, which may mitigate losses, but he also limits how much he can gain from the short sale.

If an exam question says “to hedge risk and get the best protection” go for buying an option (puts for long positions, calls for short positions)

If the exam questions says “to hedge risk and increase income” go for selling an option (calls for long positions, puts for short positions)

In this question, the investor is going for protection and is not seeking income so the best answer is to buy a call. While selling a put is a possible hedge it is not the most appropriate hedge for this investor’s goal.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 24, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 82):

“Phantom tax exposure“ is a characteristic of:

I. T-bonds

II. Treasury STRIPS

III. Zero-coupon bonds

IV. Municipal revenue bonds

Answers:

A. I, II and III

B. I and IV

C. II and III

D. None of the choices listed

Correct Answer: C. II and III

Rationale: Treasury STRIPS, which are sold at a discount and don’t pay annual interest to owners, are a type of zero coupon bond. Zeroes are taxed each year based upon the imputed annual value of the cumulative interest earned. “Phantom tax exposure“ means you pay taxes each year on interest you don’t receive. The trade-off is that you avoid reinvestment risk along the way.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA provides guidance on new communication rules

FINRA has provided guidance on its new communication rules. The guidance addresses various questions and details about the new rules. The rules take effect February 4, 2013. Continue reading

On February 4, 2013, the new communication rules described in this alert will take effect. FINRA has provided guidance on the new rules. This guidance provides that:

-educational material provided to other broker-dealers is considered “institutional communication,” not “internal communication”

-a firm’s one-year period of needing to file all public retail communication in 10 business days in advance now begins when the firm’s FINRA membership becomes active; free writing prospectuses may instead be filed within 10 business days of first use

-retail communications regarding “registered structured products” must be filed within 10 days of first use; examples of “registered structured products” include “exchange-traded notes that are not registered under the Investment Company Act but are registered under the Securities Act, registered reverse convertibles, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features”

-disclosure requirements for recommendations do not apply when discussing the past performance of a mutual fund

-a sales script used in a seminar is considered retail communication if the script is used with more than 25 retail investors in a 30-day period – this means that the firm must approve the script before use

-a firm’s name must be disclosed in scripted public appearances (both in the script and on any slide presentations or brochures used)

The guidance also addresses transitional issues for implementing the new rules.

Source: Regulatory Notice 13-03: FINRA Provides Guidance on New Rules Governing Communications With the Public

This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 79, Series 82, and Series 99.

Study Question of the Week: January 16, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 24, Series 55, and Series 62. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 24, Series 55, and Series 62):
Which of the following is not true of an ECN?

Answers:

A: ECNs can act in an agency or a principal capacity

B: ECNs allow institutional investors to trade with other investors excluding the broker as a go-between

C: Subscribers to an ECN may include institutional investors, broker-dealers and market makers

D: ECN traders can remain anonymous

Correct Answer: A

Rationale: Some standard characteristics of ECNs include:

a. ECNs always act in an agency capacity and do not trade for their own account.
b. ECNs allow institutional investors to trade with other investors excluding the broker as a go-between. Fourth market participants rely on ECNs.
c. Subscribers to an ECN may include institutional investors, broker-dealers and market makers. Individuals that wish to trade through an ECN must have an account with a broker-dealer and their order can then be routed to the ECN for execution.
d. ECNs allow traders to remain anonymous.
e. ECNs are often open 24 hours a day, and are therefore often used by traders after regular market hours.
f. Subscribers pay a fee to the ECN to participate.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: January 3, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82):
Two corporate bonds have different durations, but are equivalent in other ways. Bond A has a duration of 6. Bond B has a duration of 4. Interest rates go down by 50 basis points. Which of the following is true?

Answers:

A: The price of Bond A will increase more than the price of Bond B

B: The price of Bond A will decrease more than the price of Bond B

C: The price of both bonds will increase by a similar amount

D: The price of both bonds will decrease by a similar amount

Correct Answer: A

Rationale: Duration is a measure of the sensitivity of a bond’s price to changes in interest rates. A price of a bond with a higher duration will be influenced more by a change in interest rates than a bond with a lower duration. Bond A has a higher duration so it will be influenced by a change in interest rates more than Bond B. When interest rates go down, the prices of existing bonds go up. Thus, a decline in interest rates will cause the price of both bonds to increase, but because Bond A has a higher duration than Bond B, its price will go up more than Bond B.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

Exam Alert: FINRA requires orders with alternative triggers to be clearly distinguished from stop orders

Effective January 21, 2013, FINRA will revise its rules relating to stop orders in equity securities. The new rule provides that any market or limit order that triggers off of an alternative condition (any condition other than a transaction occurring at a specified price) must be clearly distinguished from a “stop order” or “stop limit order.” Continue reading

Effective January 21, 2013, FINRA will revise its rules relating to stop orders in equity securities. The new rule provides that any market or limit order that triggers off of an alternative condition (i.e., any condition other than a transaction occurring at a specified price) must be clearly distinguished from a “stop order” or “stop limit order.” For example, an order that triggers when a quote occurs at the stop price may be referred to as a “stop quotation order” or “stop quote order.”

If a firm provides orders that trigger off of alternatives conditions, the firm must disclose the nature of these orders in paper or electronic format to its customers prior to the customer placing such an order. For example, this disclosure could occur when a customer first opens an account with the firm. A firm that routes an order triggered by alternative conditions to another broker-dealer or to an exchange must take “reasonable steps” to ensure that the order is handled or executed in the correct manner.

Source: FINRA Regulatory Notice 12-50: SEC Approves Amendments Relating to Stop Orders

This alert applies to the Series 7, Series 65, Series 66, and Series 24.