Series 26

Exam Alert: FINRA Updates Regulatory Extension (REX) System

Effective April 2, 2014, FINRA has updated its Regulatory Extension (REX) system for allowing firms to submit extension of time requests under the Customer Protection rule. Firms should submit for a time extension request either the first or second business day after the 30 day period under the rule has passed. Continue reading

Effective April 2, 2014, FINRA has updated its Regulatory Extension (REX) system for allowing firms to submit extension of time requests under the Customer Protection rule. The rule requires firms to obtain physical possession or control of securities that are in a short position for more than 30 days in either the dealer’s account or a customer account. Note that the firm is not required to buy-in the security – they may borrow the security instead.

Firms should submit for a time extension request either the first or second business day after the 30 day period has passed. In order to submit a time extension request, the firm must have an active user ID and password to access the online REX system. Additional details about what information is required in the time extension request may be found here.

Source: Regulatory Notice 14-13: Extension of Time Requests Relating to New SEA Rule 15c3-3(d)(4)

This alert applies to the Series 7, Series 24, Series 26, and Series 99.

Study Question of the Week: April 9, 2014 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 52, Series 53, Series 66, Series 79, and Series 99. –ANSWER POSTED– Continue reading

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

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 52, Series 53, Series 66, Series 79, and Series 99):

Which of the following are correct dollar minimums for the Bank Secrecy Act’s requirements for broker-dealers?

I. $3,000 or more received or transmitted must be recorded in a monetary instrument log (MIL)

II. $5,000 or more received or transmitted must be recorded in a monetary instrument log (MIL)

III. Cash transaction of $5,000 or more must be reported to the IRS

IV. Cash transaction of $10,000 or more must be reported to the IRS

Answers:

A. I and III

B. I and IV

C. II and III

D. II and IV

Correct Answer: B. I and IV

Rationale: In any one day, a transmittal of $3,000 or more or a cash transaction must be recorded in a monetary instrument log (MIL) and cash transaction of $10,000 or more must be reported to the IRS.

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

Study Question of the Week: February 5, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 24, Series 26, Series 52, Series 62, 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.

Study ? of the Week

Question (Relevant to the Series 6, Series 24, Series 26, Series 52, Series 62, Series 79, and Series 82):

When must a Suspicious Activity Report be filed under the Bank Secrecy Act?

Answers:

A. Within 15 days of the transaction

B. Within 15 days of discovery

C. Within 30 days of the transaction

D. Within 30 days of discovery

Correct Answer: D. Within 30 days of discovery

Rationale: The Bank Secrecy Act requires that money service businesses file Suspicious Activity Reports (SARs) within 30 days of becoming aware of any suspicious transaction that is required to be reported. In the securities business, suspicious transactions are required to be reported if they involve $5,000 or more. A copy of the report must be kept for five years.

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

Study Question of the Week: December 26, 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, and Series 65. –ANSWER POSTED– Continue reading

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

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, and Series 65):

According to the Investment Company Act of 1940, for 75% of its assets, a diversified mutual fund will have:

Answers:

A. No more than 5% of its assets in any one company, and will own no more than 5% of any company’s outstanding shares

B. No more than 5% of its assets in any one company, and will own no more than 10% of any company’s outstanding shares

C. No more than 10% of its assets in any one company, and will own no more than 5% of any company’s outstanding shares

D. No more than 10% of its assets in any one company, and will own no more than 10% of any company’s outstanding shares

Correct Answer: B. No more than 5% of its assets in any one company, and will own no more than 10% of any company’s outstanding shares

Rationale: According to the Investment Company Act of 1940, for 75% of its assets, a diversified mutual fund will have no more than 5% of its assets in any one company, and will own no more than 10% of any company’s outstanding shares.

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

Study Question of the Week: December 11, 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 26, Series 62, 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.

Study ? of the Week

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

Jenny and Sam each have an individual account, and they have a joint account, and an UGMA account for their daughter Sarah. What is the combined maximum amount that is covered by the SIPC for the four accounts?

Answers:

A. $500,000

B. $1,000,000

C. $1,500,000

D. $2,000,000

Correct Answer: D. $2,000,000

Rationale: SIPC covers a maximum of $500,000 per “separate customer” at a broker-dealer or clearing firm including up to $250,000 in cash. Total coverage can be higher for multiple accounts if the accounts are considered to be held by separate customers. There are five categories of separate customers defined by the SIPC. These categories include 1) individual accounts, 2) joint accounts, 3) accounts held by executors, administrators, and guardians/custodians/conservators (such as UGMA accounts), 4) accounts held by corporations, partnerships, or unincorporated associations, and 5) trust accounts. Thus, two individual accounts held by two different people, one joint account, and one UGMA account would be considered four separate customers by the SIPC, and therefore subject to a maximum of $2,000,000 of coverage.

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

Exam Alert: SEC clarifies supervisory liabilities of legal and compliance personnel

On September 30, 2013, the Division of Trading and Markets of the SEC put out an FAQ detailing when legal and compliance personnel would or would not be held responsible for failing to supervise a broker-dealer employee that commits a violation. Legal and compliance personnel are not, by default, considered supervisors, so they are not held responsible unless their position places them in a supervisory role. This can be determined by considering whether the personnel has the “requisite degree of responsibility, ability or authority to affect the conduct of another employee.” The Division lists several questions that can be used to ascertain whether the personnel has such responsibility, ability, or authority, but key elements are:

whether the company is structured in such a way that the personnel is clearly designated with responsibility,
whether the personnel can hire, reward, punish, or fire the employee, and
whether the personnel knew or should have known that he or she was responsible for preventing the violation.

Source: Frequently Asked Questions about Liability of Compliance and Legal Personnel at Broker-Dealers under Sections 15(b)(4) and 15(b)(6) of the Exchange Act

Further reading: United States: When Legal Or Compliance Personnel May Be Subject To Failure To Supervise Liability Under The Securities Laws

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

Exam Alert: SEC changes broker-dealer financial responsibility rules

On October 21, 2013, the SEC will put into effect amendments to its financial responsibility rules for broker-dealers. These amendments include changes to the customer protection rule, net capital rule, books and records rules, and notification rule. Continue reading

On October 21, 2013, the SEC will put into effect amendments to its financial responsibility rules for broker-dealers. These amendments include the following changes:

Customer Protection Rule (Rule 15c-3-3)

-Carrying broker-deals that maintain customer securities and funds will be required to maintain a new segregated reserve account for broker-dealer accounts.

-The reserve requirement to protect customer cash will exclude cash deposits at affiliated banks and limit cash held at non-affiliated banks to no more than 15% of the bank’s equity capital.

-The rule will require disclosure, notice, and affirmative consent from the customer when their cash is “swept” to a money market or bank deposit product.

Net Capital Rule (Rule 15c3-1)

-The rule will require a broker-dealer to include liabilities assumed by a third party in the broker-dealer’s net worth if the third party is reliant on the broker-dealer to pay the liabilities.

-The rule will require a broker-dealer to count as a liability any contributed capital that may be withdrawn by an investor. Contributed capital that is withdrawn within a year of contribution must also be treated as a liability, unless the broker-dealer receives written permission for the withdrawal from its designated examining authority.

-Broker-dealers will be required to deduct from net capital the excess of any deductible amount over the amount permitted by SRO rules.

-Insolvent broker-dealers will be required to cease conducting a securities business.

Books and Records Rules (Rules 17a-3 and 17a-4)

-Large broker-dealers will be required to document their risk management controls.

Notification Rule (Rule 17a-11)

-The rule will establish new notification requirements for when a broker-dealer’s repurchase and securities lending activities exceed a certain threshold. Alternatively, a broker-dealer may instead report such activity monthly to its designated examining authority.

Source: SEC Release 2013-140: SEC Adopts Amendments to Financial Responsibility Rules for Broker-Dealers

This alert applies to the Series 24, Series 26, Series 7, Series 99, Series 82, Series 79, and Series 55.

Study Question of the Week: August 27, 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, 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 24, Series 26, Series 62, and Series 82):

Which of the following best describes Regulation U?

Answers:

A. Places credit restrictions on broker-dealers by establishing initial margin requirements and prescribing how a margin transaction must be maintained

B. Empowers the Federal Reserve to regulate credit associated with respect to the purchase of securities, also known as margin

C. Requires broker-dealers to be registered

D. Imposes credit restrictions on non-broker-dealer lenders that may finance margin transactions such as banks

Correct Answer: D.

Rationale: Section 7 of the Exchange Act of 1934 empowers the Federal Reserve to regulate credit associated with respect to the purchase of securities, also known as margin. Its intent is to manage the amount of speculative activity that can be applied to securities transactions and to manage the supply of money in the credit markets.

The Federal Reserve responded to its new powers by enacting Regulation T, which places credit restrictions on broker-dealers by establishing initial margin requirements and prescribing how a margin transaction must be maintained. Initial margin requirements are currently set at 50%. Regulation T was soon followed in 1936 by Regulation U, which imposes credit restrictions on other lenders that would finance margin transactions, such as banks. Regulation U forbids banks from extending more credit than the “maximum loan value” for margin securities, which it identifies as 50% of the stock’s current market value.

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

Study Question of the Week: July 23, 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 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 24, Series 26, Series 62, Series 65, and Series 66):

Roth IRAs are more liquid than traditional IRAs in what way?

Answers:

A. they offer tax-free distribution

B. they allow for the withdrawal of all principal contributions at any time without tax or penalty

C. there are a larger number of exceptions available to the early withdrawal penalty

D. there are no mandatory minimum distributions required

Correct Answer: B. they allow for the withdrawal of all principal contributions at any time without tax or penalty

Rationale: Although Roth IRAs do offer tax-free distributions and have no mandatory minimum distributions, their advantage in liquidity lies in the ability of the account owner to withdraw all principal contributions at any time, including before age 59 1/2.

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

Study Question of the Week: July 17, 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, 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, and Series 99):

Under FINRA Rule 2830, an associated person may accept which of the following gifts from a mutual fund distributor?

Answers:

A. Reimbursement for out-of-pocket expenses incurred by the associated person and his spouse in attending an educational conference

B. Occasional meals and NFL tickets tied to a stated annual sales quota

C. A crisp new $100 bill delivered once every year on Christmas eve

D. None of the choices listed

Correct Answer: D. None of the choices listed

Rationale: Rule 2830 prohibits all of these gifts from a mutual fund distributor to an associated person; specifically, any cash compensation (unless described in a current prospectus of the investment company), meals and tickets tied to a sales target, and reimbursement for meeting expenses incurred by anyone other than the associated person.

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