Series 55

Study Question of the Week: February 19, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 24, Series 55, Series 62, and Series 79. –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 24, Series 55, Series 62, and Series 79):

In order to qualify for the Rule 10b-18 safe harbor for repurchases, which of the following is correct?

I. The repurchase transactions made in a single day must occur through only one broker-dealer

II. The repurchase transactions made in a single week must occur through no more than two broker-dealers

III. The repurchase transactions must occur within 10 minutes of market open or within 30 minutes of market close

IV. The repurchase transactions must not be the opening transaction or within 30 minutes of market close

Answers:

A. I and III

B. I and IV

C. II and III

D. II and IV

Correct Answer: B. I and IV

Rationale: Rule 10b-18 provides a safe harbor for issuer repurchase transactions. It allows the issuer to repurchase its own stock without being liable for manipulation based solely on the manner, timing, price, and volume of the repurchase transactions. In order to qualify, any repurchase transactions made in a single day must be made through only one broker-dealer. The transactions also must not be the opening transaction or within 30 minutes of the close of that market. For actively traded securities, the transactions must not be the opening purchase or within 10 minutes of the close of that market (actively traded securities are those with an ADTV of at least $1 million and a public float of at least $150 million). The transactions must comply with price and volume limitations as well.

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

Exam Alert: Federal Agencies Implement Volcker Rule

Effective April 1, 2014, five federal agencies will implement a provision of the Dodd-Frank Act known as the Volcker rule. This rule prohibits a bank from making short-term trades in financial instruments for its own account. The rule also limits the relationships a bank can have with hedge funds and private equity funds. Continue reading

Effective April 1, 2014, five federal agencies* will implement a provision of the Dodd-Frank Act known as the Volcker rule. This rule prohibits a bank from making short-term trades in financial instruments for its own account. The rule also limits the relationships a bank can have with hedge funds and private equity funds.

The rule provides exemptions for certain activities, including underwriting, market making, hedging risk, trading in certain government securities, trading in a fiduciary capacity, and riskless principal trading. Foreign banks are exempt if the trades meet certain requirements. Insurance companies are exempt when trading for their general or separate accounts.

The rule requires banks engaging in the activities covered by the rule to put in place a compliance program. The level of detail of the compliance program depends on the size of the bank, with larger banks needing more detailed compliance programs.

*The five agencies are the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Source: SEC Release 2013-258: Agencies Issue Final Rules Implementing the Volcker Rule

This alert applies to the Series 6, Series 7, Series 24, Series 55, Series 62, and Series 79.

Testimonial Tuesday: October 22, 2013 Edition

“I pass the Series 55! I loved your program because I can take quizzes on my iPhone…” Continue reading

“I passed the Series 55! I loved your program because I can take quizzes on my iPhone and test myself where ever I go. Thanks for your help.” -Morris Gordon, Merrill Lynch, Jacksonville, FL

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.

Exam Alert: FINRA requires firms to report trades within 10 seconds

Effective November 4, 2013, FINRA will require firms to report OTC trades in equity securities within 10 seconds of execution. Firms must also report cancellations of trades within 10 seconds. Continue reading

Effective November 4, 2013, FINRA will require firms to report OTC trades in equity securities within 10 seconds of execution. Firms must also report cancellations of trades within 10 seconds.

Note that trades should be reported “as soon as practicable.” 10 seconds is the cut-off after which the trade report will be considered late. FINRA recognizes, however, that certain trade reports may need to be entered manually – in these situations, FINRA will consider the complexity and size of the trade in determining whether there is “reasonable justification” for manually entering the trade report.

Source: Regulatory Notice 13-19: SEC Approves Amendments to Require Firms to Report OTC Transactions in Equity Securities as Soon as Practicable, But No Later Than 10 Seconds, Following Execution

This alert applies to the Series 24, Series 55, and Series 62.

Study Question of the Week: September 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):

According to the Alternative Uptick Rule, if a stock declines by 10% or more from the previous day’s close, a short sale can only be made at a price:

Answers:

A. Above the best bid for the remainder of the trading day and the next trading day

B. At or below the best bid for the remainder of the trading day and the next trading day

C. Above the best ask for the remainder of the trading day and the next trading day

D. At or below the best ask for the remainder of the trading day and the next trading day

Correct Answer: A. Above the best bid for the remainder of the trading day and the next trading day

Rationale: According to the Alternative Uptick Rule, if a stock declines by 10% or more from the previous day’s close, a short sale can only be made at a price above the best bid for the remainder of the trading day and the next trading day. The alternative uptick rule can only be triggered during regular market hours, but the pricing restriction holds during regular and extended trading hours. The rule only applies to NMS securities traded on or off an exchange. The Alternative Uptick Rule is also referred to as the Rule 201 Circuit Breaker. Orders marked short exempt are exempt from this rule.

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

Exam Alert: FINRA modifies Series 55 outline and passing score

Effective August 12, 2013, FINRA will revise the Series 55 exam program. This includes significant changes to the Series 55 content outline, along with a change in the passing score. Continue reading

Effective August 12, 2013, FINRA will revise the Series 55 exam program. This includes significant changes to the Series 55 content outline, along with a change in the passing score. The current passing score is 70% – the new passing score will be 67%. The breakdown of questions by topic will also change, though the total number of questions will remain at 100 scored plus 10 unscored. The new breakdown is as follows:

-Trading: 45 questions

-Order Handling: 36 questions

-Record Keeping and Regulatory Reporting: 19 questions

The new exam outline can be found here.

Source: Regulatory Notice 13-22: FINRA Revises the Series 55 Examination Program

This alert applies to the Series 55.

Study Question of the Week: July 10, 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, Series 62, and Series 79. –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, Series 62, and Series 79):

An issuer would like to buy back shares and has already made a once-per-week block transaction this week. The inside quote for the security is 18.30 – 18.34. The last transaction was 18.32. Under SEC Rule 10b-18, which two of the following statements are true?

I. The maximum number of shares the issuer could buy in a day is 25% of the ADTV for the previous four weeks.

II. The maximum number of shares the issuer could buy in a day is 30% of the ADTV for the previous four weeks.

III. The highest price the issuer could buy at would be $18.32.IV. The highest price the issuer could buy at would be $18.34.

Answers:

A. I and III

B. II and IV

C. I and IV

D. II and III

Correct Answer: A. I and III

Rationale: Under SEC Rule 10b-18,when an issuer buys back their own shares, the bid may not be higher than the last transaction or the highest independent bid, whichever is greater. The maximum daily purchase cannot exceed 25% of the ADTV (average daily trading volume) over the previous four weeks.

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

Exam Alert: FINRA amends trading halt rules

Effective May 9, 2013, FINRA revised its rules for imposing trading halts. The changes rules clarify the following… Continue reading

Effective May 9, 2013, FINRA revised its rules for imposing trading halts. The changes rules clarify the following:

-FINRA may start a trading halt for an OTC equity security based on a foreign regulator halting trading in that security, assuming the halt is based on news pending or public interest concerns.

-FINRA may keep such a trading halt going for more than 10 days if a foreign regulator has kept a trading halt going past 10 days.

-FINRA may also keep a trading halt caused by an extraordinary event going for more than 10 days if the halt if there is an ongoing basis for the halt.

Source: FINRA Regulatory Notice 13-13: SEC Approves Amendments to Rule 6440 Relating to Trading and Quotation Halts in OTC Equity Securities

This alert applies to the Series 7, Series 24, Series 55, and Series 62.

Exam Alert: FINRA implements pricing limits to prevent extreme volatility in NMS stocks

Effective April 8, 2013, FINRA and other SROs will put into effect a plan to address extraordinary volatility in the stock market, such as what happened during the flash crash of 2010. The plan prevents trades in an NMS stock from being executed outside of a specified threshold of the average price of trades in the stock over the past five minutes. Continue reading

If the national best bid goes below the lower threshold or the national best offer goes above the higher threshold (but the other side of the market is within the threshold), the quotes for the stock enter a “straddle state.” When the quotes are in a straddle state, the primary exchange that lists the stock may pause trading in the stock.

If both sides of the market go either at or above the higher threshold or at or below the lower threshold, the quotes inn the stock enter a “limit state.” If the quotes remain in a limit state for 15 seconds, then the primary listing exchange for the stock must pause trading in the stock for five minutes.

The thresholds are as follows:

Average price over the past 5 minutes	Threshold
More than $3.00	5%
$0.75 up to and including $3.00	20%
Less than $0.75	Lesser of $0.15 or 75%

These thresholds are doubled within 15 minutes of market open and 25 minutes of market close. Also, a leveraged ETP (exchange-traded product) multiplies the threshold by the leverage ratio of the product.

The plan will be implemented in two stages. The first stage will go into effect April 8, 2013, and will have the plan apply to certain selected NMS stocks. The second stage will go into effect six months later, and will expand the plan to cover all NMS stocks.

FINRA has added a new rule and adopted amendments to other rules to ensure compliance with the plan.

Source: FINRA Regulatory Notice 13-12: FINRA Adopts Amendments Relating to Regulation NMS Plan to Address Extraordinary Market Volatility

This alert applies to the Series 7, Series 24, Series 26, Series 55, and Series 62.