Series 66

Study Question of the Week: November 8, 2012 Edition

This week’s exam study question from the Solomon Online Exam Simulator question database is now available. This week’s exam question is relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 65, Series 66, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section below.

Question (Relevant to the Series 6, Series 7, Series 24, Series 26, Series 62, Series 65, Series 66, and Series 82):

A couple has just had a baby and they want to start saving for college. What option does NOT offer the opportunity for their investment to grow free of federal taxes?

Answers:

A: Education Savings Account

B: UGMA/UTMA Account

C: 529 College Savings Plan

D: 529 Prepaid Tuition Plan

ANSWER & RATIONALE

Correct Answer: B

Rationale: Unlike the other options, UGMA/UTMA (Uniform Gifts to Minors Act/Uniform Transfers to Minors Act) accounts are subject to federal income and capital gains taxes.

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

ANSWER – Study Question of the Week: October 23, 2012 Edition

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale. Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99. Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99):

Which of the following is true of UGMA/UTMA accounts?

I. Only family members may contribute to a UGMA/UTMA
II. Annual contribution limit of $13,000 per year, per child
III. Assets may only be used for education expenses
IV. Earnings reported under adult custodian’s tax identification

Answers:

A: I, II

B: III, IV

C: II, III

D: None of the choices listed

Correct Answer: D

Rationale: Anyone may contribute to a Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) account and there are no contribution limits. Assets in UGMA/UTMA accounts may be used for any purpose and earnings are reported on the minor’s social security account, not the custodian’s.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: October 23, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available (Relevant to Series 6, 7, 65, 66, 24, 26 and 99). Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available. Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Happy studying!

Question (Relevant to Series 6, Series 7, Series 65, Series 66, Series 24, Series 26 and Series 99):

Which of the following is true of UGMA/UTMA accounts?

Answers:

A: I, II

B: III, IV

C: II, III

D: None of the choices listed

Exam Alert: NASAA identifies compliance violations, best practices

A NASAA report outlines the most common broker-dealer violations and offers best practices in ten areas to help broker-dealers avoid mistakes. Continue reading

A NASAA report outlines the most common broker-dealer violations and offers best practices in ten areas to help broker-dealers avoid mistakes.

The most common areas of violations involved books and records, supervision, and sales practices. Less common were violations related to licensing and registration, and the most uncommon type of violations were those related to operations. The top five violation types were as follows: “failure to follow written supervisory policies and procedures, suitability, correspondence/e-mail, maintenance of customer account information, and internal audits.”

NASAA identified best practices in ten areas – summaries of those practices follow.

-Suitability: Know your customer, know your products.

-Staffing and Expertise: Make sure there is enough staff with appropriate training/experience for the size of the firm and the scope of business activities. Also, have and enforce written supervisory procedures.

-Exception Reports: Introducing brokers must get exception reports from clearing brokers and deal with any red flags that come up.

-Branch Office Audits: Have a good, well-documented audit program with unannounced visits.

-Selling Away: Monitor agents selling away. If an agent applies to sell away and gets denied, make sure they don’t do so anyway.

-Outside Business Activity: Outside business requests must be approved before the activity occurs and must be reported on the agent’s U4.

-Advertisements: Ads must be fair and approved by the broker-dealer and/or FINRA. Seminars must be approved by the broker-dealer.

-Correspondence: Keep copies of outside communications on record.

-Customer Complaints: Investigate and respond appropriately to any complaint. Update the U4 of involved agents if necessary.

-Working with Seniors: Develop practices for working with elderly customers.

Source: Coordinated Examinations Identify Top BD Compliance Violations

This alert applies to the Series 24, Series 26, Series 7, Series 65, and Series 66.

Exam Alert: SEC identifies concerns, good practices regarding nonpublic information

On September 27, 2012, the SEC identified situations ripe for abuse of inside information at broker-dealers so that industry professionals will know what to avoid. The SEC also provided examples of good policies put in place at some broker-dealers that minimize the risk of insider trading violations. Continue reading

Potentially problematic situations include the following:

-Lots of informal, undocumented interaction between departments with MNPI (material nonpublic information) and sales/trading departments that could abuse that information

-Having senior executives that supervise multiple departments and could spread MNPI from one department to another without oversight, due to being “above” the information barriers

-Lack of review of situations where MNPI is provided from one department to another for business purposes

-Lack of review of trading in customer and affiliate accounts

-Lack of review of situations where MNPI is received from an outside source

Effective practices included:

-Having a system that distinguishes MNPI based on source or type of information (possibly even having individualized reports specific to certain pieces of information)

-Expanded review of potential misuse of MNPI, including looking at trading in swaps, loans, components of pooled securities (such as UITs and ETFs), warrants, and bond options

-Monitoring access to electronic sources of MNPI to see which employees access the information

-Monitoring access levels granted via key cards and computer networks to ensure that only authorized personnel have access to restricted areas

Source: SEC Issues Report on Brokerage Firms’ Handling of Confidential Information (SEC Release 2012-200)

This alert applies to the Series 24, Series 26, Series 6, Series 7, Series 55, Series 62, Series 79, Series 82, Series 99, Series 63, Series 65, Series 66, and Series 56.

Study Question of the Week: October 10, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available (Relevant to the Series 7, Series 65, Series 66, Series 24 and Series 62). Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale. Continue reading

Question (Relevant to the Series 7, Series 65, Series 66, Series 24 and Series 62):

Todd finally hit the nail on the head when he sold short shares of Widget Corporation. He doesn’t see widgets coming around anytime soon, but would like to protect his profits in case the stock goes against him. What type of order would Todd most likely enter?

Answers:

A: Buy stop

B: Sell Stop

C: Market

D: FOK

Answer found here.

ANSWER–Study Question of the Week: October 1, 2012 Edition

As a follow up to yesterday’s licensing exam study question (Relevant to Series 65, Series 66, Series 7, and Series 79), here is your question PLUS answer and rationale: Continue reading

As a follow up to yesterday’s licensing exam study question, here is your question PLUS answer and rationale:

Question (Relevant to Series 65, Series 66, Series 7, and Series 79):

Given the following assumptions for stock ABC, what is its expected return using the Capital Asset Pricing Model (CAPM)?

Assumptions: Risk Free Rate: 1%; Expected Return on general stock market: 7%; Beta: 1.; Sharpe Ratio: 2.

Answers:

A. 10%

B. 13%

C. 11.5%

D. 15%

Correct Answer: A

Rationale: The formula for the Capital Asset Pricing Model (CAPM) is given by the following: Return on Stock = Risk Free Rate + Beta of Stock x (Return on Market – Risk Free Rate). Plugging in for Stock ABC gives Return on Stock ABC = 1% + 1.5 x (7% – 1%) = 10%. Note the Sharpe Ratio is not used in the CAPM formula.

*Questions featured in the weekly study question series are sampled from Solomon’s industry-leading Online Exam Simulator.

Study Question of the Week: October 1, 2012 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available (Relevant to Series 65, Series 66, Series 7, and Series 79). Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale! Continue reading

Happy studying!

Question (Relevant to Series 65, Series 66, Series 7, and Series 79): Given the following assumptions for stock ABC, what is its expected return using the Capital Asset Pricing Model (CAPM)?

Risk Free Rate: 1%; Expected Return on general stock market: 7%; Beta: 1.;, Sharpe Ratio: 2.

Answers:

A. 10%

B. 13%

C. 11.5%

D. 15%

Exam Alert: Department of Labor requires additional disclosure to 401(k)-type plan participants

The U.S. Labor Department has released a final rule that will require the administrators of 401(k)-type retirement plans to provide additional information to plan participants. The rule states that investment of plan assets is a fiduciary act governed by fiduciary standards. The rule requires that if a plan gives investment responsibilities to its participants, that the plan administrator must regularly inform them of those responsibilities. The plan administrator must also provide specified plan-related information and investment-related information, as detailed below. Continue reading

Plan-related information consists of three categories:

-general plan information (structure and mechanics of the plan),

-administrative expense information (fees deducted from all accounts), and

-individual expense information (fees charged for individual actions).

This information must be given to participants on or before the date they can first direct their investments, and annually thereafter. Participants must also receive quarterly statements showing the actual charges for plan-related fees and expenses and a description of services provided.

Investment-related information includes –

For investments with a fixed rate of return:

-the annual rate of return

-the term of the investment

For investments that do not have a fixed rate of return:

-1-, 5-, and 10-year returns

-name and returns of an appropriate broad-based securities market index over the same 1-, 5-, and 10-year periods

-total annual operating expenses as a percentage of assets and as a dollar amount per $1000 invested

For all investments:

-any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment

-an address for a website that provides current, specific, additional information

-a general glossary of terms

Investment-related information must be given to participants on or before the date they can first direct their investments, and annually thereafter. It must be provided in a comparative format, such as a chart.

Additional stipulations:

-The rule protects the plan administrator from liability for the completeness and accuracy of information given to participants if the administrator reasonably and in good faith relied on information given by a service provider.

-A participant must be given any materials the plan receives for that participant’s investments regarding voting, tender, or similar rights.

-Upon request, the plan administrator must give disclosure documents associated with an investment (prospectuses, financial reports, statements of valuation and of assets held).

The initial annual disclosure required under the rule must happen by August 30, 2012. The initial quarterly disclosure required under the rule must happen by November 14, 2012.

Source: Final Rule to Improve Transparency of Fees and Expenses to Workers in 401(k)-Type Retirement Plans (DOL Fact Sheet)

This alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, Series 65, Series 66, and Series 82 – these exams address ERISA considerations.

Exam Alert: SEC and CFTC define “swap,” “security-based swap,” and “mixed swap”

Effective October 12, 2012, the SEC and CFTC will put into effect rules that specify whether a given product counts as a “swap,” “security-based swap,” “mixed swap,” or none of the above. The new rules also require market participants to keep the same books and records for “security-based swap agreements” as would be required for swaps. Continue reading

The CFTC regulates swaps, the SEC regulates security-based swaps, and both agencies regulate mixed swaps. The CFTC regulates security-based swap agreements, but the SEC has antifraud authority over those products.

Products that are not swaps or security-based swaps include:

-insurance that falls under 1) the grandfather provision, 2) the product safe harbor, or 3) the enumerated product safe harbor

-security forwards

-consumer transactions

-commercial transactions

Products that are considered swaps include:

-Title VII instruments on interest rates and other monetary rates

-Title VII instruments on rates or yields of U.S. Treasuries and certain other exempt securities

-Title VII instruments on futures (other than futures on foreign government debt securities)

-broad-based index credit default swaps that require cash settlement or auction settlement

Products that are considered security-based swaps include:

-Title VII instruments on yields of a non-exempt debt security, loan, or narrow-based security index

-Total Return Swaps on a single security, loan, or narrow-based security index

-Title VII instruments on security futures

Products that are considered mixed swaps include:

-Total Return Swaps that include interest-rate optionality or a non-securities component

-broad-based index credit default swaps that require mandatory physical settlement

Products that may be swaps or security-based swaps:

-Title VII instruments based on futures contracts on certain foreign government debt securities

-index credit default swaps

-foreign exchange forwards

-foreign exchange swaps

-foreign currency options (other than foreign currency options traded on a national securities exchange)

-non-deliverable forward contracts involving foreign exchange

-currency and cross-currency swaps

-forward rate agreements

-contracts for differences

-certain combinations and permutations of (or options on) swaps and security-based swaps

Market participants may request a determination from the SEC and the CFTC of whether a product is a swap, a security-based swap, or a mixed swap.

Sources:

SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives (SEC Release 2012-130)

Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping (Federal Register publication)

This alert applies to the Series 62, Series 79, Series 99, Series 7, Series 66, and Series 65.