Series 99

Study Question of the Week: August 14, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 51, 52, 53, 62, 82, and 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 51, Series 52, Series 53, Series 62, Series 82, and Series 99):

When money is regularly put into an escrow account in order to redeem the bonds before maturity this is called:

Answers:

A. A sinking fund redemption

B. Advance refunding

C. Defeasement

D. A make whole provision

Correct Answer: A. A sinking fund redemption

Rationale: A sinking fund redemption requires the issuer to set money aside regularly in a reserve account for the redemption of the bonds before maturity.

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

Study Question of the Week: August 6, 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 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.

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, and Series 99):

A client wants to open a custodial IRA account for his minor daughter who has earned a couple thousand dollars babysitting. Which of the following would be the best choice?

Answers:

A. Traditional IRA

B. Roth IRA

C. SIMPLE IRA

D. SEP IRA

Correct Answer: B. Roth IRA

Rationale: SEP and Simple IRAs are for small businesses. A traditional IRA would work but since the client’s daughter doesn’t have enough income to take advantage of the tax deduction benefit from a traditional IRA, the Roth IRA is the best choice since it will permit her to eventually withdraw tax-free.

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

Exam Alert: FINRA Excludes Research Reports on Exchange-Listed Securities From Filing Requirement

Effective July 11, 2014, FINRA revised its rules on filing retail communications. The new rules do not require firms to file research reports on securities listed on national exchanges, except for certain research reports on investment companies. Continue reading

Effective July 11, 2014, FINRA revised its rules on filing retail communications. Generally, FINRA requires firms to file retail communications on registered securities within ten business days of first use. The new rules exclude from filing research reports on securities listed on national exchanges. However, firms must still file certain research reports on investment companies. Specifically, research reports on open-end investment companies, unit investment trusts, and face-amount certificate companies must still be filed if they will be distributed to prospective investors.

Additionally, FINRA clarified that free-writing prospectuses that are exempt from the SEC’s filing requirements do not need to be filed with FINRA.

Retail communications are written communications, including electronic communications, that will be distributed or made available to more than 25 retail investors within any 30-calendar-day period. “Retail Investor” is defined as any person other than an institutional investor, regardless of whether the person has an account with the firm.

A research report is a written communication that includes information, analysis, and/or recommendations on a security.

Open-end investment companies, also known as mutual funds, are companies that offer shares of a portfolio of securities in the form of a fund to the public. Every time shares in the fund are purchased, the shares are issued new by the mutual fund company. Additionally, when shareholders wish to sell their shares, they must sell them back to the mutual fund company. The mutual fund company will then “redeem” them and expire the shares.

A unit investment trust (UIT) is an investment company that buys and holds a fixed portfolio of securities that are put into a trust in “units” that are sold to investors (unit holders). UITs have a stated termination date that varies according to the type of investments in the portfolio. A UIT in bonds may have as much as a 30-year life; a UIT in stocks may mature in one year or less. Unit holders receive a share of the principal at termination, and any income earned is distributed to investors in periodic payments of dividends or interest.

A face-amount certificate company is an investment company that issues debt securities called face-amount certificates backed by assets such as real property or other securities. Issuers of face-amount certificates promise to pay a stated amount (face-amount) to the investor at a specified time in the future. In return, investors pay the issuer a fixed amount of money either as a lump sum payment or in periodic installments. The rate of return is calculated by comparing the amount paid into the investment and the face-amount received.

A free-writing prospectus (FWP) is any written offer to sell or a solicitation to buy the securities in an offering, distributed during the cooling-off period, after a registration statement has been filed. It is not required to have the detail or depth of information of the preliminary prospectus.

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

Source: FINRA Regulatory Notice 14-30: SEC Approves Amendments to FINRA Rule 2210 to Exclude Research Reports on Exchange-Listed Securities From Filing Requirements and Clarify the Standards Applicable to Free Writing Prospectuses

Study Question of the Week: July 9, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, 51, 52, 53, 62, 79, 82, and 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 51, Series 52, Series 53, Series 62, Series 79, Series 82, and Series 99):

When new bonds are issued with the purpose of using the proceeds to pay off older bonds, it is called?

Answers:

A. Refunding

B. Defeasement

C. A sinking fund redemption

D. A bond SWAP

Correct Answer: A. Refunding

Rationale: A bond refunding is the replacement of existing bonds with new “refunding“ bonds. The issuer of refunding bonds often seeks to lower its interest payments by paying off its previously issued (refunded) bonds with newly issued bonds that pay interest at a lower rate. Another reason to refund existing bonds may be to release the issuer from legal covenants or restrictions in the original indenture.

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

Study Question of the Week: May 14, 2014 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 7, Series 51, Series 52, Series 53, 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.

Study ? of the Week

Question (Relevant to the Series 7, Series 51, Series 52, Series 53, Series 62, Series 79, Series 82, and Series 99):

Why would a bond issuer decide to issue an advance refunding bond?

Answers:

A. Because interest rates have risen

B. To lock into the current lower interest rates

C. Because the CPI has gone up

D. To try to increase the yield on their bond issue

Correct Answer: B. To lock into the current lower interest rates

Rationale: A bond refunding is the replacement of existing bonds with new “refunding“ bonds. The issuer of refunding bonds seeks to lower its interest payments by paying off its previously issued (refunded) bonds with newly issued bonds that pay a lower interest rate. An advance refunding bond refers to one in which more than 90 days must elapse before the refunded bond can be retired. An issuer typically uses advance refunding when interest rates have dropped significantly, but the next call date is not in the near future. An advance refunding bond allows the issuer to lock in the lower interest rates now without risking that they rise before the call date arrives.

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

Study Question of the Week: April 30, 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 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.

Study ? of the Week

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

XYZ stock is trading at $10/share. ABC Co. makes a partial tender offer for XYZ stock at $11/share. John Johnson holds 1000 shares of XYZ stock. After ABC Co. announces the tender offer, John writes 10 calls of XYZ stock at $10.50/share. John then tenders as many shares of XYZ stock as he is legally permitted to. How many shares of XYZ does John tender?

Answers:

A. 0

B. 500

C. 1000

D. 2000

Correct Answer: A. 0

Rationale: John sold 10 calls after the tender offer was announced at a strike price lower than the tender offer price. As a result, the call is considered a short position for the purposes of calculating how many shares he can tender. John can tender up to his net long position in the stock, which is his long position (1000 shares) minus his short position (10 calls * 100 shares each = 1000 shares). 1000 – 1000 = 0, so John can tender 0 shares.

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

Exam Alert: FINRA Updates and Consolidates Rules Regarding Customer Protection, Callable Securities, and Securities Loans

Effective May 1, 2014, FINRA will put into place new consolidated financial and operational rules, based on existing NYSE and NASD rules. The rules cover requirements regarding customer protection, callable securities, and securities loans. Continue reading

Effective May 1, 2014, FINRA will put into place new consolidated financial and operational rules, based on existing NYSE and NASD rules.

The new customer protection rule requires firms to:
-obtain written authorization from a customer before lending out securities in that customer’s margin account
-notify FINRA in writing at least 30 days prior to borrowing fully paid or excess margin securities from a customer account
-make an appropriateness determination prior to first entering into a securities borrowing arrangement with a customer and provide specified written disclosures
-prior to first entering into a securities borrowing arrangement with a customer, provide the customer with a written notice stating that the Securities Investor Protection Act of 1970 may not protect the customer in the securities loan transaction, along with other disclosures (note: this last requirement will go into effect October 28, 2014).

The new callable securities rule requires a firm to:
-identify its held callable securities and establish a lottery allocation system for determining which customers will be impacted in the event of a partial redemption or call
-share the allocation procedures on its website
-provide written notice to new customers when opening an account and to all customers annually of where to access the allocation procedures
-not allocate securities to its accounts and the accounts of associated persons in the event of a redemption that is favorable to the security holders until all other customer positions in the securities have been satisfied
-not exclude its accounts and the accounts of associated persons in the event that the redemption is unfavorable to the security holders.

The securities loans and borrowings rule requires firms to:
-have consistent disclosure and recordkeeping for its securities lending activities
-when lending or borrowing securities from non-FINRA members, have a written agreement that gives the firm the right to liquidate the transaction under specified conditions.

Source: FINRA Regulatory Notice 14-05: SEC Approves Consolidated FINRA Rules 4314 (Securities Loans and Borrowings), 4330 (Customer Protection – Permissible Use of Customers’ Securities) and 4340 (Callable Securities)

This alert applies to the Series 24, Series 62, Series 82, and Series 99.

Study Question of the Week: April 16, 2014 Edition

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 62, Series 79, Series 82, and Series 99):

For the question below, assume that each of the answers is solely for the benefit of the recipient and are classified as gifts, not business entertainment.

Which of the following gifts would be a violation under Rule 3220:

Answers:

A. A $20 giftcard given to a salaried employee

B. A holiday fruit basket valued at $80 paid for, or provided by, a third party vendor

C. A vase valued at $120, given as a wedding present and paid for by the employee

D. A dinner cruise valued at $120, if written consent was provided by the recipient’s employer

Correct Answer: D. A dinner cruise valued at $120, if written consent was provided by the recipient’s employer

Rationale: FINRA Rule 3220 is a broad rule with few exceptions. In the above examples, a $20 gift card given to a salaried employee would not violate the rule because it is not over the $100 limit. Regardless of the entity that pays for it, an $80 fruit basket would not violate the rule because it is not over $100. A dinner cruise valued at $120, even if written consent was provided by the recipient’s employer, is a violation because a flat $100 standard is applied, whether or not the recipient’s firm deems it appropriate. Note that in prior years, employees of NYSE firms were able to make such gifts under this scenario.

Even though it exceeds the $100 standard, a vase valued at $120, given as wedding present and paid for the by the employee is not a violation because it falls outside of the Rule 3220 restrictions. If a gift is given in commemoration of a life event (wedding, birth, etc.) and it is paid for by the individual employee, it is classified as a personal gift that is not “related to the business“ of the recipient’s employer. It is important to recognize that if the giver is ultimately reimbursed by their firm for the price of the present, the gift would be reclassified as a business-related gratuity and would then be in violation of the Rule’s $100 limitation.

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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.