FINRA

Study Question of the Week: December 26, 2012 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, 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 7, Series 24, Series 55, Series 62, Series 65, and Series 66):

ABCD is an actively traded security with an inside market of 19.25 – 19.95. A market maker receives an order to sell 100 shares and buys the security from the customer at a net price of ______________. Choose the net price that makes the most sense given what you know about markups, markdowns, and net prices.

Answers:

A: 18.75
B: 19.25
C: 19.95
D: 20.45

Correct Answer: A

Rationale: On a sell order in an active competitive market, the net price will contain a markdown from the best bid. In this case the only price that is lower than the best bid is the $18.75. The markdown amount is calculated by taking $19.25 – $18.75 = $.50. The markdown is $.50/$19.25 = 2.60%.

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

Exam Alert: FINRA provides additional guidance on suitability rule

FINRA has provided additional guidance on its suitability rule. The new guidance redefines the terms “customer” and “investment strategy” and clarifies when the rule applies to recommendations involving non-security investments. FINRA has also created a webpage that addresses suitability issues. Continue reading

FINRA has provided additional guidance on its suitability rule (original guidance covered here). The new guidance redefines the terms “customer” and “investment strategy” and clarifies when the rule applies to recommendations involving non-security investments. FINRA has also created a webpage that addresses suitability issues.

The guidance states that “in general, for the purposes of the suitability rule, the term customer includes a person who is not a broker or dealer who opens a brokerage account at a broker-dealer or purchases a security for which the broker-dealer receives or will receive, directly or indirectly, compensation even though the security is held at an issuer, the issuer’s affiliate or a custodial agent (e.g., ‘direct application’ business, ‘investment program’ securities, or private placements), or using another similar arrangement.” The suitability rule only applies to a recommendation made to a potential investor if the potential investor becomes a customer.

An “investment strategy” refers to a recommendation to invest in specific types of securities. However, a recommendation to invest in “equity” or “fixed income” securities would not generally be considered an investment strategy – the type of security must be more specific than those categories. An explicit recommendation to hold securities would be considered an investment strategy, as would a recommendation to continue an existing investment strategy.

The suitability rule only applies to non-security investments to the extent that the non-security investment is involved with a securities transaction (e.g. recommending that a customer sell a non-security investment to buy securities, or vice versa). The notice also provides comments on broker-dealer supervisory obligations regarding investment strategies that involve both securities and non-security investments.

Source: FINRA Regulatory Notice 12-55: Guidance on FINRA’s Suitability Rule

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

Exam Alert: FINRA changes research analyst rules for offerings of emerging growth companies

FINRA has changed its rules to reflect the loosened standards for research analyst activities in connection with offerings of emerging growth companies (EGCs). These new standards are a result of the JOBS Act. Continue reading

-Research analysts may now attend meetings with issuer management that are also attended by investment banking personnel, in connection with an IPO of an EGC.

-FINRA has eliminated all quiet periods in connection with IPOs, secondary offerings, and lock-up agreements in relation to EGCs.

FINRA announced the changes on November 1, 2012, but they are effective retroactively to either April 5, 2012 or October 11, 2012, depending on the specific change.

Source: FINRA Regulatory Notice 12-49: SEC Approves Amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to Conform to JOBS Act Requirements

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

Exam Alert: FINRA amends margin requirements

Effective October 26, 2012, FINRA has changed its rules regarding margin requirements for option spread strategies. Effective January 23, 2013, FINRA will make additional changes to its margin requirement rules. Continue reading

Effective October 26, 2012, FINRA has changed its rules regarding margin requirements for option spread strategies. The changes include the following:

-Definition of a spread: the prior rule used to define several different types of spreads (e.g. butterfly spread, condor spread, calendar spread). The new rule just provides one definition for spreads overall, along with a separate definition for box spreads. For a set of options to be considered a “spread”, they must all be: on the same security, all American-style or all European-style, and all listed or all OTC. In addition, the aggregate underlying contract value of the “long” options must equal that of the “short” options and the “short” options must expire on or before the date the “long” options expire.

-Margin for options within spreads: long options within spreads must be paid in full. The margin requirement for a short option within a spread is the lesser the normal requirement for the option and the maximum potential loss of the spread.

Effective January 23, 2013, FINRA will make additional changes to its margin requirement rules. The changes include the following:

-Non-margin eligible equity securities: FINRA will clarify and modify how non-margin securities held in a margin account interact with the maintenance margin requirement. The maintenance margin requirement for non-margin securities is 100% of market value. Firms cannot extend maintenance loan value on non-margin securities except under specific conditions.

-Free-riding: FINRA will eliminate the exception to the free-riding rule for “designated accounts.”

-Exempt accounts: FINRA will eliminate an outdated definition of “exempt account.”

-Stress testing: FINRA will delete the requirement to stress test portfolio margin accounts in aggregate. Firms must still stress test individual portfolio margin accounts.

Source: SEC Approves Amendments to FINRA Rule 4210 (Margin Requirements) [FINRA Regulatory Notice 12-44]

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

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.

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?

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

Exam Alert: FINRA adopts, modifies private placement rules

Effective December 3, 2012, FINRA will adopt a new rule regarding private placements. The rule requires that firms that sell securities in a private placement must file any offering documents used within 15 days of the date of the first sale, or indicate that the firm did not use any offering documents. Continue reading

FINRA will also modify a rule regarding private placements. This change, also effective December 3, 2012, requires firms to submit filings regarding member firm private offerings through the Firm Gateway.

Source: FINRA Regulatory Notice 12-40

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

ANSWER–Study Question of the Week: August 29, 2012 Edition

As a follow up to yesterday’s question, here is your question PLUS answer and rationale: Continue reading

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

Question (Relevant to Series 24, Series 55, Series 62, Series 7)

To calculate a markdown as a percentage, which of the following are used?

Answers

A: The lowest bid

B: The highest bid

C: The highest offer

D: The lowest offer

Correct Answer: B

Rationale: A markdown is calculated when a customer sells shares. The customer would sell their shares to the market maker who is willing to buy at the highest bid. The markdown is calculated by dividing the amount kept by the market maker by the highest bid.

Study Question of the Week: August 29, 2012 Edition

Today, we’ll be starting a weekly series highlighting a licensing exam study question from the Solomon Online Exam Simulator question database. Continue reading

Today, we’ll be starting a weekly series highlighting a licensing exam study question from the Solomon Online Exam Simulator question database.

Let’s get started!

Question (Relevant to Series 24, Series 55, Series 62, Series 7)

To calculate a markdown as a percentage, which of the following are used?

Answers

A: The lowest bid

B: The highest bid

C: The highest offer

D: The lowest offer

Be sure to submit your answers in the comments section and check back tomorrow for the correct answer and rationale!

Happy studying!

Exam Alert: FINRA to modify minimum quote sizes for OTC stocks

Effective November 5, 2012, FINRA will implement a pilot program modifying the standards for minimum quotation sizes for OTC equity securities. Continue reading

Effective November 5, 2012, FINRA will implement a pilot program modifying the standards for minimum quotation sizes for OTC equity securities. During this program, the minimum quote sizes will be as follows:

Price (Bid or Offer)	Minimum Quote Size (# of shares)
$0.0001 to $0.0999	10,000
$0.10 to $0.1999	5,000
$0.20 to $0.5099	2,500
$0.51 to $0.9999	1,000
$1.00 to $174.99	100
$175.00+	1

The rule will also be extended to apply to all quotes and orders displayed in an inter-dealer quotation system, including quotes displayed by alternative trading systems and quotes reflecting customer orders. The program will last until October 31, 2013, unless rescinded, extended, or made permanent.

Source: FINRA Regulatory Notice 12-37

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