Should Cryptocurrency Be Regulated as a Security or a Commodity? Solomon customers speak.

Read the results of Solomon Exam Prep’s latest poll on the topic of cryptocurrency regulation – and learn which license you’d need for either outcome. Continue reading

With the regulatory status of Bitcoin and other cryptocurrencies still up in the air, a recent Solomon LinkedIn poll found that 60% of Solomon customers think cryptocurrencies should be treated as commodities, while 40% said they thought cryptocurrencies should be regulated as securities.

Thus far the SEC has avoided clearly stating that cryptocurrencies are securities. To do so, the SEC would likely have to show that cryptocurrencies meet the “Howey Test,” which says that securities must have four characteristics. According to this test, a security involves (1) an investment of money that (2) involves a common enterprise (3) in which the investors expect to make a profit, and (4) the profits will be derived from the efforts of someone other than the investor.

If the SEC, Congress, or the courts declare that cryptocurrencies meet the Howey Test and are therefore securities, Solomon’s got you covered with the Series 7 General Securities Representative Exam Guide. This FINRA license allows you to engage in “the solicitation, purchase and/or sale of all securities products.”

If cryptocurrencies don’t meet the Howey Test, they could be regulated as commodities. These are goods such as wheat, gold, and pork bellies. Why might cryptocurrencies fit in with these others? Because commodities are all highly standardized so that they can be freely bought and sold on exchanges without worrying about differences in quality—every ounce of gold is pretty much like every other ounce of gold. Likewise, every Bitcoin is like every other Bitcoin.

If cryptocurrencies end up being treated like commodities, consider the Solomon Series 3 National Commodities Futures Exam Guide. The Series 3 is the main qualification exam for the National Futures Association and is required if you want to become a Commodity Trading Advisor.

The Power of Explaining: A Study Strategy Backed by Research

If you’re studying for the Series 65, Series 7, or another securities licensing exam, try this evidence-based study strategy. Continue reading

Solomon Exam Prep’s learning system is built on understanding how people learn. Solomon Exam Prep is always looking for new ways to help our students.  

Research from Dr. Tania Lombrozo of UC Berkeley, published in the journal Trends in Cognitive Science, shows that explaining a new concept to another person is an enormously helpful learning technique. When you explain an unfamiliar concept to another person, your brain makes crucial learning connections. However, many people do not have a person around them that is ready to listen to their new knowledge. Thus, Dr. Lombrozo recommends self-explanation, which is the practice of explaining concepts to yourself in order to better understand them.

Why does explaining work?

Dr. Lombrozo found that the positive effects of self-explanation can be attributed to the generalization process. Explaining requires you to put new information in the context of “prior beliefs,” which makes you generalize the information. In doing so, you are forced to pick out what is most necessary for understanding the concept. In thinking about how to explain something, you in fact learn more about the thing itself!  

Dr. Lombrozo describes an experiment by psychologists Amsterlaw and Wellman that demonstrates the power of explaining in understanding. In Amsterlaw and Wellman’s experiment, they administered logic tests to children under various conditions. During the course of the experiment, the children were split into groups. One group would answer, and then they would be asked to explain the correct answer once it was revealed. A comparison group did the same, but only for half the problems. The third group was a control group and gave no explanation at all. According to Amsterlaw and Wellman, “children in the explanation condition significantly outperformed the comparison and control groups….” In other words, explaining increases understanding.

How to use this strategy for licensing exams:

What does this mean if you’re studying for the Series 65 or the Series 7 or some other securities licensing exam? Solomon Exam Prep suggests finding someone in your life who will listen to you explain topics from your securities exam prep. The person you choose does not need to have any knowledge of securities. The person just needs to be a good listener; even better, someone who will ask questions. What if you don’t have anyone who can do that for you? Well, as Dr. Lombrozo showed, the practice of self-explanation is also helpful and will increase your understanding of the material you are trying to learn.

Other recommended Solomon study strategies include:  
  • Listen to the Solomon audiobook while you read the Solomon study guide.   
  • As you read the Solomon study guide and watch the Solomon video lectures, take notes by hand.
  • When practicing in the Solomon exam simulator, read and re-read the question at least twice. 
  • If you answer a question correctly, explain to yourself why it was correct before reading the question rationale.  
  • If you answer a question incorrectly, read the rationale carefully. Explain to yourself what the right answer is, and why. Write down the explanation in your notes. 
  • Study with a partner. Trade off testing each other on concepts and asking for an explanation.  

Solomon Exam Prep has helped thousands pass their securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82 and 99.

What is a SPAC and should you care about it for the FINRA Series 79 exam?

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. What will this mean for regulations and the Series 79 exam? Continue reading

It sounds like a securities-industry riddle: what do you call a blank check company with no hard assets that holds a multimillion dollar IPO? But the answer is very real: SPACs (special purposes acquisition companies) are an alternative to traditional IPOs that have exploded in popularity.

What’s a “blank check company?”  A blank check company is an exchange-listed shell company that, according to the SEC, has “no specific business plan or…its business plan is to engage in a merger or acquisition.”

The purpose of a SPAC is to raise money to acquire a privately held company. Think of it as crowdfunding on a massive scale. First, the SPAC sells shares of itself in an IPO. Then it uses the IPO proceeds to fund a merger between itself and a target company. When the merger is complete, the SPAC’s shareholders become shareholders in the target company. Investors buy SPAC shares based on their confidence that the SPAC’s management will complete the merger, and the anticipated value of the shares after the merger.

SPACs have grown by leaps and bounds in recent years, and the growth is only accelerating. The amount raised by SPAC IPOs in 2020 more than quadrupled the amount they raised in 2019. According to Reuters, the total value of SPAC mergers in 2021 has already exceeded the total size of SPAC mergers for all of 2020.

What does this mean for regulations?

As investor excitement around SPACs has heated up, there are indications that the SEC is beginning to take a closer look at this new kind of IPO. On March 10th, the SEC issued a warning against investing based on celebrity involvement with a SPAC. Celebrities with high-profile ties to SPACs include A-Rod, Shaquille O’Neal, Serena Williams, and former Speaker of the House Paul Ryan. Acting SEC Chair Allison Herren Lee recently warned of “more and more evidence on the risk side of the equation for SPACs as we see studies showing that their performance for most investors doesn’t match the hype.”

While none of this guarantees that new rules for SPACs are around the corner, it does make it more likely that FINRA’s Series 79 investment banking exam may begin to include mention of SPACs. They are a topic that investment bankers are increasingly likely to encounter in practice, and therefore are increasingly likely to be viewed as fair game for the exam.

Solomon Exam Prep is ahead of the curve with new material in our Series 79 Study Guide. Series 79 customers can find material on SPACs now included in the online edition of Solomon Study Guide.

Potentially testable points about SPACs include:
  • SPAC are formed by “sponsors,” commonly institutional investors or high net worth individuals, who are compensated with both a portion of the IPO proceeds, as well as an equity stake in the SPAC of up to 20%.
  • SPAC’s typically avoid committing to merge with a specific company, even if the SPAC was formed with the intention of targeting that company. The SPAC’s management may respond to changing market conditions by choosing a different target, subject to approval from the SPAC’s shareholders.
  • After a SPAC goes public, its shares trade freely on exchanges even before it completes a merger.
  • A SPAC must hold at least 85% of proceeds from its IPO in an escrow account.
  • The SPAC commits to return investor funds if it fails to complete a merger within a specified timeframe.
  • As a blank check company with no business operations of its own, a SPAC cannot take advantage of certain options available to more established securities issuers. For example, a SPAC is not permitted to make an electronic version of its road show presentation.

Solomon Exam Prep will continue to follow industry trends and how they affect your licensing exams.

Solomon Exam Prep has helped thousands pass their securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82 and 99.

Understanding Trading Halts

The market’s intense reaction to the coronavirus has caused something not seen since 1997: trading halts. Continue reading

Understanding Trading Halts

The market’s intense reaction to the coronavirus has caused something not seen since 1997: trading halts. If you’re studying for the FINRA Series 7 General Securities Representative exam or the FINRA Series 24 General Securities Principal exam, FINRA may test you on the subject. Rest assured, Solomon Exam Prep’s Series 7 and Series 24 study materials cover the topic in detail. Here’s a little background on trading halts.
 
Sometimes called “circuit breakers,” these trading halts were first put in place after the 1987 stock market crash known as Black Monday. Part of the reason the Black Monday crash was so bad was the panic selling that happened once the market started dropping. A trading halt is meant to prevent this panicked free fall.
 
A trading halt may apply to the entire market, or a single security.
 

Market-Wide Trading Halts

A market-wide trading halt will be triggered when the S&P 500 drops sharply from where it was the day before. A Level 1 halt is triggered by a 7% drop and lasts for 15 minutes. If the drop reaches 13%, it triggers a Level 2 halt. A level 2 halt also lasts 15 minutes. Finally, a 20% drop in the S&P 500 triggers a Level 3 halt, which stops trading for the rest of the day. These kind of halts stop securities and options trading on all the exchanges, as well as the OTC markets.  
 
Trading Pauses in a Single Security
 
When a company makes a major announcement, it’s stock price may move dramatically. Pausing trading of a particular stock or security protects smaller investors who generally cannot react as quickly to the news as larger investors. If the price of a security drops a certain amount below what it normally trades at, the security is said to be “limit down.” If it stays limit down for 15 seconds, then trading in that security is paused for 5 minutes. Unlike market-wide trading halts, the same goes if the price of a single security rises rapidly. If a security is “limit up” for 15 seconds, trading pauses for 5 minutes. How much a security has to move to be limit up or limit down depends on the type of stock and its normal price range.
 
Your Securities Exams
 
Trading halts are topics on the FINRA Series 7 and Series 24 exams. Solomon Exam Prep covers trading halts in Solomon study guides, audio guides, video lectures, exam simulators and digital flashcards. For more information, go to www.SolomonExamPrep.Com or call 503.601.0212.
 

Solomon Exam Prep Updates Cookie Policy

Cookies are small pieces of dough that have been baked in an oven and then cooled and served as a desert or snack. Continue reading

Cookies are small pieces of dough that have been baked in an oven and then cooled and served as a dessert or snack.

Solomon Exam Prep believes that cookies can be a positive part of any day, particularly as a reward when studying for a securities licensing exam like the Series 7 or the Series 65.

Solomon Exam Prep is committed to protecting the privacy of its cookie-eating customers and does not track or monitor its customers’ consumption or use of cookies.

Solomon Exam Prep does not judge the relative merits of which cookies are better, although, Jeremy Solomon, president of Solomon Exam Prep says that he prefers home-made cookies over store-bought.

Solomon Exam Prep may share cookies with others, usually family, friends and co-workers, but depending on the situation, sometimes with strangers. Such shared cookies are always freely given, there is no expectation by Solomon Exam Prep that the recipient will reciprocate or owe Solomon Exam Prep anything. Of course, a “thank you” is always appreciated.

Solomon Exam Prep has helped thousands of cookie- and non-cookie-eating customers pass securities licensing exams including the Series 3, 6, 7, 24, 26, 27, 28, 50, 51, 52, 53, 62, 63, 65, 66, 79, 82, 99 and SIE exams.

FINRA qualification exam restructure update

Panel discussion May 24, 2016 at the FINRA annual conference. John Kalohn, Joe McDonald and Roni Meikle from FINRA discussed coming restructure of qualification exams. Continue reading

Panel discussion May 24, 2016 at the FINRA annual conference. John Kalohn, Joe McDonald and Roni Meikle from FINRA discussed coming restructure of qualification exams.

Goals of exam restructure:

• Respond to industry and regulatory changes
• Reduce redundancy of content across exams
• Streamline exam process
• Minimize impact and change to the registration rules
• Ensure registered reps have a solid breadth of understanding of securities industry

Another goal appears to be a desire by FINRA and member firms to expand the number of people who can and will get licensed to work in the securities industry.

Exam restructure launch date has been postponed, at least a year, till January 2018 at the earliest.

Exams slated to be retired, will not be retired till 2018 restructure launch date. These include the Series 11 (Order Processing Assistant), Series 42 (Options Representative), Series 62 (Corporate Securities Representative) and Series 72 (Government Securities Representative) exams. The panel noted that only one person had taken the Series 72 in the past year.

Anyone holding registrations that are being retired (Series 11, Series 62, Series 72) will be able to continue to hold them until they leave industry for more than 2 years.

Series 17/37/38 Exams – FINRA will retire these exams and use the UK and Canadian certifications to exempt certificate holders from the Essentials Exam.

Exams that will remain as “Top-off” exams: Series 6, 7, 22, 57, 79, 82, 86/87 and 99. Top-off exams will be shorter than current exams.

Essentials Exam features:

Essentials exam currently envisioned to be 100 questions long.

Unlike the current system, you will not need to be associated with a member firm to take the Essentials Exam. In other words, you won’t need to have a job with a broker-dealer to take the Essentials Exam.

If you pass the Essentials Exam, it will be valid for 4 years from your passing date.

Just passing the Essentials Exam will not be enough to qualify you to be a registered person with FINRA. To become a registered person, you will have to have a job with a FINRA member firm, file a U4, get finger-printed, and pass a Top-off exam.

What if you are currently registered?

Current registrants will maintain registration(s) without the need for additional testing.

Most current registrants will be considered to have passed the Essentials Exam, and it will be valid for 4 years upon leaving the securities industry.

Registrants who return to the securities industry within 2 years will regain registration without needing to take the Essentials or Top-off exam.

Registrants who return to the securities industry between 2 and 4 years later will not need to take the Essentials Exam, only the Top-off exam for the registration position.

Registrants who return to the securities industry more than 4 years later will need to take both the Essentials and the top-off exam.

Next steps:

Securities Essentials Exam is being finalized by FINRA and committee of industry representatives.

Top-off exam outlines to be released 9-12 months prior to launch date of exam restructure

Prepare CRD and other FINRA systems for new exam
structure

Create a system for persons not associated with a member to enroll and pay for the Essentials Exam

Make registration rule, fee and qualification exam filings with the SEC in 2016

FINRA says exam restructure will do the following for firms:

• Give firms an opportunity to employ new business models for onboarding staff.
• Allow firms to better gauge industry knowledge of interns and other potential employees.
• Allow non-registered staff (e.g., administrative) to take Essentials Exam.
• Create a larger pool of potential new registered persons

Impact on firms

Firms will have choices of how to onboard new reps:
• Request applicants take and pass Essentials Exam prior to making job application
• Have new hires take Essentials Exam-only initially and then take top-off qualification exam
• Have new hires take both Essentials Exam and top-off exam together

Other info related to exam restructure:

• Through CRD, firms will be able to confirm whether and when an individual passed the Essentials Exam.
• Top-off exams will retain traditional names: i.e., Series 7 exam will remain the Series 7 exam.
• Position designations in CRD will remain the same (i.e., GS will remain GS [Series 7]).
• Firms will be able to schedule the Essentials Exam for support personnel through CRD.
• Current registrants will not need to take the Essentials Exam to maintain current registrations.
• Principal exams and registrations will not be directly affected.

Principal Exams

Under the new representative-level program structure, several principal exams cover subject matter already covered on the Essentials and the Top-off exams.

Example – Series 24 Exam major topic areas include:

• Sales practice (Series 7)
• Investment banking (Series 79)
• Trading (Series 57)
• Research (Series 86/87)

As a result of this, FINRA will develop a principal exam structure that builds on the new representative-level exam structure to reduce redundancy in content and better focus on testing knowledge of and ability to apply supervisory level rules and concepts

Study Question of the Week: November 20, 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.

Study ? of the Week

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

Which regulation empowers the Federal Reserve to regulate credit associated with the purchase of securities?

Answers:

A. The Exchange Act of 1934

B. The Securities Act of 1933

C. Regulation T

D. Regulation U

Correct Answer: A. The Exchange Act of 1934

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: October 9, 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 62, 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 7Series 24, Series 62, and Series 99)

Which of the following agreements allows the broker-dealer to use the customer’s securities as collateral on a loan?

Answers: 

A. loan consent agreement

B. hypothecation agreement

C. credit agreement

D. prime broker agreement

Correct Answer: B. hypothecation agreement

Rationale: The hypothecation agreement allows the broker-dealer to use the customer’s securities as collateral on a loan. The credit agreement details the terms and conditions for the credit that the broker-dealer is extending to the customer. This agreement will include how the firm will calculate the interest charged on the credit and what interest rate the loan rate it will be tied to (e.g., broker call rate). The loan consent agreement permits the broker-dealer to lend the customer’s securities to other customers wishing to execute short sales. This agreement is not required of customers opening a margin account, but strongly encouraged by the broker-dealer.

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

 

Study Question of the Week: October 2, 2013 Edition

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

An issuer of publicly offered securities must file:

Answers:

A. Five copies of the preliminary prospectus with the SEC no later than the date that it is first sent to investors

B. Ten copies of the preliminary prospectus with the SEC no later than the date that it is first sent to investors

C. Five copies of the preliminary prospectus with the SEC at least 10 days prior to the date that it is first sent to investors

D. Ten copies of the preliminary prospectus with the SEC at least 10 days prior to the date that it is first sent to investors

Correct Answer: A

Rationale: An issuer of publicly offered securities must file five copies of the preliminary prospectus with the SEC no later than the date that it is first sent to investors.

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