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Wiley FINRA Series 24 Exam Review 2017: The General Securities Principal Examination

Wiley FINRA Series 24 Exam Review 2017: The General Securities Principal Examination

Wiley

ISBN: 978-1-119-39980-3

Feb 2017

528 pages

$207.99

Description

The go-to guide to acing the Series 24 Exam!

Passing the General Securities Principal Qualification Examination (Series 24) qualifies an individual to act as a principal of a general securities broker-dealer and to supervise the firm and its agents. The exam covers the supervision of such areas as investment banking, underwriting, and research practices; trading and market-making; brokerage office operations; and sales practices and agents, as well as compliance with financial responsibility rules. Candidates must have passed the Series 62 or Series 7 prior to taking the Series 24 Exam.

Created by the experts at The Securities Institute of America, Inc., Wiley Series 24 Exam Review 2017 arms you with everything you need to pass this intensive 150-question test. Designed to help you build and fine-tune your knowledge of all areas covered in the exam and to guarantee that you're prepared mentally and strategically to take the test, it provides:

  • Dozens of examples
  • Assorted practice questions for each subject area covered in the exam
  • Priceless test-taking tips and strategies
  • Helpful hints on how to study for the test, manage stress, and stay focused

Wiley Series 24 Exam Review 2017 is your ticket to passing the Series 24 test on the first try—with flying colors!

About the Series 24 Exam xix

About This Book xxiii

About the Test Bank xxiv

About the Securities Institute of America xxv

Chapter 1 Brokerage Office Procedures 1

Hiring New Employees 1

Resignation of a Registered Representative 2

Registration Exemptions 4

Persons Ineligible to Register 4

Disciplinary Actions Against a Registered Representative 5

Termination for Cause 6

Outside Employment 6

Private Securities Transactions 7

Gift Rule 7

Sharing in a Customer’s Account 8

Borrowing and Lending Money 9

Order Tickets 9

Executing an Order 10

Becoming a Stockholder 11

Violation 12

Clearly Erroneous Reports 12

Execution Errors 12

Corporate and Municipal Securities Settlement Options 13

When-Issued Securities 15

Government Securities Settlement Options 15

Accrued Interest 16

Close Outs 17

Customer Confirmations 17

Rules for Good Delivery 19

Rejection of Delivery 20

Delivery of Round Lots 20

Delivery of Bond Certificates 21

Reclamation 21

Marking to the Market 21

Customer Account Statements 22

Carrying of Customer Accounts 22

Dividend Distribution 23

Pretest 27

Chapter 2 Record Keeping, Financial Requirements, and Reporting 31

Blotters 31

General Ledger 32

Customer Accounts 32

Subsidiary (Secondary) Records 32

Securities Position Book (Ledger) Stock Record 32

Order Tickets 33

Confirmations and Notices 33

Monthly Trial Balances and Net Capital Computations 33

Employment Applications 33

Records Required to Be Maintained for Three Years 33

Records Required to Be Maintained for Six Years 34

Records Required to Be Maintained for the Life of the Firm 34

Requirement to Prepare and Maintain Records Under SEC 17a-3 and 17a-4 36

Financial Requirements 37

Aggregate Indebtedness 40

Haircuts 40

Box Counts 42

Missing and Lost Securities 42

The Customer Protection Rule 43

The Early Warning Rule 47

FINRA Financial Requirements 48

Subordinated Loans 49

Temporary Subordination Agreements 50

Calculating Net Capital 51

Fidelity Bonds 51

Pretest 53

Chapter 3 Issuing Corporate Securities 59

The Prospectus 60

The Final Prospectus 61

Free Writing Prospectus 61

Providing the Prospectus to Aftermarket Purchasers 62

SEC Disclaimer 62

Misrepresentations 63

Tombstone Ads 63

Free Riding and Withholding/FINRA Rule 5130 64

Underwriting Corporate Securities 65

Types of Underwriting Commitments 66

Types of Offerings 68

Awarding the Issue 68

The Underwriting Syndicate 69

Selling Group 69

Underwriter’s Compensation 69

Underwriting Spread 70

Factors That Determine the Size of the Underwriting Spread 71

Review of Underwriting Agreements by FINRA 71

Underwriter’s Compensation 71

Unreasonable Compensation 72

Offering of Securities by FINRA Members 73

Exempt Securities 74

Exempt Transactions 75

Crowdfunding 81

Rule 137 Nonparticipants 83

Rule 138 Nonequivalent Securities 83

Rule 139 Issuing Research Reports 83

Rule 415 Shelf Registration 84

Securities Offering Reform Rules 85

SEC Rule 405 85

Additional Communication Rules 86

DPP Roll-UP Transactions 87

Pretest 89

Chapter 4 Trading Securities 93

Types of Orders 93

The Exchanges 97

Priority of Exchange Orders 98

The Role of the Designated Market Maker 98

Crossing Stock 101

Do Not Reduce (DNR) 101

Adjustments for Stock Splits 102

Stopping Stock 103

Commission House Broker 104

Two-Dollar Broker 104

Registered Traders 104

Super Display Book (SDBK) 104

Short Sales 105

Affirmative Determination 105

Regulation SHO 106

Rule 200 Definitions and Order Marking 106

Rule 203 Security Borrowing and Delivery Requirements 107

Threshold Securities 108

Block Trades 109

Trading Along 110

Circuit Breakers 110

Limit Up Limit Down (LULD) 111

Listing Requirements for the NYSE 111

Reading the Consolidated Tape 112

Exchange Qualifiers 114

Over-the-Counter/Nasdaq 114

High Frequency and Algorithmic Trading 125

Market Centers 127

SEC Regulation NMS 128

SEC Regulation ATS 128

Direct Market Access 129

Nasdaq International 131

Non-Nasdaq OTCBB 131

Pink OTC Market 132

Third Market 132

Nasdaq Market Center for Listed Securities 132

Fourth Market 133

Nasdaq Listing Standards 133

Market Maker Regulations and Responsibilities 134

Times for Entering a Quote 134

Withdrawing Quotes 137

Handling and Displaying Customer Limit Orders 138

The Order Audit Trail System (OATS) 140

The Manning Rule 141

Automated Confirmation System (ACT)/Trade Reporting Facility (TRF) 141

ACT Trade Scan 142

Nasdaq Trade Reporting Facility (TRF) 142

Step Out Trades 146

Market Making During Syndication 147

Regulation M, Rule 101 147

Penalty Bids 148

Regulation M, Rule 102 148

Regulation M, Rule 103 148

Passive Market Makers’ Daily Purchase Limit 149

Regulation M, Rule 104 149

Syndicate Short Positions 151

Regulation M, Rule 105 151

Trade Reporting and Compliance Engine (TRACE) 151

Broker vs. Dealer 154

FINRA 5 Percent Markup Policy 154

Markups/Markdowns When Acting as a Principal 155

Riskless Principal Transactions 156

Proceeds Transactions 157

Dominated and Controlled Markets 157

Net Transactions with Customers 158

Firm Quote Rule 158

The Firm Quote Compliance System (FQCS) 159

Trade Complaints Between Members 159

Rogue Trading Prevention 160

Arbitrage 160

Pretest 163

Chapter 5 Recommendations to Customers 169

Investment Objectives 170

Capital Asset Pricing Model (CAPM) 172

Risk vs. Reward 172

Alpha 174

Beta 175

Developing the Client Profile 175

Suitability Standards 176

Professional Conduct when Making Recommendations 177

Recommending Mutual Funds 178

Periodic Payment Plans 179

Mutual Fund Current Yield 179

Fair Dealings with Customers 179

Recommendations to an Institutional Customer 183

Short Sales in Connection with Recommendations 184

Issuing Research Reports 184

Regulation FD 187

Recommendations through Social Media 187

Pretest 191

Chapter 6 General Supervision 195

The Role of the Principal 195

Supervisor Qualifications and Prerequisites 196

Continuing Education 197

Tape Recording Employees 199

Heightened Supervisory Requirements 199

Information Obtained from an Issuer 200

Customer Complaints 200

Investor Information 201

Member Offices 201

Annual Compliance Review 203

Business Continuity Plan 204

Currency Transactions 204

The Patriot Act 205

U.S. Accounts 206

Foreign Accounts 206

Identity Theft 207

Pretest 209

Chapter 7 Customer Accounts 213

Holding Securities 215

The Depository Trust Company (DTC) 216

Mailing Instructions 217

Individual Account 217

Joint Account 217

Joint Tenants with Rights of Survivorship (JTWROS) 217

Joint Tenants in Common (JTIC) 218

Transfer on Death (TOD) 218

Death of a Customer 218

Corporate Accounts 219

Trust Accounts 219

Partnership Accounts 220

Trading Authorization 220

Operating a Discretionary Account 220

Managing Discretionary Accounts 221

Third-Party and Fiduciary Accounts 221

Uniform Gifts to Minors Act (UGMA) 223

Accounts for Employees of Other Broker Dealers 225

Numbered Accounts 225

Prime Brokerage Accounts 225

Account Transfer 226

Margin Accounts 227

Guaranteeing a Customer’s Account 229

Day Trading Accounts 229

Commingling Customer’s Pledged Securities 229

Wrap Accounts 230

Regulation S-P 230

Pretest 233

Chapter 8 Margin Accounts 237

Regulation of Credit 237

House Rules 240

Establishing a Long Position in a Margin Account 240

An Increase in the Long Market Value 241

Special Memorandum Account (SMA) Long Margin Account 243

A Decrease in the Long Market Value 244

The Minimum Equity Requirement for Long Margin Accounts 245

Establishing a Short Position in a Margin Account 246

A Decrease in the Short Market Value 247

An Increase in the Short Market Value 248

The Minimum Equity Requirement for Short Margin Accounts 249

Margin Requirements for Day Trading 250

Combined Margin Accounts 251

Portfolio Margin Accounts 252

Securities Backed Lines of Credit 252

Minimum Margin for Leveraged ETFs 253

Pretest 255

Chapter 9 Investment Companies 259

Investment Company Philosophy 259

Types of Investment Companies 260

Open-End vs. Closed-End Funds 261

Exchange-Traded Funds (ETFs) 262

Exchange Traded Notes (ETNs) 262

ETFs That Track Alternatively Weighted Indices 263

Diversified vs. Nondiversified 263

Investment Company Registration 264

Registration Requirements 264

Investment Company Components 266

Mutual Fund Distribution 269

Selling Group Member 269

Distribution of No-Load Mutual Fund Shares 270

Distribution of Mutual Fund Shares 270

Mutual Fund Prospectus 270

Additional Disclosures by a Mutual Fund 272

Anti-Reciprocal Rule 272

Money Market Funds 273

Valuing Mutual Fund Shares 273

Changes in the NAV 274

Sales Charges for Open-End Funds 275

Sales Charges for Closed-End Funds 275

Front-End Loads 275

Back-End Loads 276

Other Types of Sales Charges 276

Recommending Mutual Funds 277

12B-1 Fees 277

Calculating a Mutual Fund’s Sales Charge Percentage 278

Finding the Public Offering Price 279

Sales Charge Reductions 279

Breakpoint Schedule 280

Letter of Intent 280

Breakpoint Sales 281

Rights of Accumulation 281

Automatic Reinvestment of Distributions 282

Combination Privileges 282

Conversion or Exchange Privileges 282

30-Day Emergency Withdrawal 283

Voting Rights 283

Yields 284

Portfolio Turnover 284

Voluntary Accumulation Plans 284

Dollar Cost Averaging 285

Contractual Accumulation Plans 286

Hedge Funds 287

Floating Rate Bank Loan Funds 288

Structured Retail Products/SRPs 288

Real Estate Investment Trusts (REITs) 289

Non-Traded REITs 289

Pretest 291

Chapter 10 Variable Annuities and Retirement Plans 295

Annuities 295

Annuity Purchase Options 300

Accumulation Units 301

Annuity Units 301

Annuity Payout Options 302

Factors Affecting the Size of the Annuity Payment 303

Taxation 304

Sales Charges 304

Variable Annuity vs. Mutual Fund 304

Retirement Plans 305

Individual Plans 305

Individual Retirement Accounts (IRAs) 305

Keogh Plans (HR-10) 311

Tax-Sheltered Annuities (TSAs) and Tax-Deferred Accounts (TDAs) 312

Corporate Plans 314

Employee Stock Ownership Plans (ESOPs) 316

Profit Sharing Plans 316

401(k)s and Thrift Plans 316

Rolling Over a Pension Plan 317

Employee Retirement Income Security Act of 1974 (ERISA) 317

The Department of Labor Fiduciary Rules 318

Pretest 321

Chapter 11 Securities INDUSTRY Rules and Regulations 325

The Securities Exchange Act of 1934 325

The Securities and Exchange Commission (SEC) 326

Extension of Credit 327

Trading Suspensions 327

Issuers Repurchasing Their Own Securities 327

Tender Offers 329

SEC Reporting 330

The National Association of Securities Dealers (NASD) 331

Becoming a Member of FINRA 333

Foreign Broker Dealers 335

Compensation Paid to Unregistered Persons 335

Registration of Agents/Associated Persons 335

Retiring Representatives/Continuing Commissions 336

State Registration 336

Retail Communications/Communications with the Public 337

FINRA Rule 2210 Communications with the Public 338

Broker Dealer Websites 340

Blind Recruiting Ads 341

Generic Advertising 341

Tombstone Ads 341

Testimonials 342

Free Services 342

Misleading Communications 343

Securities Investor Protection Corporation Act of 1970 343

Customer Coverage 343

The Securities Acts Amendments of 1975 345

The Insider Trading and Securities Fraud Enforcement Act of 1988 345

Firewall 346

The Trust Indenture Act of 1939 346

Telemarketing Rules 346

The Penny Stock Cold Call Rule 347

Violations and Complaints 348

Resolution of Allegations 349

Minor Rule Violation 349

Electronic Blue Sheets 350

Mediation 350

Code of Arbitration 351

The Arbitration Process 351

Political Contributions 353

Investment Adviser Registration 354

Investment Adviser Representative 355

The National Securities Markets Improvement Act of 1996 355

Investment Adviser Registration 356

Investment Adviser Capital Requirements 356

Exams for Investment Advisers 357

Investment Adviser Advertising and Sales Literature 357

Investment Adviser Brochure Delivery 358

Soft Dollars 358

Broker Dealers on the Premises of Other Financial Institutions 360

The Uniform Securities Act 361

Sarbanes-Oxley Act 361

SEC Regulation S-K 363

SEC Regulation M-A 363

The Hart-Scott-Rodino Act 365

FINRA Rule 5150 (Fairness Opinion) 366

SEC Regulation S-X 366

Pretest 369

Answer KEYS 375

APPENDIX 385

Glossary of Exam Terms 419

Index 485