FREE SIE Mock Exam | Part 2

Contributions to 529 plans may be deductible from state taxes, depending on the state.
529 savings plans may offer state tax deductions for contributions, but they are not deductible at the federal level. These plans have no income restrictions, and beneficiaries do not gain control over the funds at the age of majority.

A broker-dealer acting as an agent charges a commission to facilitate transactions for clients.

A broker-dealer can only accept payment for a new issue once the registration statement has been declared effective by the SEC. The red herring is a preliminary prospectus, but payment cannot be accepted until the registration is effective. A preliminary prospectus amendment does not authorize payment acceptance. Sales are prohibited during the cooling-off period.

A broker-dealer’s anti-money laundering (AML) program requires designating an AML compliance officer, filing the AML program with FINRA, and conducting background checks of all employees.

A broker-dealer’s AML program must identify to regulators the employees responsible for CTRs. This is crucial for maintaining clear lines of responsibility and accountability in monitoring and reporting suspicious activities. The other options, while they may be good practices, are not specifically required under AML regulations.

A closing purchase is used by an option writer to buy back an option they previously sold, thereby closing the short position.

A letter of intent for mutual fund purchases is valid for up to 13 months, allowing investors to qualify for reduced sales charges.

A prospectus provides essential details about an investment, ensuring transparency for potential investors.

A stock split increases the number of shares outstanding, which decreases the price per share but does not change the total value of a stockholder’s holdings or their proportionate ownership.

ADRs, which represent shares in foreign companies, must be registered with the SEC under the Securities Act of 1933. Eurodollar bonds are issued and traded outside the U.S. and are exempt from SEC registration. Municipal securities and securities issued by the federal government are also exempt from registration under the 1933 Act.

An accredited investor meets specific income or net worth criteria, which this couple fulfills.

Asset-backed securities are traded according to their average life, which is influenced by the repayment rates of the underlying assets.

Associated persons who are not registered representatives are limited to administrative tasks, such as providing account opening forms. Investment-related activities are restricted to registered representatives.

Blue-sky laws are state-level securities regulations designed to protect investors from fraud, enforced by state securities regulators.

Bond yield reflects the annualized return based on current market price and coupon payments.

Bond yield reflects the annualized return based on current market price and coupon payments.

Bonds are considered to be selling at a premium when their price is above 100. In this case, the bond is priced at 102, indicating a premium.

Declared stock dividends are public information and not classified as insider information. Other items listed are examples of material non-public information.

DPPs provide investors with access to non-correlated asset classes, offering diversification but often lacking liquidity.

Engaging in private securities transactions without written prior consent of the employing broker-dealer is a violation of FINRA rules regarding selling away. Recommending another BD’s services, sharing commissions within the same BD, and advising on mutual fund purchases are permissible activities when done properly.

Exchange rate risk is unique to foreign instruments due to currency fluctuations.

Exchange-traded notes (ETNs) are unsecured debt instruments whose value depends on the issuer’s creditworthiness. A credit rating downgrade can negatively impact the value of ETNs.

Failing to disclose a conflict of interest when recommending a proprietary product is a violation of FINRA rules. Representatives must prioritize client interests and disclose any conflicts of interest.

FinCEN enforces the Bank Secrecy Act to combat money laundering, terrorist financing, and other financial crimes, ensuring the integrity of the financial system.

FINRA regulates broker-dealers to ensure fair and ethical practices.

FINRA Rule 3270 requires registered representatives to notify their firms in writing before engaging in any outside business activities, such as part-time work, to ensure compliance with regulatory requirements and prevent conflicts of interest.

FINRA’s primary role is to regulate broker-dealers and protect investors by ensuring fair and ethical practices.

Firms must file a Currency Transaction Report (CTR) for cash transactions exceeding $10,000 in a single business day to comply with the Bank Secrecy Act.

Fixed-rate bonds are susceptible to inflation risk because their returns do not adjust for rising prices.

Front-running is unethical and involves placing a trade based on knowledge of a customer’s pending order.

Front-running occurs when a trader uses non-public information about pending customer orders to trade ahead for personal benefit. In this case, trading in a personal account before executing a large institutional order that could move the market price is a clear violation. It breaches the duty to put client interests first and misuses confidential information for personal gain. This differs from legitimate trading based on public information or proper order execution. Front-running is a serious violation that can result in disciplinary action, fines, and potential criminal charges.

High-yield bonds, or junk bonds, offer higher returns but come with greater credit risk.

In a 1-for-2 reverse stock split, the total number of shares owned is halved, and the price per share is doubled. The investor will own 50 shares at $100 each, maintaining the same total value of $5,000.

In a covered call position, the writer owns the underlying stock and sells someone the right to buy it at a specific price (strike price). Maximum profit is limited to the premium received plus any appreciation up to the strike price. Maximum loss is limited to the stock’s purchase price minus the premium received. The ‘covered’ aspect (owning the stock) provides downside protection, while the obligation to sell at strike price caps upside potential.

In a market maker’s quote, the format is bid price – ask price [bid size x ask size]. The market maker is willing to buy at the bid price and sell at the ask price. In this case, they will buy 2,500 shares at $10.00 and sell 1,000 shares at $10.10.

In regular-way settlement, equity trades settle in two business days (T+2). For dividend eligibility, what matters is who is the holder of record on the record date. In this case, the trade settles Wednesday, making the buyer the holder of record for Thursday’s record date. Therefore, the buyer is entitled to the dividend. The payable date (when the dividend is actually paid) doesn’t affect who receives it.

Index funds aim to replicate the performance of a specific index, resulting in lower management fees due to their passive management approach.

Index options like the S&P 100 are cash-settled since it is not possible to deliver an index physically. Physical settlement through S&P 100 Index stocks or S&P ETF is not applicable to index options. Settlement through S&P 100 Index put options does not apply to call option settlements.

Lagging indicators reflect historical data and are used to confirm economic trends.

Market makers ensure liquidity in the markets by being willing to buy and sell securities at all times.

Money market instruments are short-term debt securities that mature in one year or less, such as Treasury bills, commercial paper, and certificates of deposit. FNMA bonds and GNMA bonds are long-term securities typically used in mortgage-backed securities. Treasury notes are medium-term securities with maturities ranging from 2 to 10 years.

Money market instruments are short-term securities, such as Treasury bills, with high liquidity.

No-load mutual funds are prohibited from charging 12b-1 fees exceeding 25 basis points, which often results in lower expense ratios compared to load funds.

Noncash compensation includes items such as gifts, meals, and lodging. Commissions are classified as cash compensation.

Nonsystematic risk, or company-specific risk, arises from the performance of individual investments or sectors. This portfolio’s concentration in energy and healthcare exposes it to nonsystematic risk, which can be mitigated through further diversification.

Only information obtained from public or third-party sources, like analysts, can be traded upon legally.

Open-end funds calculate the redemption value using the NAV determined after the order is received, per forward pricing rules.

Qualified distributions from both accounts are excluded from federal income tax.

Regular way settlement for U.S. Treasury securities occurs on the next business day (T+1).

Regulation T imposes a 90-day restriction for freeriding violations in cash accounts, which occur when securities are sold before being fully paid for.

Rights allow shareholders to purchase additional shares at a fixed price, maintaining their ownership percentage.

Rule 144A allows issuers of restricted securities to sell them to Qualified Institutional Buyers (QIBs), which are entities that own or manage at least $100 million in securities.

SEC Regulation S-P requires firms to disclose their privacy policies, including how they secure nonpublic information.

Secured debt holders are the first in line to claim assets in a Chapter 11 proceeding due to the collateral securing their loans.

Selling away refers to engaging in private securities transactions without firm approval, which is prohibited under FINRA rules. Representatives must ensure all securities transactions are supervised and recorded by their firm.

Statutory voting allocates one vote per share owned for each vacancy on the board, ensuring proportional voting power based on the number of shares held.

Such agreements are prohibited as they are considered fraudulent and manipulative practices under securities laws.

The 30/360 convention simplifies calculations by assuming each month has 30 days and a year has 360 days.

The breakeven price is $38, which includes the stock purchase price and the cost of the put option premium.

The call provision specifies the conditions for early redemption, including the call date and price.

The FDIC insures deposits in savings accounts at member banks, providing protection up to $250,000 per depositor, per insured bank, for each account ownership category.

The Federal Reserve controls monetary policy, which includes managing the money supply and interest rates.

The Federal Reserve manages the nation’s monetary policy to achieve stable prices and maximum employment.

The key difference between primary and secondary distributions is that primary distributions involve new securities being issued directly by the company, while secondary distributions involve the sale of existing securities that are already outstanding. This reflects the basic distinction between new issuance and resale of existing securities.

The periodic payments of variable annuities depend on the performance of the insurance company’s separate account.

The secondary market allows investors to trade previously issued securities among themselves.

The Securities Act of 1933 governs the issuance of new securities in the primary market.

The SIPC protects customer accounts if a broker-dealer fails.

The spot exchange rate is the primary factor used to calculate how much of a counter currency is received when exchanging a fixed amount of a base currency.

The syndicate desk focuses on building the order book and stock allocation.

The transfer agent maintains accurate records of shareholders and ensures proper distribution during stock splits.

Trading on material non-public information is illegal and violates securities regulations.

Treasury bonds are highly susceptible to inflationary risk because their fixed interest payments lose purchasing power as inflation rises. Investments like stocks or short-term Treasury bills are less affected.

Treasury notes pay interest semiannually, which is standard for U.S. government debt securities like notes and bonds.

Treasury stock is stock that a corporation issued and subsequently reacquired. It does not carry voting rights or receive dividends and is not considered outstanding.

U.S. government agency securities are exempt from registration under the Securities Act of 1933. This is a fundamental characteristic that applies to all agency issues. The other statements are either incorrect or only apply to specific types of agency securities.