Series 99 Example Questions
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What is the difference between a durable power of attorney and one that is not durable?
A ) A durable power of attorney can only be general, whereas a non-durable one can be either limited or general
B ) A durable power of attorney can only be limited, whereas a non-durable one can be either limited or general
C ) Only a durable power of attorney survives the incapacity of the grantor
D ) Only a durable power of attorney survives the death of the grantor
Answer: The Best Answer is C
Feedback: A durable power of attorney differs from a traditional power of attorney in that it remains in operation even after the incapacity of the grantor/principal. A durable power of attorney may take effect as soon as it is executed or it may not become operative until the grantor’s disability. A durable power of attorney can be either general or limited, as can a non-durable power of attorney. A power of attorney ceases upon the death of the grantor or principal, whether it was durable or not.
Tony has the following accounts at Smith Brokerage:
- A margin account containing 2,000 shares of GrowthCo at $10, and having a debit balance of $10,000
- A cash account containing 1,000 shares of SafeCo at $50
As an operations professional in the custody department at Smith, you know that at the end of the day the firm needs to have possession or control of _____ shares of SafeCo and _____ shares of GrowthCo in Tony's name.
A ) 1,000, 2,000
B ) 280; 1,400
C ) 280; 2,000
D ) 1,000; 1,400
Answer: The Best Answer is D
Feedback: The Customer Protection Rule requires a daily count of all shares Smith is carrying for its customers. Smith must have physical possession or control of every customer's fully paid securities and excess margin securities. Recall that a customer's excess margin securities consist of that portion of the customer's margin securities whose value exceeds 140% of the customer's debit balance (the amount the customer owes due to trading on margin).The shares in the cash account should be fully paid, so Smith needs to have possession or control of all of them. With regard to the margin account, Smith needs to have possession or control of a number of shares at least equal to 140% of the debit balance of $10,000, which is $14,000. Since the current market value of GrowthCo is $10, this means that Smith needs 1,400 shares.
A selling member fails to deliver securities that are paid for on the settlement date. On the third day after settlement the buying member closes out the position. What is this called?
A ) A sell-out
B ) A reclamation
C ) A due-bill
D ) A buy-in
Answer: The Best Answer is D
Feedback: When a selling member fails to deliver securities that are paid for on the settlement date, the buying member may implement a buy-in as early as the third business day after settlement. A buy-in is when the buying member closes out the position. The buying member must send a notice of the buy-in to the selling member by 12:00 noon, Eastern Time, at least two business days prior to the buy-in. After receiving the buy-in notice, the seller can respond that securities are in transit or with the transfer agent. If this occurs, the selling member is given 7 additional calendar days before the close out can occur. Any loss to the buying member due to the buy-in will be borne by the selling member. When a buying member fails to pay for securities that are delivered on the settlement date, the selling member may implement a sell-out as early as the day after settlement. A sell out is when the selling member closes out the position. This may involve selling the securities to another member. Any loss to the selling member due to the sell-out will be borne by the buying member. Remember the buying member implements a buy-in where the selling member implements a sell-out.
Which response accurately describes a difference between FINRA’s Customer Account Information Rule and its Know Your Customer Rule?
A ) The Customer Account Information Rule applies to individual accounts, whereas the Know Your Customer Rule applies to joint and trust accounts
B ) The Customer Account Information Rule requires the filing of Suspicious Activity Reports, whereas the Know Your Customer Rule requires the firm to create a Customer Identification Program
C ) The Customer Account Information Rule names certain pieces of customer information that it requires, whereas the Know Your Customer Rule requires collecting anything that is an “essential fact”
D ) The Customer Account Information Rule says what information must be collected before the account can be opened, whereas the Know Your Customer Rule says what information must be collected within a reasonable amount of time after opening the account
Answer: The Best Answer is C
Feedback: FINRA Rules 4512 (“Customer Account Information”) and 2090 (“Know Your Customer”) both require that certain information be present before the account can be opened. However, these two rules operate a little differently. The Customer Account Information Rule simply lists specific pieces of information that are required, and other pieces of information which the firm only has to make a reasonable effort to get. The required information includes: Customer name and address; Whether the client is of legal age; Name of registered reps who will handle the account (not a requirement for institutional accounts; Principal’s signature; If the customer is a corporation, the name of the person who will transact business in the account; The Know Your Customer Rule, on the other hand, requires firms to collect any “essential facts” necessary to: Effectively service a customer’s account; Carry out special handling instructions for the account; Understand who has trading authority on the account; Comply with securities laws, regulations, and rules. For example, say you set up a JTIC account for two customers. Each customer owns a certain percentage of the assets in the account. These percentages are not designated as required information by the Customer Account Information Rule. So, do you need this before you can set up the account? According to the Know Your Customer Rule, the answer is yes, because the information is necessary to effectively service the account. Neither rule is responsible for the existence of a firm’s Customer Identification Program (CIP) or Suspicious Activity Reports (SARs). It is the USA PATRIOT Act that requires the firm to create a CIP to verify the customer’s identity within a reasonable amount of time after opening the account. It is the Bank Secrecy Act, as broadened by the USA PATRIOT Act, which requires the filing of SARs based on certain “red flags.”
A firm's investment banking department needs the assistance of an analyst from the research department. This would involve giving the analyst access to recordkeeping and support systems that must only be accessed from within the investment banking department. How can the analyst be given this access without violating FINRA's Information Barrier rules?
A ) By applying to FINRA for special permission
B ) By giving the analyst access to non-public information only when it is less than 72 hours from becoming public
C ) By temporarily reassigning the analyst to the investment banking department
D ) By installing additional monitoring software on the analyst's computer
Answer: The Best Answer is C
Feedback: An information barrier within a firm meant to prevent personnel from benefiting from leaks of inside information. One of the requirements of FINRA's Information Barrier’s rules is that a firm's investment banking department must be physically separated from certain other departments, as well as having separate recordkeeping and support systems. When one department has a legitimate business need to communicate inside information to a member of another department, that person may be made a temporary member of the department that needs him. That person is said to have been brought "over the wall." The compliance department must either pre-approve or receive timely notice of this action, and it must document the status of that employee.