Wiley Series 24 Exam Review 2014 + Test Bank: The General Securities Principal Qualification Examination

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 2014 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 2014 is your ticket to passing the Series 24 test on the first try—with flying colors! Visit www.wileysecuritieslicensing.com for more information. The Securities Institute of America, Inc. helps thousands of securities and insurance professionals build successful careers in the financial services industry every year. Our securities training options include: Onsite classes Private tutoring Classroom training Interactive online video training classes State-of-the-art exam preparation software Printed textbooks Real-time tracking and reporting for managers and training directors As a result, you can choose a securities training solution that matches your skill level, learning style, and schedule. Regardless of the format you choose, you can be sure that our securities training courses are relevant, tested, and designed to help you succeed. It is the experience of our instructors and the quality of our materials that make our courses requested by name at some of the largest financial services firms in the world.

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 3 Persons Ineligible to Register 3 Disciplinary Actions Against a Registered Representative 4 Termination for Cause 5 Outside Employment 5 Private Securities Transactions 5 Gift Rule 6 Sharing in a Customer’s Account 7 Borrowing and Lending Money 7 Order Tickets 7 Executing an Order 8 Becoming a Stockholder 9 Violation 10 Clearly Erroneous Reports 10 Execution Errors 11 Corporate and Municipal Securities Settlement Options 11 When–Issued Securities 12 Government Securities Settlement Options 12 Accrued Interest 13 Close Outs 14 Customer Confirmations 15 Rules for Good Delivery 16 Rejection of Delivery 17 Reclamation 17 Marking to the Market 17 Customer Account Statements 18 Carrying of Customer Accounts 18 Dividend Distribution 19 Pretest 23 CHAPTER 2 RECORD KEEPING, FINANCIAL REQUIREMENTS, AND REPORTING 27 Blotters 27 General Ledger 28 Customer Accounts 28 Subsidiary (Secondary) Records 28 Securities Position Book (Ledger) Stock Record 29 Order Tickets 29 Confirmations and Notices 29 Monthly Trial Balances and Net Capital Computations 29 Employment Applications 29 Records Required to Be Maintained for Three Years 30 Records Required to Be Maintained for Six Years 30 Records Required to Be Maintained for the Life of the Firm 30 Requirement to Prepare and Maintain Records Under SEC 17a–3 and 17a–4 32 Financial Requirements 32 Aggregate Indebtedness 35 Haircuts 36 Box Counts 37 Missing and Lost Securities 37 The Customer Protection Rule 39 The Early Warning Rule 41 FINRA Financial Requirements 43 Subordinated Loans 43 Temporary Subordination Agreements 45 Fidelity Bonds 45 Pretest 47 CHAPTER 3 ISSUING CORPORATE SECURITIES 53 The Prospectus 54 The Final Prospectus 55 Providing the Prospectus to Aftermarket Purchasers 55 SEC Disclaimer 56 Misrepresentations 56 Tombstone Ads 56 Free Riding and Withholding/FINRA Rule 5130 57 Underwriting Corporate Securities 58 Types of Underwriting Commitments 59 Types of Offerings 60 Awarding the Issue 61 The Underwriting Syndicate 61 Selling Group 62 Underwriter’s Compensation 62 Underwriting Spread 63 Factors That Determine the Size of the Underwriting Spread 63 Review of Underwriting Agreements by FINRA 64 Underwriter’s Compensation 64 Exempt Securities 65 Exempt Transactions 66 Rule 137 Nonparticipants 72 Rule 138 Nonequivalent Securities 72 Rule 139 Issuing Research Reports 72 Rule 415 Shelf Registration 73 Securities Off ering Reform Rules 73 SEC Rule 405 74 Pretest 77 CHAPTER 4 TRADING SECURITIES 81 Types of Orders 81 The Exchanges 85 Priority of Exchange Orders 85 The Role of the Specialist/DMM 85 Crossing Stock 88 Do Not Reduce (DNR) 89 Adjustments for Stock Splits 89 Stopping Stock 90 Commission House Broker 91 Two–Dollar Broker 91 Registered Traders 91 Super Display Book (SDBK) 91 Short Sales 92 Affirmative Determination 92 Regulation SHO 93 Rule 200 Definitions and Order Marking 93 Rule 203 Security Borrowing and Delivery Requirements 94 Threshold Securities 95 Block Trades 96 Trading Along 97 Circuit Breakers 97 Limit Up Limit Down (LULD) 98 Listing Requirements for the NYSE 98 Reading the Consolidated Tape 99 Exchange Qualifi ers 101 Over–the–Counter/Nasdaq 101 Market Centers 111 SEC Regulation NMS 112 SEC Regulation ATS 112 Nasdaq International 113 Non–Nasdaq OTCBB 114 Pink Sheets 114 Third Market 115 Nasdaq Market Center for Listed Securities 115 Fourth Market 115 Nasdaq Listing Standards 116 Market Maker Regulations and Responsibilities 117 Times for Entering a Quote 117 Withdrawing Quotes 119 Handling and Displaying Customer Limit Orders 120 The Order Audit Trail System (OATS) 122 The Manning Rule 123 Automated Confirmation System (ACT)/Trade Reporting Facility (TRF) 124 ACT Trade Scan 124 Nasdaq Trade Reporting Facility (TRF) 125 Step Out Trades 128 Market Making During Syndication 129 Regulation M, Rule 101 129 Penalty Bids 130 Regulation M, Rule 102 130 Regulation M, Rule 103 130 Passive Market Makers’ Daily Purchase Limit 131 Regulation M, Rule 104 131 Syndicate Short Positions 133 Regulation M, Rule 105 133 Trade Reporting and Compliance Engine (TRACE) 133 Broker vs. Dealer 135 FINRA 5 Percent Markup Policy 136 Markups/Markdowns When Acting as a Principal 137 Riskless Principal Transactions 138 Proceeds Transactions 138 Firm Quote Rule 138 Trade Complaints Between Members 139 Arbitrage 140 Trading Securities 141 Pretest 141 CHAPTER 5 RECOMMENDATIONS TO CUSTOMERS 147 Investment Objectives 148 Capital Asset Pricing Model (CAPM) 150 Risk vs. Reward 150 Alpha 152 Beta 153 Developing the Client Profi le 153 Professional Conduct when Making Recommendations 154 Recommending Mutual Funds 155 Periodic Payment Plans 156 Mutual Fund Current Yield 156 Fair Dealings with Customers 156 Recommendations to an Institutional Customer 160 Short Sales in Connection with Recommendations 161 Issuing Research Reports 161 Regulation FD 164 Pretest 165 CHAPTER 6 GENERAL SUPERVISION 169 The Role of the Principal 169 Supervisor Qualifications and Prerequisites 170 Continuing Education 171 Tape Recording Employees 172 Information Obtained from an Issuer 173 Customer Complaints 173 Investor Information 174 Member Offices 174 Annual Compliance Review 176 Business Continuity Plan 176 Currency Transactions 176 The Patriot Act 177 U.S. Accounts 177 Foreign Accounts 178 Pretest 179 CHAPTER 7 CUSTOMER ACCOUNTS 183 Holding Securities 185 The Depository Trust Company (DTC) 186 Mailing Instructions 187 Individual Account 187 Joint Account 187 Joint Tenants with Rights of Survivorship (JTWROS) 187 Joint Tenants in Common (JTIC) 188 Transfer on Death (TOD) 188 Death of a Customer 188 Corporate Accounts 189 Trust Accounts 189 Partnership Accounts 189 Trading Authorization 190 Operating a Discretionary Account 190 Managing Discretionary Accounts 191 Third–Party and Fiduciary Accounts 191 Uniform Gifts to Minors Act (UGMA) 192 Accounts for Employees of Other Broker Dealers 194 Numbered Accounts 195 Prime Brokerage Accounts 195 Account Transfer 195 Margin Accounts 196 Guaranteeing a Customer’s Account 198 Day Trading Accounts 198 Commingling Customer’s Pledged Securities 199 Wrap Accounts 199 Regulation S–P 199 Pretest 201 CHAPTER 8 MARGIN ACCOUNTS 205 Regulation of Credit 205 House Rules 208 Establishing a Long Position in a Margin Account 208 An Increase in the Long Market Value 209 Special Memorandum Account (SMA) Long Margin Account 211 A Decrease in the Long Market Value 212 The Minimum Equity Requirement for Long Margin Accounts 213 Establishing a Short Position in a Margin Account 214 A Decrease in the Short Market Value 215 An Increase in the Short Market Value 216 The Minimum Equity Requirement for Short Margin Accounts 217 Margin Requirements for Day Trading 218 Combined Margin Accounts 219 Portfolio Margin Accounts 220 Pretest 221 CHAPTER 9 INVESTMENT COMPANIES 225 Investment Company Philosophy 225 Types of Investment Companies 226 Open–End vs. Closed–End Funds 227 Exchange–Traded Funds (ETFs) 228 Exchange Traded Notes (ETNs) 228 Diversified vs. Nondiversifi ed 229 Investment Company Registration 230 Registration Requirements 230 Investment Company Components 232 Mutual Fund Distribution 234 Selling Group Member 235 Distribution of No–Load Mutual Fund Shares 235 Distribution of Mutual Fund Shares 235 Mutual Fund Prospectus 235 Additional Disclosures by a Mutual Fund 237 Anti–Reciprocal Rule 237 Money Market Funds 238 Valuing Mutual Fund Shares 238 Changes in the NAV 239 Sales Charges for Open–End Funds 240 Sales Charges for Closed–End Funds 240 Front–End Loads 240 Back–End Loads 241 Other Types of Sales Charges 241 12B–1 Fees 241 Calculating a Mutual Fund’s Sales Charge Percentage 242 Finding the Public Off ering Price 243 Sales Charge Reductions 243 Breakpoint Schedule 244 Letter of Intent 244 Breakpoint Sales 245 Rights of Accumulation 245 Automatic Reinvestment of Distributions 246 Combination Privileges 246 Conversion or Exchange Privileges 247 30–Day Emergency Withdrawal 247 Voting Rights 248 Yields 248 Portfolio Turnover 248 Voluntary Accumulation Plans 249 Dollar Cost Averaging 249 Contractual Accumulation Plans 250 Pretest 253 CHAPTER 10 VARIABLE ANNUITIES AND RETIREMENT PLANS 257 Annuities 257 Annuity Purchase Options 261 Accumulation Units 261 Annuity Units 262 Annuity Payout Options 262 Factors Affecting the Size of the Annuity Payment 263 Taxation 264 Sales Charges 264 Variable Annuity vs. Mutual Fund 265 Retirement Plans 265 Individual Plans 265 Individual Retirement Accounts (IRAs) 266 Keogh Plans (HR–10) 270 Tax–Sheltered Annuities (TSAs) and Tax–Deferred Accounts (TDAs) 271 Corporate Plans 273 Employee Stock Ownership Plans (ESOPs) 275 Profit Sharing Plans 275 401(k)s and Thrift Plans 276 Rolling Over a Pension Plan 276 Employee Retirement Income Security Act of 1974 (ERISA) 276 Pretest 279 CHAPTER 11 SECURITIES INDUSTRY RULES AND REGULATIONS 283 The Securities Exchange Act of 1934 283 The Securities and Exchange Commission (SEC) 284 Extension of Credit 285 Trading Suspensions 285 Issuers Repurchasing Their Own Securities 285 Tender Offers 287 Stockholders Owning 5 Percent of An Issuer’s Equity Securities 288 The National Association of Securities Dealers (NASD) 288 Becoming a Member of FINRA 290 Foreign Broker Dealers 292 Registration of Agents/Associated Persons 292 Retiring Representatives/Continuing Commissions 293 State Registration 293 Retail Communications/Communications with the Public 293 FINRA Rule 2210 Communications with the Public 294 Broker Dealer Websites 296 Blind Recruiting Ads 297 Generic Advertising 297 Tombstone Ads 298 Testimonials 298 Free Services 299 Misleading Communications 299 Securities Investor Protection Corporation Act of 1970 299 Customer Coverage 300 The Securities Acts Amendments of 1975 300 The Insider Trading and Securities Fraud Enforcement Act of 1988 300 Firewall 301 The Telephone Consumer Protection Act of 1991 302 The Penny Stock Cold Call Rule 302 Violations and Complaints 303 Resolution of Allegations 304 Minor Rule Violation 304 Electronic Blue Sheets 305 Mediation 305 Code of Arbitration 306 The Arbitration Process 306 Political Contributions 308 Investment Adviser Registration 309 Investment Adviser Representative 309 The National Securities Market Improvement Act of 1996 310 Investment Adviser Registration 311 Investment Adviser Capital Requirements 311 Exams for Investment Advisers 311 Investment Adviser Advertising and Sales Literature 312 Investment Adviser Brochure Delivery 313 Soft Dollars 313 Broker Dealers on the Premises of Other Financial Institutions 314 The Uniform Securities Act 315 Sarbanes–Oxley Act 316 SEC Regulation S–K 317 SEC Regulation M–A 318 The Hart–Scott–Rodino Act 319 FINRA Rule 2290 (Fairness Opinion) 320 SEC Regulation S–X 320 Pretest 323 ANSWER KEYS 329 GLOSSARY OF EXAM TERMS 339 INDEX 405