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260. Which of the following is NOT a securities professional:
a. a broker
b. a dealer
c. an adviser
d. a scalper
e. none of the other specific choices are correct
261. Which of the following is NOT a securities professional:
a. a broker
b. a dealer
c. an adviser
d. all of the other specific choices are securities professionals
e. none of the other specific choices are correct
262. The SEC does not allow markups of more than above their market value on securities.
a. 5%
b. 10%
c. 1%
d. 1.5%
e. 2%
263. When a securities professional buys stock for her own account, then urges investors to buy the same stock so that
the price will rise, and benefit her, has engaged in:
a. kiting
b. churning
c. dealing
d. scalping
e. none of the other choices
264. When a securities professional buys stock for her own account, then urges investors to buy the same stock so that
the price will rise, and benefit her, has engaged in:
a. kiting
b. churning
c. dealing
d. schmoozing
e. none of the other choices
265. When a securities professional buys and sells excessive amounts of stock for a client's account to make extra-large
commissions from the trades, she is:
a. kiting
b. churning
c. dealing
d. scalping
e. none of the other choices
266. When a securities professional buys and sells excessive amounts of stock for a client's account to make extra-large
commissions from the trades, she is:
a. kiting
b. insider trading
c. dealing
d. scalping
e. none of the other choices
267. The stock exchanges are:
a. not regulated by the SEC
b. self-regulating but subject to SEC control
c. directly regulated by the SEC
d. directly regulated by the SEC only when problems arise
e. none of the other choices
268. Since 1970 the volume and value of stock transactions has:
a. declined rapidly
b. slowly declined in favor of more foreign transactions
c. increased by about 80%
d. increased by about 30 times
e. increased slightly
269. You work for a securities firm matching orders to buy and sell stocks in small companies. A customer places an
order to buy 100 shares of X Corp. when they sell for $40 a share. You find a seller at $39 per share. May you buy
the shares yourself at $39 and then sell them for $40 to you client?
a. yes, there is no legal or ethical constraint on this since the order was $40 per share
b. so long as you regard this as ethical, there is no legal constraint since the order was $40 per share
c. the SEC places no constraint on this, but in equity the law would require you to sell to your client at $39
d. no, specialists cannot deal for their own benefit
e. none of the other choices
270. Which of the following is a self-regulating organization that the SEC has the power to monitor:
a. the New York Stock Exchange
b. the American Stock Exchange
c. the NASDAQ
d. all of the other specific choices are correct
e. none of the other specific choices are correct
271. The Financial Industry Regulatory Authority (FINRA):
a. governs the OTC market
b. governs the New York Stock Exchange
c. is an independent regulatory authority
d. a, b, and c are correct
e. only a and b are correct
272. Members who violate the rules of a stock exchange can face:
a. suspension of from the exchange
b. expulsion from the exchange
c. a warning, but no permanent expulsion
d. a and b are correct
e. none of the other choices are correct
273. Firms that generally do not deal directly with the public and instead handle transactions for brokers are known as:
a. specialist firms
b. private firms
c. broker firms
d. unregulated firms
e. specialty firms
274. The primary dispute resolution mechanism between investors and brokers is:
a. adjudication
b. small claims court
c. arbitration
d. litigation
e. court-sponsored negotiation
275. The primary dispute resolution mechanism between investors and brokers is:
a. adjudication
b. small claims court
c. court-sponsored negotiation
d. litigation
e. none of the other choices
276. When investors establish accounts with investment firms or stockbrokers, they usually sign a standard form that
states that disputes must be:
a. litigated
b. settled in small claims courts
c. arbitrated
d. settled for no more than treble damages
e. none of the other choices are correct
277. The detailed arbitration records from disputes involving investment firms or stockbrokers are:
a. public
b. secret
c. easily viewed if requested
d. destroyed after the decision is made
e. none of the other choices are correct
278. The arbitration decisions from disputes involving investment firms or stockbrokers are:
a. made public
b. kept secret
c. only allowed to be viewed by a court official
d. only accessible through a lengthy application process
e. none of the other choices are correct
279. The Supreme Court held that binding arbitration agreements between investors and investment firms:
a. violate basic rights of investors
b. defraud investors under the securities law
c. are legal only if the investors may first litigate claims
d. are unconscionable
e. are legal
280. The
handled.
increases regulatory oversight of financial markets, but not the way securities are issued or generally
a. Dodd-Frank Act
b. Howey Act
c. Financial Oversight Act
d. Financial Regulation Act
e. Amended Securities Exchange Act
281. The
handled.
increases regulatory oversight of financial markets, but not the way securities are issued or generally
a. Amended Securities Exchange Act
b. Howey Act
c. Financial Oversight Act
d. Financial Regulation Act
e. none of the other choices are correct
282. The buying and selling of futures and options is called:
a. trading of derivatives
b. trading of prospects
c. stock trading
d. trading of intangibles
e. none of the other choices are correct
Fact Pattern 21-1
In 2005, Bettina opened Bettina Brownies in a shopping mall. The brownies were a hit and soon Bettina was
operating shops in several malls in Illinois. By 2012 she had expanded operations to Indiana and she decided that it
was time to finance expansion through the equity markets. With an investment banker, she prepared for the initial
offering of Bettina Brownies. She sold 50,000 shares of stock at $10 a share.
Expansion continued. Keebler determined that Bettina was a well-run company with an attractive financial position.
It began secret negotiations with Bettina to buy her interest in the business. News of the negotiations leaked. Mr.
Little, CEO of Keebler, denied that they were pursuing a deal with Bettina. A month later Bettina sold her share of
the business to Keebler.
Shortly before Bettina sold her interest to Keebler, Joe Kelso, a carpet cleaner was working at Bettina office when
he overheard discussion of the sale to Keebler. Joe bought a large number of shares in Bettina. After the Keebler
sale was completed, Joe sold his stock for a substantial profit.
283. Refer to Fact Pattern 21-1. If Bettina received financing for her expansion by selling bonds rather than stock,
which of the following items would Bettina bonds need to include?
a. the rate of interest to be charged on the amount borrowed
b. the length of the period of indebtedness
c. the amount of the debt
d. the method of repayment of the debt
e. the bond would need to specify all of these items
284. Refer to Fact Pattern 21-1. Bettina chose to seek financing by a sale of stock. Which of the following statements
about stock is true?
a. each person who bought a share of Bettina now has an ownership interest in the company
b. each share of Bettina's represents a proportional right to the past profits of the company
c. each share of stock will specify what repayment method it will use
d. Bettina is under a legal obligation to the stockholders to make an exceptional effort to make a profit
e. Bettina must repay each stockholder in future dividends at least an amount of money equal to what they
spent for shares
285. Refer to Fact Pattern 21-1. When Bettina first sells stock to the public, which legislation will she need to follow?
a. the Investment Advisors Act
b. the Securities Act of 1933
c. the Insider Trading Sanctions Act
d. the Securities Exchange Act of 1934
e. the Trust Indenture Act
286. Refer to Fact Pattern 21-1. Rob DuMase, Bettina's investment banker, told her it costs a lot to comply with the
federal securities laws. Rob suggested Bettina might avoid these requirements by calling the shares in her company
something other than a "stock," for example "brownie squares," since they are not mentioned in the securities law.
If Bettina took Rob's advice, what would the consequences be?
a. under the Supreme Court decision in Howey Bettina would be exempt from securities laws
b. under the Howey test, Bettina would be exempt from the federal securities laws
c. under the Howey decision, Bettina would be subject to the federal securities laws
d. Bettina would be exempt from the federal securities laws if she could used a term for her security that was
not listed in Section 2(1) of the 1933 Securities Act
e. Bettina would be exempt from the federal securities laws because Congress specified what a security is, and
anything not called a stock may not be considered a security for purposes of the federal laws
287. Refer to Fact Pattern 21-1. Suppose Bettina took Rob's advice and called her offerings "brownie squares" rather
than a stock. The SEC decided to sue Bettina for failure to follow federal securities laws. To prove that the
"brownie squares" were securities for purposes of federal regulation, the SEC must show that:
a. the investors expected to make a profit
b. the investors actually invested money
c. the investors controlled the work that makes Bettina a success or failure
d. the investors expected to make a profit and the investors controlled the work that makes Bettina a success
or failure
e. the investors expected to make a profit and the investors actually invested money
288. Refer to Fact Pattern 21-1. Bettina decides that Rob's advice is not very good and opts to offer stock for sale.
What must Bettina do in order to insure that her offering is legal?
a. fully disclose all material information concerning her company and the stock she is selling
b. prepare a prospectus as part of her registration statement
c. prepare a Contingency Plan to explain how she would react in the event of a sudden downturn in business
d. fully disclose all material information concerning her company and the stock she is selling and prepare a
prospectus as part of her registration statement
e. fully disclose all material information concerning her company and the stock she is selling and prepare a
prospectus as part of her registration statement and prepare a Contingency Plan to explain how she would
react in the event of a sudden downturn in business
289. Refer to Fact Pattern 21-1. The SEC discovers that Joe Kelso made a lot of money on the sale of his stock in
Bettina Brownies. Under what provision of the federal securities laws might Joe be prosecuted?
a. under Rule 10-K
b. under Rule 10b-5
c. under Rule 8-K
d. under Rule 144A
e. under Regulation D
290. Refer to Fact Pattern 21-1. If Joe is prosecuted for insider trading, the SEC will need to prove that he had a
fiduciary duty to not use the information he heard at Bettina offices. Which case will Joe be most likely to rely upon
to prove that he was simply a lucky outsider who did not have a fiduciary duty to not use the information he
acquired?
a. Chiarella v. United States
b. U.S. v. Johnson
c. SEC v. Ginsburg
d. SEC v. Howey
e. SEC v. Levine
