Chapter 13 Practice Question Answers
- 1. Answer: D. Soft dollars refers to compensation given for placing trades with a particular dealer. Soft dollars may only be used for certain types or research that will benefit the customer. Soft dollars are not allowed to be used for services that benefit the adviser, such as equipment, vacations, or other adviser benefits. The use of soft dollar compensation must be disclosed to the customer.
- 2. Answer: A. All registered persons of FINRA member firms must provide prior written notice to their firms if they operate as an employee, independent contractor, officer, or partner of another person, or if they are compensated as a result of any business activity outside the scope of the member firm. In turn, the firm must evaluate the notice and either approve or reject the proposal. Passive investments, such as REITS and private securities transactions, are exempt from this requirement.
- 3. Answer: D. Any location where order execution takes place must be designated an Office of Supervisory Jurisdiction. Retail communications, such as research reports, can be created elsewhere, but they must be approved before distribution by a registered principal at an OSJ. Other activities that can only be done at an OSJ are structuring public offerings and maintaining custody of customers’ funds.
- 4. Answer: C. The maximum allowable number of registered representatives previously employed by a disciplined firm before the taping rule must take effect depends on the member firm’s size. Since Ramsey employs between 10 and 19 people, its maximum number is three to not hit the threshold, and it must fire three people to get there.
- 5. Answer: B. The supervisory system establishes a managerial chain of command, lays out the supervisors’ duties, and describes the procedures necessary to accomplish them. Conducting annual compliance meetings are among these supervisory responsibilities.
The purpose of the superv