FINRA SIE — Securities Industry Essentials — All Questions

The trading of exchange-listed securities in the over-the-counter market (for example, by institutions through OTC market makers) is often referred to as the:

• a.Gray market
• b.Primary market
• c.Fourth market
• d.Third market✓

The third market refers to trading of exchange-listed securities in the OTC market. The fourth market refers to direct institution-to-institution trading without a broker-dealer, often through electronic networks.

An investor buys 100 shares at $60 (total cost $6,000). The stock later does a 3-for-1 forward split. What are the investor's new share count and adjusted cost basis per share?

• a.300 shares at $20 per share✓
• b.100 shares at $20 per share
• c.100 shares at $180 per share
• d.33 shares at $60 per share

A 3-for-1 split triples the shares to 300 and divides the price and per-share basis by three, from $60 to $20. Total cost basis remains $6,000 (300 shares x $20), so the split does not change the investor's total economic value.

A single firm sometimes arranges trades between customers and third parties for a commission, and at other times trades from its own inventory and charges a markup. This firm is best described as a:

• a.Broker only, since a firm may not also trade as a dealer
• b.Transfer agent, which records changes of ownership for the issuer
• c.Dealer only, since charging any commission would be prohibited
• d.Broker-dealer acting in both agency and principal capacities✓

A firm that acts as an agent (broker) on some trades and as a principal (dealer) on others is a broker-dealer. On any given trade it must disclose the capacity in which it acted, since that determines whether it charges a commission or a markup/markdown.Securities Exchange Act of 1934

In a fast-moving, volatile market, an investor is most concerned about certainty of execution and less concerned about the exact price. Which order best serves that priority?

• a.A market order, because it prioritizes immediate execution✓
• b.A limit order, because it locks in the execution price
• c.A good-till-canceled limit order that rests for weeks
• d.A stop-limit order, because it caps the fill price

When immediate, certain execution matters most, a market order is appropriate because it fills promptly at the best available price. Limit and stop-limit orders prioritize price and risk not executing at all if the market moves away from the limit.

Under SEC rules, when must a broker-dealer send a customer a written confirmation of a securities transaction?

• a.Only at the end of the calendar year, in an annual summary of all trades
• b.At or before completion of the transaction (generally by settlement)✓
• c.Only when the customer specifically asks the firm for a written record
• d.Within 30 calendar days after the trade date under SEC Rule 10b-10

SEC Rule 10b-10 requires a broker-dealer to send a trade confirmation at or before completion of the transaction, which is generally the settlement date. The confirmation discloses key details such as price, capacity (agency or principal), and any commission or markup.Securities Exchange Act of 1934

When handling a customer order, a broker-dealer's obligation to seek the most favorable terms reasonably available under the circumstances is known as its duty of:

• a.Diversification
• b.Best execution✓
• c.Disclosure
• d.Suitability

Best execution requires a firm to use reasonable diligence to obtain the most favorable price and terms for a customer order given current market conditions. Suitability concerns whether a recommendation fits the customer, which is a separate obligation.Securities Exchange Act of 1934

A customer sells stock to a firm that buys the shares into its own inventory. The firm lowers the price it pays below the current market to compensate itself. What is this charge called?

• a.A sales load
• b.A management fee
• c.A commission
• d.A markdown✓

When a firm acting as a principal buys securities from a customer for its own account, it pays slightly less than the prevailing market price; that difference is a markdown. A markup is the mirror image charged when the firm sells to a customer as principal, and a commission applies only to agency trades.

After a forward stock split, what happens to an individual shareholder's proportional ownership of the company?

• a.It becomes zero until the transfer agent re-registers the shares in the holder's name
• b.It increases because the shareholder ends up holding a larger number of shares
• c.It stays the same because every shareholder's share count changes proportionally✓
• d.It decreases because the total number of shares outstanding rises after the split

A forward split increases every shareholder's share count in the same proportion, so each investor's percentage ownership of the company is unchanged. The split changes the number and price of shares, not the relative stake each holder controls.

A trade is executed for 'cash' settlement on a Monday morning. When must delivery of the securities and payment occur?

• a.Wednesday (T+2), the equity default
• b.Tuesday (T+1), as cash trades require
• c.The same Monday (trade date)✓
• d.The following Monday, five days later

A cash settlement requires delivery of securities and payment on the trade date itself, the same day the trade is executed. This is faster than regular-way settlement, which is T+1 for equities.

An investor buys stock ON the ex-dividend date. With respect to the upcoming dividend, what is the result?

• a.The buyer receives the dividend because the purchase came first
• b.The company cancels the dividend for that quarter
• c.The buyer is not entitled to the dividend; the seller keeps it✓
• d.The buyer and seller split the dividend equally

Buying on or after the ex-dividend date means the trade will not settle in time for the buyer to be a holder of record, so the buyer is not entitled to the dividend. The seller, who owned the shares before the ex-date, keeps the upcoming dividend.

What is the main benefit of the multilateral netting performed by a central clearing corporation such as the NSCC?

• a.It eliminates the need for members to settle trades with the clearing house
• b.It reduces the number and value of securities and payments that must actually be exchanged✓
• c.It guarantees that every stock in the netted trades will rise in market value
• d.It replaces the SEC as the regulator of the national securities markets

Multilateral netting offsets each member's many buy and sell obligations against one another so that only the net amounts of securities and cash change hands. This dramatically reduces settlement volume, cost, and counterparty risk across the market.

Why does it matter to a customer whether a firm executed a trade as an agent or as a principal?

• a.Only principal trades are reported to the tape and to regulators, so an agency trade leaves no audit trail at all
• b.Principal trades are exempt from SEC Rule 10b-10, so no trade confirmation must be sent to the customer
• c.Agency trades cost less because FINRA Rule 2121 caps commissions at 5% while markups are uncapped
• d.It determines whether the customer pays a commission or a markup/markdown, both of which must be disclosed✓

The firm's capacity determines the form of its compensation: a commission for agency trades or a markup/markdown for principal trades. Under SEC Rule 10b-10, the capacity and related charges must be disclosed on the trade confirmation so the customer understands the cost.Securities Exchange Act of 1934

A brokerage account is registered as joint tenants with right of survivorship (JTWROS). One of the two owners dies. What happens to the account assets?

• a.The assets are split 50/50 between the survivor and the deceased's estate
• b.The account is frozen until a probate court divides the assets
• c.The deceased owner's share passes to their estate under their will
• d.The entire account passes automatically to the surviving joint owner✓

In a JTWROS account, the right of survivorship means the surviving owner automatically receives the deceased owner's interest, bypassing probate. This is the defining feature that distinguishes JTWROS from tenants in common.

Two business partners hold a joint account as tenants in common (TIC), with a 70%/30% ownership split. If the 70% owner dies, how are that owner's assets handled?

• a.The 70% interest passes to the deceased partner's estate, not to the surviving partner✓
• b.The surviving partner automatically inherits the entire 70% interest by survivorship
• c.The account is automatically re-titled 50/50 between the estate and survivor
• d.The 70% interest is forfeited to the broker-dealer holding the account

Tenants in common has no right of survivorship. Each owner's fractional interest passes to their own estate upon death. This makes TIC common for unrelated parties who want their share to go to their heirs rather than the co-owner.

In an UGMA or UTMA custodial account, who has the legal authority to make investment decisions while the beneficiary is still a minor?

• a.The custodian named on the account✓
• b.Both parents jointly, regardless of who is custodian
• c.The minor beneficiary
• d.The donor, even if someone else is custodian

The custodian manages the account for the benefit of the minor until the minor reaches the age of majority set by state law. There can be only one custodian and one minor per UGMA/UTMA account, and the assets are an irrevocable gift to the minor. The donor gave up control of the gift and has no authority unless he or she is the named custodian. The parents have no joint authority unless one of them is the custodian. The minor lacks the legal capacity to direct the account until reaching the age of majority.Uniform Transfers to Minors Act

When opening a cash account for a corporation, what document does the firm typically require to establish who is authorized to trade?

• a.A copy of the chief executive's personal tax return
• b.The corporation's annual report to shareholders
• c.A corporate resolution naming the authorized individuals✓
• d.A margin agreement signed by every shareholder of record

A corporate resolution (or its equivalent) identifies the officers authorized to act on the account. For a corporate margin account, the firm also needs to verify the corporate charter or bylaws permit margin trading.

A customer wants to open an account for a revocable living trust. What document should the registered representative obtain to determine the trustee's powers?

• a.The trustee's brokerage statements from another firm
• b.The beneficiaries' birth certificates
• c.The trust agreement (or a certification of trust)✓
• d.A power of attorney from each beneficiary

The trust agreement (or a trustee certification summarizing it) establishes who the trustee is and what investment powers they hold. The representative must ensure trades stay within the authority granted by the trust document.

Which statement best describes the tax treatment of a traditional IRA?

• a.There are no taxes at any stage because a traditional IRA is exempt from federal tax
• b.Contributions may be tax-deductible and earnings grow tax-deferred until withdrawal✓
• c.Contributions are made with after-tax dollars and all withdrawals in retirement are tax-free
• d.Contributions are nondeductible in all cases and withdrawals are fully taxable

Traditional IRA contributions may be deductible depending on income and workplace plan coverage, and earnings grow tax-deferred. Withdrawals in retirement are taxed as ordinary income, and required minimum distributions eventually apply.Internal Revenue Code

A qualified distribution from a Roth IRA is generally tax-free if the account has been open at least five years AND the owner meets which condition?

• a.Has withdrawn no contributions during the five-year holding period
• b.Rolls the entire balance into a traditional 401(k) within 60 days
• c.Is at least age 59 1/2 (or meets another qualifying event)✓
• d.Has held the account in a self-directed margin arrangement

Roth IRAs are funded with after-tax dollars, so qualified distributions of earnings are tax-free when the five-year holding period is met and the owner is 59 1/2 or older (or death, disability, or a first-home purchase applies). Contributions can always be withdrawn tax-free.Internal Revenue Code

Which of the following is a defining feature of a traditional 401(k) plan?

• a.It is a plan individuals open directly at any broker, with no employer sponsorship
• b.It is an employer-sponsored plan funded largely by pre-tax employee salary deferrals✓
• c.It may hold only shares of the employer's own stock, bought at a discount
• d.It guarantees a fixed monthly pension based on final salary and years of service

A 401(k) is an employer-sponsored defined-contribution plan. Employees defer part of their salary (traditionally pre-tax), often with an employer match, and the retirement benefit depends on contributions and investment performance rather than a guaranteed formula.

Under the Customer Identification Program (CIP), a firm must collect and verify certain minimum information before opening an account. Which set represents the four required items?

• a.Beneficiary name, spouse's name, occupation, and daytime phone number
• b.Name, date of birth, physical address, and taxpayer identification number✓
• c.Bank account number, credit score, mother's maiden name, and email
• d.Employer name, annual salary, net worth, and investment objective

CIP, mandated by the USA PATRIOT Act, requires firms to obtain a customer's name, date of birth, physical address, and identification number (such as an SSN) and to verify identity. This helps prevent money laundering and terrorist financing.USA PATRIOT Act

FINRA's Know Your Customer rule requires a firm to use reasonable diligence to know the essential facts about every customer. The 'essential facts' are primarily those needed to do what?

• a.Guarantee the customer a profit on every trade the representative recommends
• b.Sell the customer as many of the firm's products as the account can support
• c.Report the customer's spending and balances to the national credit bureaus
• d.Effectively service the account and comply with laws and firm policies✓

Rule 2090 requires knowing the essential facts to effectively service the account, act on any special handling instructions, understand the authority of anyone acting for the customer, and comply with applicable laws and regulations. It works alongside the suitability rule.FINRA Rule 2090

For a typical new cash account for an individual, whose signature is generally NOT required on the new account form itself?

• a.The supervising branch manager where required
• b.The customer opening the account✓
• c.The registered representative who introduced the account
• d.A principal of the firm approving the account

A customer signature is generally not required to open a standard cash account, though it is required for margin accounts and options accounts. The account form must, however, be approved (signed) by a principal, and it records the representative who opened it.

Before a registered representative may exercise discretion in a customer's account, what is generally required?

• a.Only a verbal okay from the customer before each individual order is entered
• b.Written approval from the transfer agent and registrar for the securities involved
• c.A signed margin agreement, regardless of whether the account ever trades on margin
• d.Prior written authorization from the customer and firm acceptance of the account as discretionary✓

Discretionary trading requires prior written authorization (a signed trading authorization or power of attorney) and the firm's written acceptance of the account. Each discretionary order must also be identified as such and the account reviewed frequently to detect churning.FINRA Rule 3260

A customer calls and says: 'Buy 500 shares of XYZ for me today, but you pick the best time and price.' The representative has no written discretionary authority. Is this order permissible?

• a.Yes, and the representative may keep making that time-and-price choice on later days until the customer cancels the order
• b.No, because a principal must approve in writing every order in which the customer leaves the time or the price to the representative
• c.No, because FINRA Rule 3260 treats a time-and-price choice as discretion requiring prior written authority
• d.Yes, because time and price alone are not considered discretionary when the customer specified the security, action, and amount✓

Rule 3260(b) requires prior written authorization for discretion, but Rule 3260(d)(1) excepts discretion as to the price or the time of an order for a definite amount of a specified security. Here the customer chose the security, the action and the quantity, so choosing only the time and price is a not-held order and no written authority is needed. That exception lasts only until the end of the business day, absent a signed and dated written instruction, so it does not carry over to later days. FINRA Rule 3260 does not treat a time-and-price choice as full discretion when the other terms are fixed, and it does not require a principal's written approval for such an order, though the exercise must be shown on the order ticket.FINRA Rule 3260(d)(1)

What is the primary difference between a cash account and a margin account?

• a.A margin account is available only to institutional customers; a cash account is available only to individuals
• b.In a margin account the customer can borrow from the broker-dealer to buy securities; in a cash account full payment is required✓
• c.Only a cash account may earn interest, since Regulation T bars credit balances in margin accounts
• d.A cash account may hold only bonds and cash; a margin account may hold only exchange-listed stock

In a cash account the customer must pay in full for purchases. A margin account lets the customer borrow a portion of the purchase price from the firm, subject to Regulation T and FINRA maintenance requirements, which introduces leverage and additional risk.Regulation T

An individual wants to name specific people to receive her brokerage account assets at her death, without going through probate, while keeping full control during her lifetime. Which account registration accomplishes this?

• a.An UTMA custodial account
• b.A discretionary account
• c.Tenants in common with the beneficiaries
• d.A Transfer on Death (TOD) registration✓

A Transfer on Death (TOD) registration lets the owner keep full control while alive and designate beneficiaries who receive the assets directly at death, bypassing probate. The beneficiaries have no rights to the account while the owner is living.

What is the purpose of the Automated Customer Account Transfer Service (ACATS)?

• a.To automatically route and execute customer stock orders on a national exchange
• b.To register newly issued securities with the SEC before they are sold
• c.To transfer a customer's account positions from one broker-dealer to another✓
• d.To calculate each customer's overnight margin requirement at the clearing firm

ACATS standardizes and automates the transfer of customer account assets between firms. Under FINRA rules, the carrying firm must generally validate or take exception to a transfer request within one business day and complete a validated transfer within about three business days.FINRA Rule 11870

Illegal insider trading generally involves trading a security while in possession of information that is both:

• a.Public and immaterial
• b.Old and widely reported
• c.Optimistic and unverified
• d.Material and nonpublic✓

Insider trading laws prohibit buying or selling securities based on material, nonpublic information (MNPI) in breach of a duty of trust or confidence. 'Material' means a reasonable investor would consider it important; 'nonpublic' means it has not been disseminated to the market.Securities Exchange Act of 1934

An executive tells his neighbor that his company will announce a surprise merger tomorrow. The neighbor buys the stock that afternoon and profits when the news breaks. Which statement is correct?

• a.Insider trading liability applies only when the profits from a single trade exceed one million dollars
• b.No violation occurred because the neighbor is not an officer, director, or employee
• c.The neighbor (a tippee) can be liable for insider trading for using material nonpublic information✓
• d.Only the executive who tipped the news can be liable, since the neighbor owed no duty

A tippee who trades on material nonpublic information tipped in breach of a duty can be held liable for insider trading, and so can the tipper. Liability does not require being a corporate insider or a minimum dollar amount.Insider Trading and Securities Fraud Enforcement Act of 1988

A group spreads false, glowing rumors about a thinly traded stock they own to drive up the price, then sells their shares into the buying frenzy, leaving new buyers with losses. This scheme is called:

• a.Selling away
• b.A pump-and-dump✓
• c.Account churning
• d.Front-running

A pump-and-dump artificially inflates a security's price through false or misleading positive statements, then the promoters 'dump' their shares at the inflated price. It is a form of market manipulation prohibited under the antifraud provisions of the securities laws.Securities Exchange Act of 1934

A trader enters large buy orders he intends to cancel before execution, hoping to trick others into thinking demand is rising so he can sell at a higher price. What is this prohibited practice?

• a.Spoofing✓
• b.Marking the close
• c.Painting the tape
• d.Front-running

Spoofing is placing bids or offers with the intent to cancel them before execution, creating a false impression of supply or demand to manipulate prices. It is an illegal form of market manipulation. Marking the close is buying or selling near the end of the session to set a favorable closing price, and painting the tape is a series of actual trades that creates an appearance of activity; in both, the trades are real, whereas here the orders are meant to be canceled. Front-running is trading ahead of a known pending customer order, not entering orders to be canceled.Securities Exchange Act of 1934

A trader learns his firm is about to place a very large customer buy order that will likely push the price up. He quickly buys the stock for his own account first. This is best described as:

• a.Front-running✓
• b.A permissible hedge
• c.Dollar-cost averaging
• d.Legitimate proprietary trading

Front-running is trading ahead of a known, imminent large order to profit from the expected price move it will cause. It breaches the duty owed to customers and the market and is a prohibited practice.Securities Exchange Act of 1934

Just before the market closes, a trader enters a flurry of small buy orders in a stock solely to push its closing price higher and inflate the value shown on month-end statements. This manipulation is known as:

• a.Riskless arbitrage
• b.Dividend capture
• c.Marking the close✓
• d.Position netting

Marking the close (or 'painting the tape' at the close) is entering trades near the close specifically to influence the closing price. It is a prohibited form of manipulation, often done to affect valuations, indices, or derivative settlements.Securities Exchange Act of 1934

A representative with discretionary authority trades a retiree's account dozens of times a month, generating large commissions but no clear benefit to the customer's stated goals. This is most likely:

• a.Suitable active management
• b.Selling away
• c.Front running
• d.Churning✓

Churning is excessive trading in a customer's account, primarily to generate commissions, that is inconsistent with the customer's objectives. It typically requires control over the account, such as discretion, and trading that is excessive measured against the customer's goals and resources. FINRA Rule 3260(a) bars excessive transactions in a discretionary account, and for retail recommendations Regulation Best Interest's care obligation requires a reasonable basis that a series of transactions is not excessive. Selling away is dealing in securities outside the firm without notice. Front running is trading ahead of a customer's pending order. Suitable active management would benefit the customer's stated goals, which is not the case here.FINRA Rule 3260(a)

Without any written discretionary authority and without calling the client, a representative buys 1,000 shares of a stock in the client's account because he is sure it will rise. What violation is this?

• a.Front-running
• b.A legitimate 'not-held' order
• c.Proper use of discretion
• d.Unauthorized trading✓

Executing a trade in a customer's account without the customer's authorization (and without valid written discretionary authority) is unauthorized trading, a violation of just-and-equitable-principles standards, regardless of whether the trade turns out well.FINRA Rule 2010

A registered representative sells a private investment to several clients on the side, receiving compensation, but never tells her firm or gets its approval. What prohibited activity is this?

• a.Marking the close (entering orders late in the day to set the closing price)
• b.Commingling (mixing customer funds or securities with the firm's own assets)
• c.Churning (excessive trading in a customer account to generate commissions)
• d.Selling away (private securities transactions without firm approval)✓

Selling away is engaging in private securities transactions outside the scope of employment without providing prior written notice to, and receiving approval from, the firm. It denies the firm the ability to supervise the activity and protect customers.FINRA Rule 3280

A firm mixes customer securities with the firm's own securities in a way that puts customer assets at risk if the firm fails. This prohibited practice is called:

• a.Rehypothecation disclosure
• b.Netting
• c.Subordination
• d.Commingling✓

Commingling improperly mixes customer funds or securities with those of the firm, endangering customer property. Rules such as the SEC's customer protection rule require firms to segregate and safeguard customer assets.Securities Exchange Act of 1934

To close a sale, a representative tells a customer that a corporate bond is 'guaranteed by the FDIC and can never lose money.' The statement is false. This is an example of:

• a.Selling away
• b.Misrepresentation✓
• c.A permissible sales puff
• d.Suitable recommendation

Misrepresentation is making a false or misleading statement of material fact to induce a securities transaction. Falsely claiming FDIC backing or a guarantee against loss is a serious violation of the antifraud provisions.Securities Exchange Act of 1934

The Bank Secrecy Act (BSA) and related anti-money-laundering rules primarily require financial firms to do what?

• a.Guarantee every customer a minimum annual rate of return on their account balance
• b.Register every stock trade with the IRS before the order can be entered
• c.Detect, prevent, and report money laundering and other suspicious financial activity✓
• d.Insure each customer's deposits against market losses up to $250,000

The BSA is a cornerstone of U.S. anti-money-laundering law. It requires firms to maintain AML programs, verify customer identity, keep records, and file reports such as SARs and CTRs to help detect and prevent money laundering and terrorist financing.Bank Secrecy Act

A firm's Customer Identification Program is a required component of which broader compliance framework?

• a.The firm's dividend reinvestment program
• b.The firm's anti-money-laundering (AML) program✓
• c.The firm's proxy solicitation procedures
• d.The firm's marketing and advertising review

CIP is a mandatory part of a firm's AML compliance program under the USA PATRIOT Act. By verifying customer identity at account opening, CIP supports the broader goal of preventing money laundering and terrorist financing.USA PATRIOT Act

A firm notices a customer making a pattern of transactions that appear designed to hide the source of funds, with no apparent lawful business purpose. Which report is most appropriate?

• a.A Currency Transaction Report (CTR) only
• b.A Suspicious Activity Report (SAR)✓
• c.A dividend disbursement notice
• d.A Form 10-K

A Suspicious Activity Report (SAR) is filed when a firm detects transactions that appear to involve money laundering, have no apparent lawful purpose, or are otherwise suspicious (generally at or above a dollar threshold). Firms must not 'tip off' the customer that a SAR was filed.Bank Secrecy Act

A Currency Transaction Report (CTR) generally must be filed when a customer conducts a cash transaction exceeding what amount in a single business day?

• a.$10,000✓
• b.$3,000
• c.$1,000
• d.$5,000

A CTR is required for cash (currency) transactions exceeding $10,000 in a single business day, including multiple transactions that aggregate above that amount. It applies to physical currency, not ordinary securities trades settled by check or wire.Bank Secrecy Act

A customer repeatedly deposits cash in amounts of $9,500 to $9,800, seemingly to stay just under the $10,000 CTR threshold. This behavior is a classic AML red flag known as:

• a.Structuring✓
• b.Netting
• c.Rebalancing
• d.Laddering (of bonds)

Structuring is breaking up cash transactions to evade the CTR reporting requirement. It is itself illegal and a strong AML red flag that should prompt further review and likely a Suspicious Activity Report.Bank Secrecy Act

Under FINRA communications rules, a communication distributed to more than 25 retail investors within any 30-calendar-day period is classified as:

• a.An institutional communication
• b.A retail communication✓
• c.Correspondence
• d.A public appearance before an audience

FINRA Rule 2210(a)(5) defines a retail communication as any written communication distributed or made available to more than 25 retail investors within any 30 calendar-day period. Correspondence goes to 25 or fewer retail investors, and institutional communications go only to institutional investors. A public appearance, such as a seminar talk, is a separate topic handled in the rule's paragraph on public appearances and is not defined by an audience count of retail investors in 30 days.FINRA Rule 2210(a)(5)

A firm plans to post an advertisement about a mutual fund on its public website, reaching thousands of retail investors. Generally, what must happen before it is used?

• a.A registered principal must approve the retail communication before first use✓
• b.The SEC must pre-approve the wording of the advertisement in writing
• c.Nothing, because website postings are exempt from principal approval and review
• d.Each customer must sign a new account agreement acknowledging the ad

Retail communications generally must be approved by a registered principal before first use (with limited exceptions). Certain communications, such as those about registered investment companies, may also need to be filed with FINRA within stated timeframes.FINRA Rule 2210

Broker-dealers are required to keep certain business records for specified minimum periods. What is the main regulatory reason for these recordkeeping rules?

• a.To allow regulators to reconstruct activity and supervise for compliance and investor protection✓
• b.To let customers document their orders and avoid paying commissions on disputed trades
• c.To replace the need to send customers trade confirmations and periodic account statements
• d.To help firms substantiate expense deductions and lower their annual corporate tax bills

SEC rules (such as Rules 17a-3 and 17a-4) require firms to create and preserve books and records for set periods so regulators can examine and reconstruct the firm's activities. This supports supervision, audits, and investor protection.Securities Exchange Act of 1934

In a joint brokerage account (JTWROS or TIC), which statement about trading authority is generally true while all owners are living?

• a.Only the owner whose name is listed first may enter any order
• b.Any owner may enter orders, but checks are typically payable to all owners✓
• c.Neither owner may trade without a court order authorizing the account
• d.Only the owner who contributed the larger share of assets may trade

In a typical joint account, each owner can enter orders and access the account, but distributions such as checks are generally made payable to all owners. The specific rights depend on the account agreement and registration type.

A customer's adult son wants authority to place trades in his elderly father's individual account. What is generally required for the son to do so lawfully?

• a.Approval from the firm's branch manager alone, with no signed document from the father
• b.Only the son's verbal assurance, given to the representative over the phone
• c.A written trading authorization (such as a power of attorney) on file with the firm✓
• d.Nothing, because a close relative is presumed to hold trading authority

A third party may trade in another person's account only with proper written authorization from the account owner, such as a limited or full power of attorney, on file with the firm. Being a relative does not by itself confer trading authority. A supervisor's approval cannot substitute for the owner's signed authorization, a telephone assurance from the son is not authorization from the father, and adding no document at all would leave the firm unable to show the father consented.FINRA Rule 3260(b)

A self-employed person with no employees wants a tax-advantaged retirement plan that is simple to set up and allows relatively high contributions. Which is a common fit?

• a.A UGMA account
• b.A Health Savings Account only
• c.A SEP IRA✓
• d.A 529 college savings plan

A SEP IRA is a simplified employer-sponsored retirement plan often used by self-employed individuals and small businesses, allowing tax-deductible contributions with higher limits than a standard IRA. A 529 is for education and an UGMA is a custodial gift account, not retirement plans.Internal Revenue Code