Core Knowledge and Fundamentals Flashcards

Which of the following describes the 'bid-ask spread' in securities trading?

Answer: The difference between the highest price a buyer will pay and the lowest price a seller will accept

The bid-ask spread is the difference between the bid price (what buyers will pay) and the ask price (what sellers will accept), representing transaction cost.

FINRA Rule 3110 requires member firms to establish and maintain a system to supervise the activities of registered representatives. Who bears primary responsibility for implementing this supervisory system?

Answer: The firm's compliance department in cooperation with senior management

FINRA Rule 3110 places responsibility on firms' compliance departments and senior management to create and enforce a supervisory system that ensures compliance with applicable rules.

What is the primary difference between a 'Series 6' and a 'Series 7' license?

Answer: Series 6 limits representatives to selling mutual funds and variable annuities; Series 7 allows a broader range of securities

The Series 6 license limits representatives to investment company and variable products, while the Series 7 (General Securities Representative) license allows a much broader range of securities products.

Under the Securities Exchange Act of 1934, which federal agency was created to regulate the secondary market for securities?

Answer: The Securities and Exchange Commission (SEC)

The Securities Exchange Act of 1934 created the SEC to regulate the secondary trading of securities and oversee securities markets and participants.

A registered representative discovers that a client has made a material misrepresentation on their new account form. What is the appropriate action?

Answer: Notify a principal and update the account records to reflect accurate information

The representative must notify a principal and ensure account records are corrected, as accurate customer information is essential for suitability and regulatory compliance.

Which of the following securities is typically exempt from SEC registration under the Securities Act of 1933?

Answer: Municipal securities issued by state and local governments

Municipal securities (issued by state and local governments) are exempt from SEC registration under the Securities Act of 1933, though they are still subject to anti-fraud provisions.

What does 'hypothecation' mean in the context of margin accounts?

Answer: Pledging customer securities as collateral for a margin loan

Hypothecation is the pledging of customer securities as collateral to secure a margin loan extended to the customer by the broker-dealer.