Securities Industry Essentials Flashcards

Which of the following is an example of 'insider trading' as defined by securities laws?

Answer: A CEO selling company shares based on non-public knowledge of an impending merger

Trading on material, non-public information—such as an unannounced merger—constitutes insider trading and is illegal under the Securities Exchange Act of 1934.

A customer submits a limit order to buy 200 shares of ABC at $45. The order will be executed only if:

Answer: ABC trades at $45 or lower

A buy limit order is executed at the limit price or better (lower), ensuring the investor pays no more than their specified price.

Which of the following best describes a 'variable annuity'?

Answer: An insurance product whose value fluctuates based on the performance of underlying investment subaccounts

Variable annuities are insurance products that invest in subaccounts similar to mutual funds, with the account value and payout depending on investment performance.

A customer's account is designated as 'discretionary.' This means the registered representative may:

Answer: Execute trades without obtaining client approval for each transaction

In a discretionary account, the registered representative has written authorization to select the security, quantity, and timing of trades without prior client approval for each order.

The 'spread' in an underwriting syndicate refers to the difference between:

Answer: The public offering price and the price the underwriter pays the issuer

The underwriting spread is the gross profit to the syndicate, calculated as the difference between the public offering price and the net proceeds paid to the issuer.

Under the Bank Secrecy Act, broker-dealers are required to file a Suspicious Activity Report (SAR) for transactions that involve at least how much in suspicious funds?

Answer: $5,000

Broker-dealers must file a SAR with FinCEN for suspicious transactions of $5,000 or more where money laundering or other illegal activity is suspected.

Which of the following is TRUE about Exchange-Traded Funds (ETFs) compared to mutual funds?

Answer: ETFs can be bought and sold throughout the trading day at market prices

Unlike mutual funds (priced once daily at NAV), ETFs trade on exchanges throughout the day at market-determined prices like stocks.