Investment Compliance Test Flashcards
6 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Compliance Test flashcards as text
What is 'front-running' in securities markets?
Answer: A broker trading for their own account based on advance knowledge of pending client orders
Front-running is the illegal practice of a broker executing trades in their own account (or tipping others) ahead of known pending client orders to profit from the anticipated price movement.
Under ERISA, what is the 'prudent expert rule' for plan fiduciaries?
Answer: Fiduciaries must act with the care, skill, prudence, and diligence of a knowledgeable person familiar with such matters
ERISA's prudent expert rule requires plan fiduciaries to act with the care, skill, prudence, and diligence that a prudent person familiar with investment management would use under similar circumstances.
What is a 'Suspicious Activity Report' (SAR) and when must it be filed?
Answer: A report filed with FinCEN when a transaction involves $5,000 or more and is suspected to involve illegal activity
A SAR must be filed with the Financial Crimes Enforcement Network (FinCEN) when a firm suspects a transaction of $5,000 or more involves funds from illegal activity, money laundering, or structuring.
What is the Volcker Rule and which type of activity does it primarily prohibit?
Answer: It prohibits banks from proprietary trading and limits investments in hedge/PE funds
The Volcker Rule (part of the Dodd-Frank Act) prohibits banks from engaging in proprietary trading for their own profit and limits their investments in hedge funds and private equity funds.
What is 'soft dollar' arrangement in investment management compliance?
Answer: Using client brokerage commissions to pay for research and services beyond trade execution
Soft dollar arrangements involve investment managers directing client trades to specific brokers in exchange for research and other services, a practice governed by SEC Section 28(e).
What is 'best execution' obligation for broker-dealers?
Answer: The duty to seek the most favorable terms reasonably available when executing client orders
Best execution requires broker-dealers to seek the most favorable terms for client orders, considering factors like price, speed, likelihood of execution, and overall transaction cost.