Stock Trading Professional Standards & Competencies 4

Question 1

What is 'spoofing' in securities markets?

Accepted Answer

Placing orders with the intent to cancel them before execution to manipulate prices

Answer

Spoofing involves placing bids or offers with the intent to cancel them before execution, creating a false impression of supply or demand to manipulate prices.

Question 2

The Volcker Rule primarily restricts financial institutions from:

Accepted Answer

Engaging in proprietary trading and owning hedge funds or private equity funds

Answer

The Volcker Rule, part of the Dodd-Frank Act, prohibits banks from engaging in short-term proprietary trading and limits their ownership stakes in hedge funds and private equity funds.

Question 3

When a broker-dealer executes a trade as a 'principal,' this means:

Accepted Answer

The broker bought or sold securities from its own inventory account

Answer

When acting as a principal, a broker-dealer trades from its own account, taking the opposite side of the client's trade and earning a markup or markdown rather than a commission.

Question 4

Which document must investors receive before purchasing a mutual fund, outlining fees, risks, and investment objectives?

Accepted Answer

Prospectus

Answer

Investors must receive a prospectus before or at the time of purchase, which discloses the fund's investment objectives, fees, risks, and management information.

Question 5

A customer files a complaint against their broker for unauthorized trading. Under FINRA rules, the firm must:

Accepted Answer

Retain records of all written complaints for at least four years

Answer

FINRA Rule 4513 requires firms to retain records of all written customer complaints for at least four years in an easily accessible location.

Stock Trading Practice Test

Stock Trading Practice Test

Stock Trading Professional Standards & Competencies 4