Stock Trading Regulatory Frameworks & Compliance 5

Question 1

Which SEC rule prohibits broker-dealers from publishing quotes for a security if they have not reviewed the issuer's current financial information, commonly applied to OTC stocks?

Accepted Answer

Rule 15c2-11

Answer

SEC Rule 15c2-11 requires broker-dealers to review current issuer information before publishing quotations for OTC securities, reducing fraud in thinly-traded markets.

Question 2

A broker-dealer's net capital computation under SEC Rule 15c3-1 is primarily designed to ensure what?

Accepted Answer

That the firm has sufficient liquid assets to meet obligations to customers and creditors

Answer

The Net Capital Rule (15c3-1) requires broker-dealers to maintain minimum liquid capital to protect customers and creditors if the firm fails.

Question 3

FINRA's wash trading prohibition under Rule 4560 (and related SEC rules) targets the practice of buying and selling the same security to do what?

Accepted Answer

Create artificial trading volume or the appearance of active market interest

Answer

Wash trading involves coordinated buying and selling by the same beneficial owner to create misleading trading activity, which is considered market manipulation.

Question 4

Under FINRA Rule 4512, member firms must collect and maintain specific customer account information. Which item is NOT required to be collected?

Accepted Answer

Customer's social media accounts and online trading history

Answer

Rule 4512 requires essential financial and personal information for KYC purposes, but does not require social media accounts or online trading history.

Question 5

The SEC's Regulation D exempts certain private placements from registration. Under Rule 506(b), issuers may sell to up to how many non-accredited but sophisticated investors?

Accepted Answer

Up to 35 non-accredited sophisticated investors

Answer

Rule 506(b) allows issuers to sell to up to 35 non-accredited investors who meet a sophistication standard, in addition to unlimited accredited investors.

Stock Trading Practice Test

Stock Trading Practice Test

Stock Trading Regulatory Frameworks & Compliance 5