Trading Jobs Trading Compliance and Regulations 2

Question 1

What does 'AML' stand for in financial compliance?

Accepted Answer

Anti-Money Laundering

Answer

AML stands for Anti-Money Laundering — a set of laws, regulations, and procedures that prevent criminals from disguising illegally obtained funds as legitimate income.

Question 2

What is 'know your customer' (KYC) in financial services?

Accepted Answer

The process of verifying a client's identity and understanding their financial situation

Answer

KYC is a regulatory requirement for financial institutions to verify customer identity, assess their risk profile, and understand the source of their funds to prevent fraud and money laundering.

Question 3

What is 'wash trading' and why is it prohibited?

Accepted Answer

Simultaneously buying and selling the same security to create artificial trading volume

Answer

Wash trading involves entering offsetting buy and sell orders in the same security to create the appearance of active trading without actual change in ownership, which manipulates market data.

Question 4

What are 'restricted securities' under SEC Rule 144?

Accepted Answer

Unregistered securities acquired from issuers in private transactions

Answer

Restricted securities are unregistered shares acquired directly from the issuer or an affiliate in a private transaction, subject to holding period and resale limitations under Rule 144.

Question 5

What is 'churning' in a brokerage account context?

Accepted Answer

Excessive trading by a broker in a client's account to generate commissions

Answer

Churning refers to a broker excessively trading in a client's account primarily to generate commissions rather than to benefit the client, which is prohibited under FINRA rules.

Trading Jobs Practice Test

Trading Jobs Practice Test

Trading Jobs Trading Compliance and Regulations 2