Understanding Trading, Customer Accounts and Prohibited Activities: practice questions

Correct: C. A split changes the per-share figures and leaves total value alone. Shares double, price and per-share cost basis halve, and the customer is neither richer nor poorer for it.

• D — The cost basis per share must adjust downward, or the split would create value from nothing.
• A — The share count doubles in a two-for-one split; it does not stay the same.
• B — That describes a one-for-two reverse split, which is the opposite corporate action.

Correct: D. The SAR is triggered by suspicion; for a broker-dealer it is mandatory when the activity involves at least $5,000, and voluntary below that. The CTR is triggered mechanically by a currency threshold, whether or not anything looks wrong.

• A — A CTR is driven by a currency amount threshold, not by whether the activity looks suspicious.
• B — OFAC reporting concerns blocked persons on the SDN list, not suspicious transaction patterns.
• C — Form U4 reports the representative's own registration information, not customer activity.

Correct: A. Principal means trading from the firm's own account and taking the other side. Agency means arranging the trade between the customer and someone else for a commission.

• B — Acting as agent means arranging a trade with a third party, not supplying the securities itself.
• C — A transfer agent maintains records of security ownership and does not fill customer orders.
• D — A municipal advisor advises municipal issuers and has no role in filling a customer order.

Correct: B. Front running is trading ahead of a known customer order to profit from the price movement it will cause. All four options are genuine prohibited practices, which is why naming them precisely matters.

• C — Backing away is failing to honour a quoted price, which is a different prohibited practice.
• D — Marking the close is trading near the end of the session to influence the closing price.
• A — Freeriding is selling securities before paying for them in a cash account.

Correct: C. Buying on or after the ex-dividend date means buying without the dividend, which is what the term means. The payable date is when money moves, and the record date identifies holders of record.

• D — That is the payable date, which comes later and concerns settlement of the payment itself.
• A — That is the declaration date, when the board announces the dividend.
• B — Notification to the exchange is an administrative step and is not what the ex-date governs.

Correct: D. Regulation S-P is the privacy rule: confidentiality of customer information, privacy notifications and safeguards. It sits in the books, records and privacy part of section 3.

• A — Credit extension to margin customers is governed by Regulation T, a Federal Reserve rule.
• B — Registration of public offerings is governed by the Securities Act of 1933.
• C — Suspicious transaction reporting arises under the anti-money laundering rules, not Regulation S-P.