Series 99 Practice Exam

1. Which statement correctly pairs two published characteristics of the Series 99 examination?

• A. It contains 50 scored questions and requires a passing score of 68 percent
• B. It contains 75 scored questions and requires a passing score of 70 percent
• C. It contains 100 scored questions and requires a passing score of 68 percent
• D. It contains 50 scored questions and requires a passing score of 72 percent

2. When evaluating the risk profile of an investment product, which characteristic generally increases the potential for greater price volatility?

• A. A shorter time to maturity for a fixed-income instrument
• B. Higher sensitivity of the product's value to changes in market conditions
• C. A guaranteed principal return backed by an insurer
• D. A fixed, contractually stated coupon paid at par

3. Which situation best illustrates liquidity risk in an investment product?

• A. Inflation erodes the real value of future fixed payments
• B. The product cannot be sold quickly without accepting a significantly lower price
• C. Rising interest rates reduce the market value of the product
• D. The product's issuer defaults on a scheduled payment

4. Which SEC rule establishes the minimum liquid capital a broker-dealer must maintain to remain in business?

• A. Rule 10b-5, the antifraud rule
• B. Rule 15c3-3, the customer protection rule
• C. Rule 17a-4, the records retention rule
• D. Rule 15c3-1, the net capital rule

5. An investor holds a fixed-income product and is concerned that the purchasing power of its future payments may decline over time. Which type of risk is this concern describing?

• A. Inflation (purchasing-power) risk
• B. Default risk
• C. Liquidity risk
• D. Reinvestment risk of principal at maturity

6. A firm is budgeting the enrollment cost for an associate who must register for the Series 99 qualification exam. What is the published cost of the exam?

• A. $50
• B. $75
• C. $100
• D. $150

7. A representative is comparing two products. Which factor most directly reflects credit (default) risk rather than market risk?

• A. The likelihood that the issuer will fail to meet its payment obligations
• B. The degree to which the product's price moves with broad market indices
• C. The ease with which the product can be sold without a large price concession
• D. The effect of general interest-rate changes on the product's price

8. A customer wishes to transfer only certain positions rather than an entire account to another firm. Within ACATS, what is this type of transfer called?

• A. A partial transfer
• B. A full transfer with residual credit
• C. A position netting
• D. A give-up

9. A customer buys 100 shares of a listed common stock in a cash account on a Tuesday. Under the standard settlement cycle now in effect for US equities, when does regular-way settlement occur?

• A. Wednesday, one business day after the trade date
• B. Thursday, two business days after the trade date
• C. Friday, three business days after the trade date
• D. The same day, because listed equities settle on trade date

10. Under a T+1 settlement cycle, what is the relationship between a dividend's ex-date and its record date?

• A. The ex-date is two business days before the record date
• B. They fall on the same business day
• C. The ex-date is one business day after the record date
• D. The ex-date is one business day before the record date

11. Which organization acts as the central securities depository holding immobilized certificates and effecting book-entry movement of securities between participants?

• A. The National Securities Clearing Corporation
• B. The Depository Trust Company
• C. The Municipal Securities Rulemaking Board
• D. The Options Clearing Corporation

12. A clearing firm's obligations in a single security across many trades are offset into one net long or short position for settlement. What is this process called?

• A. Continuous net settlement
• B. Trade-for-trade settlement
• C. Prime brokerage give-up
• D. Payment versus payment

13. A customer instructs their broker-dealer to move an entire brokerage account to another firm. Which system automates the transfer, and what is the typical validation timeframe for the carrying firm?

• A. ACATS; the carrying firm generally must validate or take exception within one business day
• B. ACATS; the carrying firm has thirty calendar days to validate
• C. CNS; the carrying firm validates on settlement date
• D. FINRA CRD; the receiving firm validates within five business days

14. Under SEC Rule 15c3-3, the customer protection rule, what must a broker-dealer do with fully paid and excess margin securities?

• A. Sell them if the customer does not trade for twelve months
• B. Maintain physical possession or control of them, segregated from the firm's own assets
• C. Transfer them to the firm's proprietary trading account weekly
• D. Pledge them as collateral for the firm's own borrowings

15. A broker-dealer computes the amount owed to customers versus amounts receivable from customers and deposits any excess into a special account for the exclusive benefit of customers. What is this computation called?

• A. The customer reserve formula computation
• B. The net capital computation
• C. The margin maintenance computation
• D. The trial balance reconciliation

16. A brokerage firm fails and a customer's securities cannot be located. What is the maximum SIPC protection per customer, and how much of that may be for cash?

• A. 500,000 dollars total, of which up to 250,000 dollars may be for cash
• B. 500,000 dollars total, of which up to 500,000 dollars may be for cash
• C. 250,000 dollars total, of which up to 100,000 dollars may be for cash
• D. 1,000,000 dollars total, with no separate cash sublimit

17. A customer purchases 10,000 dollars of marginable stock in a new margin account. Under Regulation T, what is the initial margin requirement?

• A. 5,000 dollars, or 50 percent
• B. 2,500 dollars, or 25 percent
• C. 3,000 dollars, or 30 percent
• D. 10,000 dollars, or 100 percent

18. A customer holds a long margin position with a market value of 40,000 dollars and a debit balance of 32,000 dollars. Using the 25 percent FINRA maintenance requirement, is the account in a maintenance call?

• A. Yes, because equity of 8,000 dollars is below the 10,000 dollar requirement
• B. No, because equity of 8,000 dollars exceeds the 25 percent of the debit balance
• C. No, because maintenance is measured against the original purchase price
• D. Yes, because the debit balance exceeds 50 percent of market value

19. Which US Treasury office maintains the list of Specially Designated Nationals against which firms screen customers and transactions?

• A. The Financial Industry Regulatory Authority
• B. The Municipal Securities Rulemaking Board
• C. The Securities Investor Protection Corporation
• D. The Office of Foreign Assets Control

20. A firm receives currency of 15,000 dollars from a single customer in one business day. Which report is generally required?

• A. A Currency Transaction Report, because aggregate currency exceeded 10,000 dollars in one day
• B. A Suspicious Activity Report, because any currency receipt is inherently suspicious
• C. No report, because the threshold is 25,000 dollars
• D. A Form U4 amendment

21. An associated person's registration is terminated. Within what period must the member file a Form U5, and what is the general record retention period for the form?

• A. Within 30 days of termination, and the form is retained for at least three years
• B. Within 90 days of termination, retained for one year
• C. Within 10 business days, retained for six years
• D. No filing is required if the person leaves voluntarily

22. Under SEC Rules 17a-3 and 17a-4, blotters, general ledgers and customer account records must generally be preserved for how long?

• A. One year in any location
• B. Permanently, with no accessibility requirement
• C. Three years, with the first year in an easily accessible place
• D. Six years, with the first two years in an easily accessible place

23. A firm's daily record of all purchases and sales of securities, receipts and deliveries, and cash movements is known as what?

• A. The blotter
• B. The stock record
• C. The trial balance
• D. The customer statement

24. A broker-dealer's stock record shows, for a given security, a long position of 10,000 shares and a short position of 9,900 shares. What does this indicate?

• A. A 100-share break that must be researched and resolved
• B. A normal condition requiring no action
• C. That the firm owes a customer a dividend
• D. That the firm must file a Suspicious Activity Report

25. Securities held by a broker-dealer in its own name on behalf of customers, rather than registered in each customer's name, are said to be held in what form?

• A. Street name
• B. Direct registration
• C. Legend form
• D. Bearer form

26. An issuer declares a 3-for-2 stock split. A customer holds 400 shares. How many shares does the customer hold after the split, and what happens to any fractional entitlement?

• A. 600 shares, with no fraction arising in this case
• B. 266 shares, with a fraction paid in cash
• C. 1,200 shares, with no fraction
• D. 400 shares, because splits affect only the price

27. A corporate action in which shareholders may choose between receiving cash or additional shares is best described as which type?

• A. A voluntary corporate action requiring an election from the holder
• B. A mandatory corporate action with no holder involvement
• C. A mandatory action with options that the issuer selects
• D. A reorganization requiring SEC pre-approval of each election

28. Which entity maintains the issuer's record of registered shareholders and processes transfers of registered ownership?

• A. The transfer agent
• B. The clearing corporation
• C. The introducing broker
• D. The market maker

29. A customer sells short 500 shares. Under Regulation SHO, what must the broker-dealer do before effecting the short sale?

• A. Have reasonable grounds to believe the security can be borrowed and delivered, known as the locate requirement
• B. Obtain written SEC approval for the short sale
• C. Confirm the customer holds an equal long position elsewhere
• D. Wait until the security has advanced on an uptick

30. A clearing firm carries accounts introduced by another broker-dealer on a fully disclosed basis. Which firm generally holds customer funds and securities and issues the confirmations and statements?

• A. The clearing firm
• B. The introducing firm
• C. Both firms jointly, in equal shares
• D. Neither; the depository holds them and issues statements

31. What information must appear on a customer trade confirmation at or before completion of the transaction?

• A. The firm's projected price target for the security
• B. Whether the firm acted as agent or principal, along with the security, quantity, price and trade date
• C. The registered representative's personal position in the security
• D. The identity of the contra party in every agency transaction, without exception

32. A customer's account holds a free credit balance. What obligation does the firm have with respect to those funds?

• A. Promptly pay them out on demand and disclose how they are used while held
• B. Invest them in the firm's proprietary account for the customer's benefit
• C. Retain them permanently as compensation for account maintenance
• D. Transfer them to the clearing corporation each night

33. Property in an account with no owner contact for a statutory dormancy period must generally be turned over to a state authority. What is this process called?

• A. Rehypothecation
• B. Subrogation
• C. Escheatment
• D. Netting

34. Two individuals hold a joint account. On the death of one, the survivor takes the entire account. Which registration is this?

• A. Joint tenants with right of survivorship
• B. Tenants in common
• C. Custodial account under UTMA
• D. Transfer on death with a named beneficiary

35. A stock is quoted 24.10 bid, 24.18 ask. A customer places a market order to sell 100 shares. Ignoring commissions, at approximately what price should the order execute?

• A. 24.10, the bid
• B. 24.18, the ask
• C. 24.14, the midpoint
• D. 24.28, the ask plus the spread

36. Which self-regulatory organization writes the rules that govern broker-dealer conduct in municipal securities, even though it has no examination or enforcement arm of its own?

• A. The Municipal Securities Rulemaking Board
• B. The Financial Industry Regulatory Authority
• C. The Securities Investor Protection Corporation
• D. The Federal Reserve Board

37. Which market participant quotes both a bid and an offer and stands ready to buy and sell a security for its own account?

• A. A market maker
• B. An introducing broker
• C. A transfer agent
• D. A custodian bank

38. Which type of order becomes a market order only once the security trades at or through a specified price, and carries no price protection thereafter?

• A. A stop order
• B. A limit order
• C. A stop-limit order
• D. A fill-or-kill order

39. US Treasury bills are issued at a discount and mature at face value. How is the investor's return realized?

• A. As the difference between the discounted purchase price and the face value at maturity
• B. Through semiannual coupon payments
• C. Through quarterly dividends declared by the Treasury
• D. Through a variable rate reset every 90 days

40. An operations associate is processing a customer's purchase of a mutual fund. At what price is the order executed under forward pricing?

• A. The next net asset value computed after the order is received
• B. The net asset value computed at the close of the prior business day
• C. The average net asset value over the preceding five days
• D. A price negotiated between the customer and the distributor

41. A customer's account is charged interest on a debit balance carried in a margin account. Which document must the customer have received explaining the terms of margin borrowing?

• A. The margin disclosure statement and the credit agreement
• B. The official statement
• C. The options disclosure document
• D. The Form ADV Part 2

42. Before a customer's first options transaction, what must the firm deliver, and by when must the options account agreement be returned?

• A. The options disclosure document at or before account approval, with the agreement returned within 15 days of approval
• B. The options disclosure document within 30 days after the first trade
• C. A prospectus for each option contract before every trade
• D. Nothing, because listed options are exempt from disclosure requirements

43. Which organization issues, guarantees and clears listed options contracts in the United States?

• A. The Financial Industry Regulatory Authority
• B. The Depository Trust Company
• C. The Options Clearing Corporation
• D. The Securities Investor Protection Corporation

44. A customer exercises a long equity call option. What is the standard settlement for the resulting stock position relative to the exercise date?

• A. The stock trade settles on the standard equity settlement cycle following exercise
• B. The stock position settles the same day the option is exercised
• C. The stock position settles five business days after exercise
• D. No stock position results; only cash is exchanged

45. A firm delivers securities to a counterparty but the counterparty does not deliver payment on settlement date. From the delivering firm's perspective, what has occurred?

• A. A fail to receive on the cash side, arising because delivery versus payment did not complete
• B. A short sale requiring a locate
• C. A corporate action requiring an election
• D. An escheatment event

46. A firm lends fully paid customer securities to another broker-dealer. What is required of the firm?

• A. A written fully paid lending agreement with the customer and collateral maintained for the loan
• B. Nothing, because fully paid securities may be lent at the firm's discretion
• C. Prior approval of each loan by the SEC
• D. Conversion of the customer's account to a cash account

47. A firm must reconcile its records of securities positions against the depository's records. How often is this reconciliation typically performed for active positions?

• A. Daily, so breaks are identified and resolved promptly
• B. Annually, at the fiscal year end
• C. Only when a customer disputes a statement
• D. Every three years, in line with records retention

48. A customer's Regulation T payment obligation is not met by the required date and no extension is obtained. What is the standard consequence?

• A. The position is liquidated and the account is frozen for 90 days
• B. The account is closed permanently
• C. The firm must absorb the loss with no customer consequence
• D. The trade is cancelled as though it never occurred

49. Which statement best describes the difference between a cash account and a margin account?

• A. A cash account requires full payment for purchases, while a margin account permits borrowing part of the purchase price from the firm
• B. A cash account permits short selling, while a margin account does not
• C. A margin account requires full payment, while a cash account permits borrowing
• D. The two are identical except for the interest rate charged

50. A new customer opens a brokerage account and refuses to provide a Social Security number or taxpayer identification number, saying she will supply it "after the first trade settles." Under the Customer Identification Program (CIP) requirements that a broker-dealer must apply at account opening, what is the firm's proper course?

• A. Open the account and permit trading, since CIP only requires that identity be verified within a reasonable time after opening.
• B. Obtain the required identifying information before the account is opened, and follow the firm's written CIP procedures for what happens if the information cannot be obtained or verified.
• C. Open the account as a cash-only account, because CIP applies only to margin accounts.
• D. Open the account and file a Currency Transaction Report in place of the missing identification.

51. A customer mails in a stock certificate registered in his late mother's name, along with a letter asking that it be deposited into his own account. The certificate has no signature guarantee and is not accompanied by transfer documents. From a custody and good-delivery standpoint, what is the operations department's correct response?

• A. Deposit it as street-name stock immediately, since the customer is the obvious heir.
• B. Treat the certificate as not in good deliverable form and require the transfer documents (such as estate paperwork and a Medallion signature guarantee) before it can be re-registered and credited.
• C. Forward it directly to DTC through DWAC, which removes the need for a signature guarantee.
• D. Return it to the customer, because a broker-dealer may never accept certificates registered to a deceased person.

52. A registered representative accidentally buys 1,000 shares of XYZ for a customer who asked for 100 shares. The trade is discovered after execution. Which of the following describes the appropriate handling of the excess 900 shares?

• A. Leave the full 1,000 shares in the customer's account and ask the customer to accept them.
• B. Move the 900 excess shares into the firm's error account, with the correction documented and approved under the firm's supervisory procedures.
• C. Cancel the entire trade in the trade-reporting facility, since erroneous trades are void.
• D. Journal the 900 shares into the representative's personal account so the representative bears the loss.

53. A customer opens a margin account and buys marginable stock. The firm's operations department is responsible for the initial margin call. Which statement correctly describes the relationship between Regulation T and FINRA's margin rules in this situation?

• A. Regulation T sets the initial margin requirement on the purchase, while FINRA's rules impose ongoing maintenance requirements on the account thereafter.
• B. FINRA sets the initial margin requirement, while Regulation T governs only day-trading accounts.
• C. Regulation T and FINRA rules both set initial margin; the firm applies whichever is lower.
• D. Regulation T applies only to short sales, and FINRA rules apply only to long purchases.

54. A broker-dealer keeps its order tickets and trade blotters solely on a cloud-based electronic storage system. Under the SEA Rule 17a-4 provisions on electronic records, which of the following is a requirement the firm's records-retention program must satisfy?

• A. The records must be printed and retained in paper form as the official copy.
• B. The system must preserve the records in a manner that prevents them from being overwritten, erased, or altered during the required retention period, and the firm must be able to promptly furnish them to regulators.
• C. Electronic storage is permitted only for records that are less than one year old.
• D. The firm must store all records at the firm's principal office rather than with a third-party provider.

55. An operations associate at a clearing firm notices that a customer's account has had no activity, no contact, and returned mail for an extended period. The associate wonders whether the assets must be turned over to a state. Which statement best describes the escheatment concept as it applies here?

• A. Escheatment is a FINRA rule that requires the firm to liquidate dormant accounts and hold the cash in its own name.
• B. Escheatment occurs automatically on the account's one-year anniversary regardless of customer contact.
• C. Escheatment applies only to cash balances, never to securities positions.
• D. Escheatment is governed by state unclaimed-property law; after a state-defined dormancy period with no owner contact, and after required due-diligence outreach, the property is remitted to the appropriate state, which publishes the applicable dormancy period.

56. A broker-dealer holds fully paid customer securities in its vault. Some are held in safekeeping, and others are held in segregation. An operations associate is asked to explain the difference to a new hire. Which statement best describes the distinction?

• A. Safekeeping means the specific certificates belonging to a named customer are held apart and identified to that customer; segregation means fully paid and excess margin securities are held free of lien and not used in the firm's business, though not necessarily as identifiable certificates
• B. Safekeeping and segregation are two names for the same operational process required by Rule 15c3-3
• C. Safekeeping applies only to securities held in street name, while segregation applies only to securities registered in the customer's own name
• D. Segregated securities may be lent by the firm for its own account so long as they are marked to market daily, while safekeeping securities may not

57. A customer instructs her broker-dealer to move her entire account, including positions in a proprietary mutual fund that the receiving firm does not carry, to a new firm. The operations department is deciding how to process the transfer. Which consideration most directly determines whether the transfer moves through ACATS or must be handled outside of it?

• A. Whether the receiving firm is able to hold or receive each asset; assets not transferable through the automated system are handled as non-ACATS items such as liquidation or direct re-registration with the fund
• B. Whether the customer's account has a debit balance, since margin accounts are always excluded from ACATS
• C. Whether the delivering firm is a FINRA member, since ACATS is available only for transfers between clearing agencies that are not FINRA members
• D. Whether the customer signs a Medallion-guaranteed transfer instruction, since ACATS requires a Medallion guarantee on every transfer initiation form

58. A clearing firm settles the great majority of its equity trades through continuous net settlement at the clearing corporation. An operations manager explains to a new associate what CNS accomplishes. Which description is most accurate?

• A. It nets each participant's obligations in a security across all trades settling that day into a single net long or short position versus the clearing corporation, which becomes the contra-party
• B. It requires each trade to settle individually against the original contra-broker, which preserves a clear audit trail
• C. It applies only to trades the firm executes for its own proprietary account, since customer trades must settle trade-for-trade
• D. It eliminates the need for the firm to maintain a stock record, because the clearing corporation keeps the firm's books

59. A broker-dealer's purchases and sales department discovers that a trade executed for a customer was reported to the tape with the wrong side, showing a sell where a buy occurred. The error is found the next business day. What is the proper operational response?

• A. Submit a corrective trade report to the reporting facility to fix the disseminated information, and document the correction in the firm's records
• B. Leave the tape report alone, since only the customer's confirmation must be accurate, and send a corrected confirmation
• C. Cancel the customer's trade entirely, because a misreported side voids the transaction
• D. Move the position to the firm's error account and re-execute in the market at the current price, charging any loss to the customer

60. A customer sells short 5,000 shares of a thinly traded stock. Before accepting the short sale order, what must the broker-dealer do under Regulation SHO's locate requirement?

• A. Have reasonable grounds to believe the security can be borrowed and delivered by settlement date, and document that belief before accepting or effecting the order
• B. Actually borrow and take delivery of the shares before the order may be entered
• C. Obtain the customer's written representation that the customer owns equivalent shares elsewhere
• D. Wait until settlement date and, if delivery fails, obtain the locate at that time

61. A broker-dealer's operations department receives a customer request to close a traditional IRA and move the entire balance to an IRA at another custodian. The customer asks that the check be made payable to her personally so she can deposit it herself. Which characterization of this request is correct?

• A. It is a distribution to the customer rather than a trustee-to-trustee transfer, so it must be reported as a distribution and is subject to the rollover rules and any applicable withholding
• B. It is a trustee-to-trustee transfer regardless of the payee, because the funds originate in one IRA and end in another
• C. It must be processed through ACATS, because ACATS is mandatory for all retirement account movements between member firms
• D. It cannot be honored at all; IRA assets may only move by direct transfer between custodians

62. An operations associate at a carrying firm is asked to journal securities from a customer's individual cash account to an account titled in the name of the customer's adult son. The customer calls in the instruction and confirms the son's account number. What is the appropriate operations response?

• A. Process the journal, because a telephone instruction from the record owner is sufficient for any third-party movement of assets
• B. Decline the journal entirely; securities may never be journaled between accounts with different registrations
• C. Obtain properly executed written authorization from the account owner for the third-party delivery before processing, since the receiving account is not owned by the customer
• D. Process it only if the son signs a letter of authorization consenting to receive the shares

63. A registered representative at a member firm resigns and joins a competitor. The customers he serviced begin submitting transfer paperwork. The former firm's operations manager instructs staff to hold all of the incoming transfer requests aside for several days so the retail branch can attempt to retain the accounts. Under FINRA Rule 11870, how should this instruction be evaluated?

• A. Acceptable, because a firm may take reasonable steps to retain customer relationships before releasing assets
• B. Improper; a customer's instruction to transfer must be expedited and validated or taken exception to within the time frames the rule prescribes, and retention efforts are not a permitted reason to delay
• C. Acceptable only if the departing representative's new firm consents to the delay in writing
• D. Improper only if the accounts contain margin debit balances

64. A firm's cashiering department receives a customer's deposit consisting of several sequentially numbered money orders, each just under the currency transaction reporting threshold, presented on three consecutive days. The customer explains that he prefers to keep each deposit small. What should the operations associate conclude?

• A. Nothing is reportable, because each individual instrument falls below the reporting threshold
• B. The pattern suggests structuring to evade reporting requirements and must be escalated for suspicious activity review, and the customer's stated preference reinforces rather than excuses the concern
• C. The firm should simply refuse the deposit and tell the customer why the instruments looked suspicious
• D. The deposit is acceptable because money orders, unlike currency, are never subject to anti-money-laundering scrutiny

65. An affiliate of a public issuer wants to sell shares she has held for several years into the public market without registration, relying on Rule 144. The selling shareholder asks the firm's operations desk what the rule will require of her as an affiliate that it would not require of an unaffiliated holder. Which answer is correct?

• A. Affiliates must obtain the issuer's written consent to each sale, which is the only additional requirement
• B. Only that the certificate carry a restrictive legend, which non-affiliates never need
• C. Nothing; Rule 144 applies identically to affiliates and non-affiliates once the holding period is satisfied
• D. Affiliates remain subject to volume limitations, manner-of-sale conditions, current public information and a notice filing when the sale exceeds the prescribed size, whereas a non-affiliate who satisfies the holding period is not subject to those ongoing conditions

66. A member firm's chief financial officer resigns. The firm's president, who holds a general securities principal registration but has never taken an operations or financial principal qualification, begins signing and submitting the firm's FOCUS reports while a replacement is recruited. Which statement best describes the problem?

• A. There is no problem, because any registered principal of the firm may sign regulatory financial filings
• B. The firm must have a qualified Financial and Operations Principal responsible for its financial filings and net capital compliance, and an individual must pass the required qualification before acting in that capacity
• C. The problem is only that FOCUS reports were filed late, since a vacancy automatically extends the filing deadline
• D. The president may sign indefinitely so long as an outside accountant reviews the figures first

67. A customer holding a long stock position in a margin account receives notice of a cash dividend. Separately, a different customer of the same firm is short that stock on the record date, having borrowed shares to cover the short sale. How does the firm treat the dividend with respect to the short customer?

• A. The short customer receives the dividend, because the firm holds the borrowed shares on her behalf
• B. The dividend is waived by the issuer for all short positions, so no adjustment is made in any account
• C. The short customer owes the dividend amount, because the party who is short the security on the record date is responsible for the distribution owed to the lender of the shares
• D. The dividend is charged to the firm's error account, since short positions are a firm-level obligation rather than a customer obligation

68. A clearing firm is preparing a customer confirmation for a transaction in which it bought stock from another dealer for its own account and then sold that stock to the customer at a marked-up price. Which disclosure obligation does the confirmation carry that it would not carry had the firm simply executed the order on an agency basis?

• A. It must disclose that the firm acted as principal, rather than disclose a commission amount as it would in an agency trade
• B. It must disclose the identity of the dealer from which the firm bought the shares
• C. It need not be sent at all, because principal trades are firm-account activity
• D. It must state the firm's net capital position so the customer can evaluate settlement risk

69. During a monthly reconciliation, an operations associate finds that the firm's stock record shows 500 more shares of a security long than the total of the positions confirmed by the depository, the transfer agent and the firm's vault count. What is the correct characterization and immediate operational step?

• A. It should be cleared by adjusting the depository's records to agree with the firm's stock record
• B. It is immaterial, because the stock record is an internal document with no regulatory standing
• C. It is a short difference that should be netted against an unrelated long difference in another security so the overall stock record balances
• D. It is an unreconciled difference that must be researched and resolved through the firm's books-and-records process, and until resolved it may affect the firm's net capital and reserve computations

70. An operations associate at a member firm has held her Operations Professional registration for three years. Her firm reassigns her to a non-registered administrative role, and her registration is terminated. Two and a half years later the firm wants to return her to an operations role requiring the same registration. What is the consequence of the elapsed time?

• A. She may resume the role immediately, because her original passing result never expires once the registration was granted
• B. A registration that remains inactive for two consecutive years is administratively terminated, so the elapsed period means she must requalify before acting in the registered capacity again
• C. She may resume the role after completing the Regulatory Element of continuing education, which fully substitutes for requalification
• D. She retains the registration indefinitely because her passing SIE result is valid for four years

71. A member firm's operations department receives a written instruction from a customer directing that all future proceeds of sales in her cash account be sent to a third-party bank account belonging to her adult son. The firm wants to hold this as a repeating instruction rather than re-verifying each payment. Which document controls, and what must the firm do before relying on it?

• A. A standing letter of authorization signed by the customer, which the firm must verify as to the customer's identity and the third-party instruction before acting, and retain as a firm record
• B. An oral instruction confirmed by the registered representative in the daily blotter, since the customer is the beneficial owner of the funds
• C. A Medallion signature guarantee stamped on each sale confirmation, which replaces the need for any written authorization
• D. A trading authorization form, because directing where proceeds go is an exercise of discretion over the account

72. An operations associate is reviewing how the firm's customer funds and fully paid securities are protected. A colleague says the customer protection rule only requires that the firm keep enough cash on hand to meet redemption requests. What is the actual structure of the requirement under Rule 15c3-3?

• A. The firm must maintain a special reserve account for the exclusive benefit of customers, funded according to a reserve formula computed from customer credits and debits, and must obtain physical possession or control of fully paid and excess margin securities
• B. The firm must keep all customer cash in its general operating account but segregate customer securities in a separate vault
• C. The firm must satisfy the reserve formula only if it clears its own trades; introducing firms are exempt from any possession-or-control obligation
• D. The firm must deliver all customer securities into the customer's own name at a transfer agent so that street name positions never arise

73. A carrying broker-dealer's FINOP is assembling the firm's periodic regulatory financial report for filing with FINRA. The operations staff wants to know what source the report must tie back to and what the FINOP's role is in that tie-out.

• A. The FOCUS report must be derived from the firm's general ledger and supporting records, and the FINOP is responsible for the accuracy and filing of the firm's regulatory financial reports
• B. The FOCUS report is compiled from clearing-firm-supplied position files only, since the clearing firm holds the customer assets
• C. The FOCUS report is prepared by the firm's independent auditor, and the FINOP merely countersigns the audited financial statements
• D. The FOCUS report may be built from the stock record alone, because net capital is a securities-position computation

74. Two broker-dealers trading with each other disagree about a trade: the seller shows a sale of 500 shares, and the buyer's records show no such trade at all. The seller's operations desk must resolve the break before settlement. What is the correct characterization and next step?

• A. It is a DK (don't know) item, and the parties must reconcile the trade through the comparison process, with the contra party either affirming or continuing to DK the trade
• B. It is an as-of trade, and the seller should simply enter the trade on the buyer's books with the original trade date
• C. It is automatically a fail-to-deliver, so the seller must immediately execute a buy-in against the contra party without further notice
• D. It is a clearly erroneous trade, so the seller should book it to its error account and absorb the loss

75. A broker-dealer wants to raise short-term cash by selling U.S. government securities to a counterparty with a simultaneous agreement to repurchase the same securities at a set price on a later date. An operations associate is asked to describe the firm's economic and operational position in the transaction.

• A. The firm is the borrower of cash and the provider of collateral; it retains the market risk and the benefit of the securities and must return the cash plus the agreed financing amount at the repurchase date
• B. The firm has permanently sold the securities, so the positions must be removed from its records and the counterparty bears all market risk going forward
• C. The firm is the lender of cash and the receiver of collateral, which is why the transaction is called a repurchase agreement from its side
• D. The firm has effected a short sale of the securities and must obtain a locate before the trade can be entered

76. A customer's account at a carrying firm shows a purchase of an equity security that the customer had not previously discussed with anyone at the firm, executed at a price away from the market, and the registered representative's notes show no order from the customer. The operations associate escalating this is asked which core conduct standard the pattern implicates.

• A. FINRA Rule 2010, which requires members to observe high standards of commercial honor and just and equitable principles of trade, and which supports escalation of apparent unauthorized trading
• B. FINRA Rule 2090, because the firm's only obligation is to have collected essential facts about the customer at account opening
• C. Regulation SHO, because an order entered without customer authorization is treated as a short sale of the security
• D. FINRA Rule 4311, because the carrying agreement allocates all responsibility for order authenticity to the introducing firm

77. A firm is designing the annual account statement cycle for a retail customer whose account holds only a long equity position and a money market balance, with no activity for the entire year. An associate argues that because there was no activity, no statement is required. How should the firm treat statement delivery for this account?

• A. The firm must still send periodic account statements showing positions and the money balance, because the statement obligation is driven by the account holding assets, not by whether trades occurred
• B. No statement is required for any period in which there is no activity, and the firm may satisfy its duty with a year-end tax form
• C. A statement is required only if the customer affirmatively requests one in writing for that period
• D. A trade confirmation for the original purchase satisfies the statement requirement for as long as the position is held

78. Under a firm's Customer Identification Program, which information must generally be obtained for a new individual customer before opening an account?

• A. Name, date of birth, physical address and an identification number such as a taxpayer identification number
• B. Only the customer's name and email address
• C. Name, employer and estimated annual trading volume
• D. Name and a signed acknowledgment of the firm's privacy notice

79. An operations associate notices a customer wiring funds in from multiple unrelated third parties and immediately requesting withdrawals with almost no trading. What is the appropriate response?

• A. Close the account without notifying anyone at the firm
• B. Contact the customer to explain that a Suspicious Activity Report will be filed
• C. Escalate to the AML compliance function for evaluation and possible Suspicious Activity Report filing
• D. Take no action unless a single transaction exceeds 10,000 dollars

80. An operations associate is asked to open an account for a customer who wishes to grant trading authority to a third party. What document is required?

• A. A written trading authorization or power of attorney from the account owner
• B. A verbal instruction noted in the account file
• C. A Form U4 for the third party
• D. A Suspicious Activity Report identifying the third party

81. A customer dies holding an individual account. What is the appropriate operational treatment of open orders in the account?

• A. Cancel open orders and freeze the account pending required documentation
• B. Execute all open orders immediately to protect the estate
• C. Transfer the account to the registered representative's discretion
• D. Continue accepting instructions from the deceased customer's spouse

82. Under the FINRA rule addressing financial exploitation of specified adults, what may a member do when it reasonably believes exploitation is occurring?

• A. Take no action, since firms have no authority to delay customer instructions
• B. Liquidate the account and remit proceeds to the trusted contact
• C. Place a temporary hold on a disbursement and notify the trusted contact, subject to the rule's conditions
• D. Transfer the account to a firm officer's control indefinitely

83. A registered representative sells a security to a customer at a price above the prevailing market and charges an undisclosed markup well beyond industry norms. Which principle is violated?

• A. The fair prices and commissions requirement, historically the 5 percent policy
• B. The net capital rule
• C. The customer identification program
• D. Regulation SHO

84. An associated person wants to accept a gift from a vendor seeking the firm's business. Under FINRA's gifts rule, what annual limit generally applies per person?

• A. 500 dollars per recipient per year
• B. 50 dollars per recipient per year
• C. 100 dollars per recipient per year
• D. There is no limit if the gift is disclosed

85. A customer complaint is received in writing alleging a sales practice violation. What is the firm's basic obligation?

• A. Record the complaint, retain it, and report it to FINRA in accordance with the reporting rule
• B. Resolve it verbally with the customer and destroy the correspondence
• C. Forward it directly to the SEC and take no internal action
• D. Take no action unless the customer files an arbitration claim

86. Under Regulation S-P, what must a broker-dealer provide to customers regarding personal financial information?

• A. An initial and annual privacy notice, with an opportunity to opt out of certain information sharing
• B. A quarterly report listing every party that received the customer's data
• C. Written consent before any internal use of customer information
• D. Nothing, because broker-dealers are exempt from privacy requirements

87. An operations associate is unsure whether an unusual instruction from a registered representative is permissible. What is the appropriate action?

• A. Process it and document the concern afterward
• B. Process it, because the representative owns the customer relationship
• C. Refuse it without explanation and take no further step
• D. Escalate to a supervisor or compliance before processing

88. A firm receives a customer's check made payable to a third party rather than to the firm or the customer's account. What is the appropriate operational response?

• A. Decline the item and escalate, because third-party payments raise money laundering and misappropriation concerns
• B. Deposit it into the customer's account and note the third party in the file
• C. Deposit it into the firm's operating account
• D. Return it to the customer without any internal record

89. An operations professional at a broker-dealer receives a call from a person who identifies himself as the son of an elderly customer. He asks the firm to confirm the customer's current account balance and the address on file, explaining that he manages his father's affairs. He is not named on the account and no third-party authorization is on file. What should the operations professional do?

• A. Confirm only the address, since a mailing address is not financial information
• B. Decline to disclose any account information and refer the caller to the firm's procedures for establishing third-party authority
• C. Provide the balance but not the address, because balances change daily and are not permanent records
• D. Provide the information if the caller can state the customer's date of birth correctly

90. A firm's beneficial owner mailing vendor is preparing a proxy distribution. The issuer has requested contact information for the beneficial owners of its shares held in street name at the firm. Which group's identifying information may the firm supply to the issuer?

• A. Only the NOBO group — those beneficial owners who have not objected to disclosure of their name, address and holdings
• B. Only the OBO group, since objecting owners have already been identified to the firm
• C. Both groups, because proxy distribution is a corporate-governance purpose exempt from customer confidentiality
• D. Neither group; issuers may never obtain beneficial owner identities from a carrying firm

91. An operations associate is assembling a package of new account documents to send to an outside clearing vendor over the internet. The package contains customer names, account numbers and Social Security numbers. Under Regulation S-P's safeguards requirement, the associate's firm must primarily have in place which of the following?

• A. Written policies and procedures reasonably designed to protect the security and confidentiality of customer records and information
• B. A signed written consent from each customer before any record containing a Social Security number leaves the firm's premises
• C. An annual certification from the vendor that it will not experience a data breach
• D. A requirement that all customer records be transmitted only in paper form by courier

92. A member firm's operations group is documenting its Regulation S-ID identity theft prevention program. The group asks who is responsible for the program and how it is maintained. Which statement is correct?

• A. The program must be approved by the board or an appropriate committee or designated senior management, and updated periodically to reflect changes in risk
• B. The program is a compliance department document and requires no approval outside compliance
• C. Once approved, the program is fixed and may be amended only when a regulator directs a change
• D. The program applies only to accounts opened after its adoption date

93. While processing an address change, an operations professional notices that the request arrived by email from an address that does not match the one on file, the new address is a mail drop, and a request to wire funds out of the account arrived two days later. Under the firm's identity theft prevention program required by Regulation S-ID, these observations are best characterized as:

• A. Red flags that the program requires the firm to detect and respond to appropriately
• B. Suspicious activity that must be reported to the customer before any further processing occurs
• C. Irrelevant to the identity theft program, which applies only to new account openings
• D. Conclusive evidence of identity theft requiring immediate closure of the account

94. An asset manager directs brokerage commissions from client trades to a broker-dealer that, in return, supplies the manager with proprietary equity research reports. The arrangement is a soft dollar arrangement. Which characteristic is essential for it to fall within the safe harbor?

• A. The manager must rebate an equivalent cash amount to the clients whose commissions paid for the research
• B. The broker-dealer must execute the trades at the lowest commission rate available anywhere in the market
• C. The research must be made available to the broker-dealer's retail customers at the same time
• D. The products or services obtained must be brokerage or research services that provide lawful and appropriate assistance in the manager's investment decision-making, and the commissions must be reasonable in relation to their value

95. A member firm wants to compensate an individual who is not registered with the firm for referring institutional clients whose accounts have generated commissions. The firm proposes to pay the referrer a share of those commissions. The proposal is problematic primarily because:

• A. Transaction-based compensation for securities business generally may be paid only to registered persons and registered entities
• B. Institutional clients may not be solicited by referral in any form
• C. The payment would have to be reported as a customer complaint
• D. Referral fees are permissible only if the referrer holds an Operations Professional registration

96. A vendor that provides a member firm's trade reconciliation software asks the firm to sign an amended master agreement that would let the vendor store the firm's customer account files on servers operated by an unnamed fourth-party subcontractor. What is the firm's primary obligation before signing?

• A. None; once a vendor is onboarded, the firm's due diligence obligation is complete for the life of the relationship
• B. Conduct due diligence on the arrangement, including the downstream subcontractor's safeguarding of customer information, because outsourcing the activity does not outsource the firm's responsibility
• C. Obtain written consent from each affected customer before any vendor may process account data
• D. Register the vendor and the subcontractor with FINRA as associated persons of the firm

97. A customer emails an operations associate: "Your firm's transfer department lost my securities and I want my money back." The associate believes the transfer was processed correctly and that the customer is simply confused. What should the associate do?

• A. Reply to the customer explaining the transfer was correct, and take no further action because no valid grievance exists
• B. Treat the email as a customer complaint and forward it through the firm's escalation channel, because whether a written grievance is meritorious is not the associate's determination to make
• C. Wait to escalate until the customer submits the grievance on the firm's official complaint form
• D. Escalate only if the customer states a specific dollar amount of loss

98. A customer calls an operations desk and says: "I need you to liquidate everything today and wire it to an overseas account — my grandson is in jail and his lawyer says we have to pay tonight, and please don't tell my daughter, she's listed on my account." The customer is 84 and has never previously requested a wire. Which response is best?

• A. Process the wire as instructed, since the account holder has authority over the account and the request is unambiguous
• B. Refuse the transaction outright and close the account to protect the customer
• C. Recognize the pattern as a red flag of potential financial exploitation and escalate it under the firm's procedures before the funds move
• D. Call the daughter first and act on whatever instruction she gives instead

99. An operations professional in a firm's corporate actions group learns, in the course of processing the paperwork, that an issuer whose shares the firm carries for customers will announce an unannounced merger next week. A friend asks the professional what is going on with that stock. What is the professional's obligation?

• A. The professional may discuss it because operations personnel do not have customer-facing duties and therefore owe no confidentiality
• B. The professional may share the information if the friend agrees not to trade on it
• C. The professional must keep the information confidential and treat it under the firm's information barrier and personal trading policies, because access to material nonpublic information arises from the job, not the job title
• D. The professional may share it once the firm's trading desk has completed its own positioning in the security

100. Under Regulation S-P, a broker-dealer wants to share a customer's account number and transaction history with a nonaffiliated marketing company so the marketer can promote its own products to that customer. What does Regulation S-P principally require of the firm?

• A. Nothing, because account numbers are not nonpublic personal information
• B. The firm must provide the required privacy notice and a reasonable opportunity to opt out before disclosing nonpublic personal information to a nonaffiliated third party, and separate limits apply to disclosing account numbers for marketing
• C. The firm may disclose freely so long as the marketer signs a confidentiality agreement, which removes the information from the rule's scope
• D. The firm must obtain the customer's affirmative written consent in every case before any information may be shared with any third party