Series 3 - National Commodities Futures

AAA

Test Taking - Regulatory Questions

Regulatory Questions
You will have a difficult time passing the exam without knowing the following regulations:

  • Account opening
    • Review the customer account documentation to ensure it complies with all applicable rules and regulations.
    • Require all necessary information be on file before new accounts are allowed to trade.
    • Provide adequate risk disclosure to customers prior to opening an account.
    • Obtain each customer's name, address, occupation/business, estimated annual income, estimated net worth, age and prior investment and futures trading experience.
    • If the required information is not obtained, document that the customer declined to provide such information.
    • Provide a notice describing the firm's privacy policy to customers when the account is opened, and then annually.
  • Cash flow
    • Make all disbursements except petty cash by check.
    • Make and keep copies of customer checks prior to depositing them.
    • Restrictively endorse checks upon receipt
  • Promotional material – type and retention requirements
    • Maintain all promotional material for five years from date of last use.
    • Maintain supporting documentation for all statements, claims and performance results.
    • Include any material information so that the promotional material is not misleading.
    • Include an equally prominent statement of the risk of loss if the material mentions the possibility of profit, including the presentation of past performance results.
    • Calculate rates of return in a manner consistent with CFTC Part 4 regulations.
    • Ensure that the past performance of any actual accounts presented is representative of the actual performance of all reasonably comparable accounts for the same time period.
    • Include a statement that past results are not necessarily indicative of future results when past performance is mentioned.
    • Ensure that statements of opinion are identifiable as such and have a reasonable basis in fact.
    • Ensure that there is no guarantee against loss.
    • Identify the "limited-risk" and "no margin call" features of options as applying only to the purchase of options.
    • Explain that the "limited-risk" feature of options includes the full amount of the premium and transaction costs including commissions.
    • Ensure that reprints of articles have been supplemented with the proper disclosures and disclaimers.
    • Present hypothetical results only if there are less than three months of actual trading results for the offered program.
    • Include the actual results of all customer accounts directed by the member firm for the past five years with any hypothetical results.
    • Calculate hypothetical results in the same way as actual results.
    • Ensure that hypothetical results and actual results are presented separately, clearly identified and given equal prominence.
    • Explain all material assumptions made in preparing hypothetical results: minimum investment amount, distribution or reinvestment of profits, commission charges, management and incentive fees, and the method used to determine the purchase and sale price for each trade.
After The Test
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