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
Related Articles
  1. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  2. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  3. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  4. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  5. Chart Advisor

    These 3 ETFs Suggest Commodities Are Headed Lower (COMT,CCX,DBC)

    The charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
  6. Fundamental Analysis

    The Changing Economics of the Oil Business

    Read about the changing economics of the oil business. Discover how oil companies are using technology to increase the efficiency of old wells.
  7. Investing Basics

    How to Become A Self-Taught Financial Expert

    Becoming a self-taught financial expert may not be as daunting of a task as it seems.
  8. Options & Futures

    Contango Versus Normal Backwardation

    It’s important for both hedgers and speculators to know whether the commodity futures markets are in contango or normal backwardation.
  9. FA

    The Basics of The Series 79 Exam

    Passing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
  10. Investing Basics

    What Does Contango Mean?

    Contango​ is when the futures price of a commodity is higher than the expected future spot price.
RELATED TERMS
  1. Warrant

    A derivative that confers the right, but not the obligation, ...
  2. Swap

    A derivative contract through which two parties exchange financial ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Convergence

    The movement of the price of a futures contract towards the spot ...
  5. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  6. Futures Market

    An auction market in which participants buy and sell commodity/future ...
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  4. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  5. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  6. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center