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.
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