Series 6 Transactions and Settlement Practice Questions
Question 1
A fund's first sales-charge breakpoint is $50,000. A customer wants to invest $48,000, and the representative does not mention the breakpoint. What is the problem?
- A. There is no problem, because the customer chose the amount and the representative simply followed the instructions given.
- B. Tell the customer about the breakpoint and ways to reach it, such as a letter of intent, since a lower rate is available.
- C. There is no problem, as long as the prospectus lists the breakpoint schedule somewhere in the fee table.
- D. The only problem is that the order must be split into two tickets before it can be processed correctly.
Show answer and explanation
Correct answer: B. Tell the customer about the breakpoint and ways to reach it, such as a letter of intent, since a lower rate is available.
Selling an amount just below a breakpoint without disclosing the discount is a breakpoint sale, which is a violation of fair dealing. The representative must make the customer aware of the opportunity to pay less.
- A. Wrong: following instructions does not excuse withholding the lower-cost option.
- B. Correct: breakpoint disclosure and a path to qualify are required.
- C. Wrong: a prospectus listing does not discharge the duty to inform the customer.
- D. Wrong: splitting the ticket has nothing to do with the breakpoint issue.
Question 2
Which statement about order types for open-end mutual fund shares is correct?
- A. A customer may enter a limit order to buy at a specified NAV, and it will execute when the NAV reaches that level.
- B. A customer may enter a stop order that triggers when the fund's price falls to a stated level during the day.
- C. A customer may enter a fill-or-kill order to be executed at the intraday price at the time of order.
- D. Orders are executed only at the next calculated NAV, so limit and stop orders are not available.
Show answer and explanation
Correct answer: D. Orders are executed only at the next calculated NAV, so limit and stop orders are not available.
Open-end funds are priced once per day and are bought and sold at the next computed NAV. Price-contingent order types apply to exchange-traded products such as ETFs and closed-end funds, not to open-end fund shares.
- A. Wrong: there is no price-contingent order for an open-end fund.
- B. Wrong: the fund has no intraday price for a stop to trigger on.
- C. Wrong: open-end funds have no intraday price against which a fill-or-kill could execute.
- D. Correct: forward pricing at the next NAV means no limit or stop orders.
Question 3
Under the FINRA Code of Arbitration Procedure, a claim generally is NOT eligible for submission once how much time has passed since the event that gave rise to it?
- A. Six years
- B. One year
- C. Three years
- D. Ten years
Show answer and explanation
Correct answer: A. Six years
The FINRA customer and industry codes make a dispute ineligible for arbitration when more than six years have passed since the occurrence or event giving rise to the claim.
- A. Correct: six years.
- B. Wrong: one year is much shorter than the eligibility period.
- C. Wrong: three years is shorter than the eligibility period.
- D. Wrong: ten years is longer than the eligibility period.
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A customer buys shares of an exchange-traded fund on a Monday, and no holidays fall that week. Under the regular-way settlement cycle, when does the trade settle?
- A. Tuesday, one business day after the trade date
- B. Wednesday, two business days after the trade date
- C. Monday, the same day as the trade date
- D. Friday, the end of the week of the trade date
Show answer and explanation
Correct answer: A. Tuesday, one business day after the trade date
The regular-way settlement cycle for most securities, including ETFs, is T+1: one business day after trade date. A Monday trade therefore settles on Tuesday. T+2 was the former cycle and same-day settlement is cash settlement.
- A. Correct: T+1 is Tuesday.
- B. Wrong: T+2 was the earlier standard cycle.
- C. Wrong: same-day settlement is a cash settlement, not regular way.
- D. Wrong: no standard cycle settles at the end of the week.