Series 99 practice exam

Correct answer: B. A transfer is a movement of retirement-account assets between custodians or trustees. Because nothing is distributed to the customer, this is a transfer, not a rollover.

Why not the others?
- A (rollover): A rollover involves a distribution to the customer followed by reinvestment into another eligible retirement account. There is no distribution here.
- C (required minimum distribution): An RMD is a mandatory distribution out of the account, not a movement between custodians.
- D (journal): A journal moves cash or securities between accounts on a single firm's own books, not between two custodians.

Correct answer: B. Know Your Customer is the broader obligation to know and retain the essential facts concerning every customer and the authority of each person acting on the customer's behalf.

Why not the others?
- A (CIP): The Customer Identification Program is the identity-verification requirement applied at account opening. It is a narrower check and does not satisfy KYC.
- C (standing settlement instructions): SSIs record the customer's established settlement instructions. They are unrelated to knowing the customer.
- D (CTR): A Currency Transaction Report is a cash-reporting obligation under Bank Secrecy Act requirements, not an account-knowledge obligation.

Correct answer: A. The outline separates the authority of the entity opening the account from the identification of the individuals authorized to transact in it. Both must be confirmed.

Why not the others?
- B (margin and options approvals): These are product-specific approvals that apply only if the account will use those features. They are not the general authority question.
- C (medallion guarantee and SSIs): A medallion signature guarantee supports securities transfers, and SSIs govern settlement. Neither establishes authority to open the account.
- D (box count and stock record): These are securities-count and recordkeeping controls, not account-opening authority checks.

Correct answer: C. A journal moves cash or securities between accounts on the firm's own books. It is an internal book-entry movement.

Why not the others?
- A (wire transfer): A wire moves funds electronically between financial institutions, which means an external payment system.
- B (ACH transfer): An ACH transfer moves funds through the ACH network, again external to the firm.
- D (ACATS): ACATS is the automated broker-to-broker account transfer process, used between two different firms.

Correct answer: A. Upon validation of a whole-account transfer, the carrying member must cancel open orders and may not accept new orders in the account.

Why not the others?
- B (continue accepting orders): This is exactly what the whole-account freeze prohibits.
- C (deny validation over a dispute): A position or balance dispute is not a permitted reason to deny validation. The carrying member transfers what its books show and resolves the dispute separately.
- D (partial transfer by agreement): After validation, the receiving member may reject a whole-account transfer only for its credit policies or minimum-asset requirements, and it may not cherry-pick positions.

Correct answer: B. A member generally must start a buy-in or otherwise seek possession or control within 10 business days after delivery was due. Specified instruments carry a longer 30-business-day period.

Why not the others?
- A (3 business days): This does not correspond to the transfer fail requirement.
- C (30 calendar days): The longer period that applies to specified instruments is 30 business days, not 30 calendar days, and it is the exception rather than the general rule.
- D (no time limit): Documenting a fail does not substitute for acting on it within the required period.

Correct answer: B. Segregation is keeping customer securities separate from the broker-dealer's proprietary securities and from assets available to the firm's general creditors.

Why not the others?
- A (safekeeping): Safekeeping is holding securities securely for a customer to protect against loss, theft, or damage. It addresses physical security, not separation from firm assets.
- C (street name): Street name describes securities registered in the name of the broker-dealer or its nominee while the customer remains beneficial owner. It is a registration concept.
- D (good delivery): Good delivery is about whether a security is delivered in a form the receiving party can accept and transfer without defect.

Correct answer: B. Control is the ability to obtain the security promptly, without needing to pay money or obtain another party's consent.

Why not the others?
- A (physical possession): That describes custody, which the framework treats as the companion concept to control, not the same one.
- C (registration in the customer's name): That describes a direct holding rather than either custody or control.
- D (right to lend): Lending customer margin securities requires the customer's written authorization and is a permissible-use question, not the definition of control.

Correct answer: A. The count must be made or supervised by persons whose regular duties do not give them direct responsibility for the securities or for the records covering them.

Why not the others?
- B (the FINOP personally): The FINOP is responsible for the firm's regulatory financial and operational functions, but the count rule specifies independence from the securities and records, not a particular title.
- C (any employee): This defeats the independence requirement, which exists precisely so the person counting is not the person responsible.
- D (outside transfer agent): A transfer agent records changes in registered ownership for an issuer. It has no role in a broker-dealer's internal securities count.

Correct answer: A. An as/of correction is a correction to a trade report that identifies the original trade date.

Why not the others?
- B (past-settlement-date correction): That correction is identified by the fact that the original transaction has already passed its settlement date, which is a different reference point.
- C (error account entry): An error account records and controls a trading error separately while it is addressed. It is not a category of trade-report correction.
- D (residual credit adjustment): Residual credits are cash or securities that accrue after an account transfer completes, unrelated to trade reporting.

Correct answer: B. Agent capacity means the broker-dealer executes a transaction on behalf of a customer.

Why not the others?
- A (principal): In principal capacity the broker-dealer buys or sells for its own account.
- C (underwriter): Underwriting is a distribution role in bringing a new issue to market, not a trading capacity reported on an executed transaction.
- D (custodian): Custody concerns holding securities for a customer, not the capacity in which a trade was executed.

Correct answer: A. Regulation T generally requires 50% initial margin for a long marginable equity purchase, and the maintenance requirement is 25% of current market value.

Why not the others?
- B (reversed): These figures are inverted.
- C (100% initial): Full payment applies to non-margin-eligible equity securities, not to marginable long equity.
- D (150% initial): The 150% total Regulation T figure applies to an ordinary short nonexempted equity position, combining retained short-sale proceeds with a 50% customer deposit.

Correct answer: B. Both firm approval of the margin account and the customer's signed margin agreement are required before the firm may lend. Approval alone does not authorize credit, and neither does the agreement alone.

Why not the others?
- A (nothing further): A marginable security does not by itself permit borrowing. A cash account does not become a margin account just because it holds eligible collateral.
- C (agreement only): The account must also be approved for margin.
- D (medallion guarantee): A medallion signature guarantee supports securities transfers and protects against unauthorized transfers. It has nothing to do with extending credit.

Correct answer: A. Trade comparison is the process of matching the parties' trade details before settlement, identifying whether those details agree.

Why not the others?
- B (settlement): Settlement is completing the exchange. The outline treats comparison as a separate, earlier event.
- C (continuous net settlement): CNS is a netting arrangement for settling obligations, not the detail-matching step.
- D (reclamation): Reclamations and rejections address problems with a delivery after the fact.

Correct answer: A. Delivery versus payment is a settlement method that links the securities-delivery leg to the payment leg of a transaction.

Why not the others?
- B (repurchase agreement): A repo is a securities sale coupled with an agreement to repurchase. It is a transaction type, not a delivery-and-payment linkage method.
- C (journal entry): A journal moves cash or securities between accounts on one firm's books.
- D (ACATS): ACATS is the automated broker-to-broker customer account transfer process, not a trade settlement method.

Correct answer: B. Repo and resale settlement requires recognizing both the initial securities trade and the related repurchase or resale settlement.

Why not the others?
- A (initial sale only) and C (repurchase only): Treating either leg in isolation misstates the arrangement, which is defined by the pairing.
- D (outside the books): Repos are firm transactions that settle and are recorded like other transactions.

Correct answer: B. A customer account statement carries information about the account, while a performance report carries information about account performance. The outline treats them as distinct documents.

Why not the others?
- A (the same document): Both being customer-facing does not make account information and performance information interchangeable.
- C (confirmation and prospectus): A confirmation relates to a transaction, and a prospectus is an offering document. Neither fits the description.
- D (trade and non-trade confirmations): Both of those are confirmations, which are transaction-related records rather than periodic account reporting.

Correct answer: A. A statement holding a DPP or unlisted REIT security must show a per-share estimated value along with the accompanying illiquidity disclosure.

Why not the others?
- B (full valuation methodology): The issuer's valuation methodology is not tested at the operations level, and it is not a statement requirement.
- C (margin disclosure statement): That disclosure is required for noninstitutional customers in connection with opening a margin account, not for DPP or REIT positions on a statement.
- D (prospectus): Prospectus delivery is a separate requirement tied to its own triggers, not a line item on an account statement.

Correct answer: A. The general ledger is the central accounting record organizing the firm's financial transactions and account balances. The FOCUS report is the regulatory financial and operational report. They are connected but not interchangeable.

Why not the others?
- B (reversed): The roles are inverted.
- C (same record): The outline explicitly separates them.
- D (customer-facing): Neither is a customer document. The FOCUS report addresses the firm's own financial and operational information, not customer account statements.

Correct answer: B. Aggregate indebtedness generally may not exceed 1,500% of net capital, tightened to 800% during a firm's first 12 months of business.

Why not the others?
- A (800% at all times): The 800% figure applies only during the first 12 months.
- C and D (aggregate debit items): These reference the alternative standard, under which a firm maintains the greater of $250,000 or 2% of aggregate debit items and gives written notice to its examining authority. That is a different election, not the aggregate indebtedness standard.

Correct answer: A. A record must remain preserved for its applicable period even if the firm ceases the securities business before that period ends.

Why not the others?
- B, C, and D: Each treats an event (ceasing business, elapsed time, a final filing) as ending the obligation early. Destroying or making records inaccessible before the preservation period ends is prohibited books-and-records conduct.

Correct answer: B. The safe harbor is available to a person using the mails or interstate commerce in the exercise of investment discretion with respect to an account. Discretion is the gate.

Why not the others?
- A (a customer instructing a higher commission): A customer paying more on their own instruction is not the safe-harbor situation.
- C (any registered representative): Servicing an account is not the same as exercising investment discretion over it.
- D (the receiving broker-dealer): The commission must be paid to a member of an exchange, broker, or dealer, but the recipient is not the party relying on the safe harbor.

Correct answer: C. A member or associated person may not pay transaction-related compensation to an unregistered person when the payment and related activities would require that person to register as a broker-dealer.

Why not the others?
- A (disclosure) and B (principal approval): Neither cures the underlying registration problem.
- D (soft dollars): Soft dollars are a separately listed knowledge statement about directing commissions for brokerage and research services. The outline warns against treating the two issues as the same.

Correct answer: A. A member acting as a paying agent, transfer agent, trustee, or similar fiduciary that obtains information about securities ownership may not use it to solicit purchases, sales, or exchanges. The exception is use for solicitation at the request of and on behalf of the issuer.

Why not the others?
- B (publicly available elsewhere): The restriction attaches to information obtained in the fiduciary capacity.
- C (privacy notice): A privacy notice addresses the firm's policies and practices. It does not make fiduciary-capacity information available for the firm's own solicitation.
- D (obtained lawfully): Obtaining the information lawfully is exactly the premise. The restriction governs what the member may then do with it.

Correct answer: B. The privacy framework establishes conditions for disclosing nonpublic personal information to nonaffiliated third parties and gives customers an opportunity to opt out of most such disclosures, subject to exceptions.

Why not the others?
- A (opt in): The framework is built around an opt-out right, not an affirmative opt-in.
- C (no rights after notice): Notice and opt-out are separate obligations; delivering one does not extinguish the other.
- D (prohibited entirely): Disclosure is permitted under defined conditions rather than banned outright.

Correct answer: A. Each office of supervisory jurisdiction keeps, or can promptly make available, its written-complaint file or record, including any action taken and a reference to related correspondence.

Why not the others?
- B (clearing broker): A clearing relationship allocates operational responsibilities. It does not house the firm's complaint records.
- C (the representative): Leaving a complaint with the person it may concern defeats the purpose of the record.
- D (FINRA): The member reports specified complaint statistics and summary information, but the file itself is the firm's obligation.

Correct answer: B. A potential red flag is an indicator that requires recognition and escalation. It is not limited to a completed or confirmed problem.

Why not the others?
- A (wait for confirmation): Waiting for certainty is precisely what the "potential" framing rules out.
- C (resolve it yourself): Escalation exists so that the decision does not rest with the person who spotted the indicator.
- D (error account): An error account records and controls a trading error. It is not an escalation channel for a red flag.

Correct answer: B. Access controls govern access to buildings, office spaces, files, and systems, and entitlement policies specify who is authorized to have that access.

Why not the others?
- A (information barriers): Information barriers separate the flow of information among departments. The outline treats that as a distinct control from access restrictions.
- C (segregation of duties): That separates functions and supervision so control responsibilities are not concentrated inappropriately.
- D (business continuity plan): A BCP addresses an emergency or significant business disruption.

Correct answer: A. Under the supervisory control system, the firm tests and verifies whether its written supervisory procedures are reasonably designed for compliance, then creates or amends procedures when testing identifies a need.

Why not the others?
- B (CEO certification): The annual certification concerns whether the firm has processes to establish, maintain, review, test, and modify its policies and WSPs. It does not replace the obligation to follow and update the WSPs themselves.
- C (wait for the annual meeting): The annual compliance meeting is a separate requirement for registered persons to discuss compliance matters.
- D (no violation yet): The testing framework is designed to find gaps before they produce violations.

Correct answer: B. The member discloses how its BCP addresses a future significant business disruption and how it plans to respond to events of varying scope. The disclosure is provided in writing at account opening, posted on the member's website when it has one, and mailed to customers on request.

Why not the others?
- A (internal only): This is the specific misconception the outline warns against.
- C (the full plan): What is owed is a disclosure of how the plan addresses disruption, not the plan itself.
- D (quarterly contact updates): The member reports two associated-person emergency contacts to FINRA. That is a regulatory reporting obligation, not a recurring customer disclosure.