Series 30 Part 4

If the CFTC determines that an AP has violated the Commodity Exchange Act, the CFTC has authority to seek injunctive relief in federal court.

True

False

A CPO must include in its disclosure document:

Its business background for three years

Any civil or criminal action in the past three years

Its performance history for three years

The cautionary statement "The CFTC has not passed upon the merits of participating in this pool nor has the Commission passed on the adequacy or accuracy of this disclosure document"

One of your clients has a margin account in stocks and a margin account in commodities. The member firm would be required to keep each account separately.

True

False

Your firm is going to put an advertisement in the Sunday newspaper announcing the introduction of a new commodities trading system employed by your company. Which of the following statements is true about the newspaper announcement?

The announcement must be approved by the CFTC and NFA after it is published.

The ad must be reviewed by a supervisor before it is published.

Your firm is not allowed to publish commodity announcements in the newspaper.

Your firm must offer a disclosure document along with the publication.

One of the disclosure requirements for a CPO is to provide a tabular presentation that illustrates the break-even point for investors. The break-even point may be defined as:

The income generated by the pool in the first year of operation

The income minus expenses of the pool generated from its operations

The amount of time needed to recover the investors' original investments

The amount trading profit needed in the first year to break even on the investors to break even on the investors' original investments

Registered CPOs or Registered CTAs are allowed to represent that they have been approved by the Commission after they have passed the proper qualification examination.

True

False

Normally, FCM charge a round -turn fee for executing transactions. Your firm uses a method that charges a percentage of the contract value. Which TWO of the following statements are TRUE regarding your methods of charging transaction fees?

This method is prohibited.

The percentage may not be greater then 5%

This method must be explained in the Risk Disclosure Document.

Comparisons between round-turn fees and this method must be illustrated.

NFA member must maintain their books and records in accordance with generally accepted accounting principles.

True

False

When allocating contracts for bunched orders, the firm's procedures should include all of the following provisions EXCEPT:

Avoiding preferential treatment of any customer

Creating a verifiable audit trail

Consistent application of established procedures

Assurance that each customer in the block receive the same price

7 years ago, a CTA was the subject of an administrative action that required the payment of a fine in the amount of $5000. In its current Risk Disclosure Document, the advisor:

Must disclose the details surrounding the nature of the administrative action

Need not disclosure the administrative action

Must disclose the name of the person who was the subject of the administrative action

Must disclose the name of the person who paid the $5,000 fine

A customer's securities account has a debit of $2,000 and her regulated commodity account has a surplus of $2,500. The member firm may:

Automatically transfer funds from the regulated commodity account to the securities account

Automatically transfer funds from the regulated commodity account to the securites account if the customer has given the firm prior written instructions

Not transfer funds under any circumstances

None of the above

A firm is required to send a confirmation of the transaction to a customer no later than the business day after execution. Which of the following orders would be required a confirmation to be sent to the customer?

A limit order to buy at $4.10 when the market is at $4.35

A stop order to sell at $3.56 when the market is at $3.65

A limit order to sell at $4.62 when the market is at $4.65

A stop order to buy at $3.90 when the market is at $3.86

According to Rule 2-30, NFA members soliciting customer accounts must determine what additional risk disclosure information is appropriate for their customers.

True

False

A CPO would like to charge fees based on performance and incentives. Which of the following statements is true regarding this method of compensation ?

Incentives fees are prohibited.

The method of calculating the fees must be disclosed.

Incentives fees may not exceed 5%.

All incentive fees must be approved by the NFA and CFTC.

A client has opened a discretionary account with your firm has provided the necessary power of attorney for trading purposes. You have just received notification that the client has died. What action will you take regarding this discretionary account.

Liquidate all holdings in the account and turn everything into cash

Continue the discretionary trading activities to provide more income for the estate.

Transfer all positions into a money-market account for liquidity purposes.

Terminate the power of attorney and freeze activities in the account.

A CPO is exempt from registering as a CPO if the value of the pools it is operating is under $250,000 and there are 14 participants.

True

False

A CPO is about to begin operations fro three new pools and has prepared proper Risk Disclosure Documents for their use. The pool operator must file these documents with the NFA. When must the documents be filed?

At the time the pools begin their operation

At least 21 days before the pools begin operation

At least 90 days before the pools begin operation

Within 10 days after the pools begin operation

Your firm uses an advertising agency to develop and distribute its promotional materials. All of the following statements are true about this arrangement EXCEPT:

The firm does not need to review promotional material since the agency does not fall under CFTC and NFA regulation.

The firm is responsible for any information distributed by the ad agency

A supervisory person must review all the public communications distributed by the firm

Failure to review the promotional material would show a lack of supervisory procedures

A CPO has file for an exemption from registration as a CPO. According to CFTC and NFA rule, what information is still required to be filed?

A statement explaining why the CPO should be exempt from registration

The latest annual report of the CPO

The names of all of the pool participants

Financial statements for the past three years

A stop-limit order to sell become a market order when the contract trade at or below the limit price.

True

False

In the Risk Disclosure Document of a CTA, all of the following information must be included EXCEPT:

Commission sharing arrangements between the CTA and the FCM

Any actual or potential conflicts of interest between the CTA and the FCM

If any principals of the CTA trade for their own accounts

The name of all other advisory clients of the CTA

Organizational expenses relative to creating a commodity pool:

Are never passed on to the pool participants

May be passed on to the pool participants

Will increase the rate return for the pool participants

Will decrease the rate of return for the pool participants

According to the provisions of Rule 2-29 regarding promotional material, all of the following actions would constitute a violation EXCEPT:

Using an ad that knowingly omits a material fact

Using an ad that mentions profit potential without the risk loss potential

Indicating the past performance is not indicative of future results

Using a paid testimonial without stating that the person is being compensated

A CTA is exempt from registration with the CFTC if he writes a newsletter but does not handle any managed accounts.

True

False

An exchange may prohibit an individual from employment with a member firm firm of the exchange for violation of equitable principles of trade.

True

False

The first disciplinary action against an AP who has violated CFTC regulations is:

A fine

Suspension

Revocation

A cease and desist order

John is currently serving in the military overseas. He would like his college roommate, Ike to handle the trading activities in his account while he is away. What would be required for the third party arrangement to be effective?

A written power of attorney from Ike allowing discretionary trading

A written power of attorney from John authorizing Ike to trade

Written powers of attorney from both John and Ike

No power of attorney, since John is in the military

A member firm requires a customer to sign a customer agreement in order to:

Assure itself that the customer has sufficient funds to specualate in futures.

Allow the broker to liquidate the customer's position if the customer fails

Free the broker from any liability fro failing to execute properly the orders of the customer

Allow the broker to use the funds of the customer in anyway it see fit.

Your firm has signed a contractual agreement with a member of the NFA to provide paid testimonials about your trading programs and their success over the past eighteen months. Which of the following statements is true about the use of the NFA member firm?

The NFA member firm may not enter into such an agreement.

The NFA member firm may not be compensated for giving a testimonial.

Your firm does not need to disclose any information about this arrangement.

Your firm must disclose that the NFA member is being compensated for the testimonial.

Under which situations would a customer be sent a written confirmation?

When an order is entered and filled

When an order is entered and time stamped

When a client has been assigned for delivery

When a contract expires

A customer is introduced to an FCM by an IB. The FCM keeps a copy of the Risk Disclosure Acknowledgment in its file. Therefore, the IB does not need to keep the Risk Disclosure Acknowledgement in its file.

True

False

Cazemba is an AP who is also registered as a CTA. He has been acting as a CTA for the past ten months. Which of the following statements is TRUE regarding Cazemba's ability to accept discretionary accounts?

He may exercise discretionary power over trading activities.

Hey may not exercise discretionary power over trading activities.

He must get NFA permission in order to handle discretionary trading.

He may not handle discretionary orders because he is an advisor.

The firm has been using a promotional ad for the past eighteen months and has now updated the ad for continue use. Which TWO of the following statements are TRUE regarding this update?

The old material should be discarded so as not to be confused with the new ad.

The old material must be maintained for five years after discontinued use.

The new material does not need to be reviewed since it is an update.

The new material must be reviewed by a supervisory person

Performance data that is used in a CPO Risk Disclosure Document may NOT be older than:

One month

Three months

Nine months

One Year

After a customer deposits her original margin with her broker and the market moves in her favor:

She may initiate additional positions with the excess equity in her account whether or not the position has been liquidated

She may borrow against the excess equity and is charged interest

She may withdraw equity from the account only if the position has been liquidated

None of the above

The CTA disclosure document must contain all of the following information EXCEPT:

The name of the FCM or IB at which the client will be required to open an account

The types of commodities that may be traded

Any potential conflicts of interests

The business background of the trading principals for the past 10 years

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Series 30 Part 4

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