Series 32 Limited Futures Exam Regulations

Correct: Under CFTC Regulation 150.4, the principle of aggregation dictates that positions must be combined if one person or entity directly or indirectly controls the trading. Since the head trader at the CTA is making all trading decisions for the forty accounts, those positions are aggregated as a single entity for speculative limit purposes, regardless of the diversity of beneficial owners. Furthermore, while speculative limits are strict, bona fide hedge exemptions are available under CFTC Regulation 150.3 for market participants who can demonstrate an underlying physical commodity risk, such as the grain elevator operator. This dual approach ensures market integrity by preventing a single controller from dominating the market while allowing commercial participants to manage legitimate business risks. Incorrect: The approach of treating accounts as independent units based solely on beneficial ownership fails because it ignores the ‘control’ element of aggregation rules, which is designed to prevent individuals from circumventing limits by splitting positions across multiple accounts. The suggestion to net positions across different commodities like corn and wheat is incorrect because speculative position limits are generally applied on a per-commodity and per-contract basis to prevent manipulation of specific markets. Finally, the idea that limits only apply to proprietary house accounts is a fundamental misunderstanding of the law; speculative limits apply to all non-hedging market participants to ensure that no single speculator can exert undue influence on price discovery. Takeaway: Speculative position limits require the aggregation of all accounts under common control, and only documented physical commodity exposure qualifies for a bona fide hedge exemption.

Correct: SEC Rule 34b-1 specifies that any investment company sales literature containing performance data is deemed misleading unless it also includes the standardized performance information required by Rule 482. This includes the average annual total returns for the one-, five-, and ten-year periods (or since inception) as of the most recent calendar quarter. This rule ensures that investors are provided with a consistent and balanced view of historical performance rather than just ‘cherry-picked’ short-term results. Incorrect: Providing a prospectus does not exempt supplemental sales literature from the requirement to include standardized performance data if other performance figures are mentioned. While sales loads must be reflected in standardized returns, simply stating the highest load does not satisfy the requirement for the specific one-, five-, and ten-year data points. Focusing only on yield or distribution rates is also insufficient and can be misleading if it obscures the total return of the investment. Takeaway: To prevent sales literature from being deemed misleading under Rule 34b-1, any mention of performance must be accompanied by standardized one-, five-, and ten-year total return figures.

Correct: SEC Rule 15c2-12, under the Securities Exchange Act of 1934, requires underwriters of municipal securities (including municipal fund securities like 529 plans) to reasonably determine that the issuer has entered into a written agreement, known as a continuing disclosure agreement, to provide annual financial information and notices of material events to the Municipal Securities Rulemaking Board (MSRB) via the EMMA system. Incorrect: Filing with the SEC’s EDGAR system is incorrect because municipal security disclosures are mandated to be sent to the MSRB’s EMMA system, not EDGAR. Requiring registration under the Securities Act of 1933 is incorrect because municipal securities are exempt from the registration provisions of that Act. Filing retail communications with FINRA is a requirement under FINRA Rule 2210, which governs communications with the public, rather than the municipal disclosure requirements of the Securities Exchange Act of 1934. Takeaway: Under Rule 15c2-12, underwriters must ensure municipal issuers are contractually committed to providing continuous financial disclosures and material event notices to the MSRB.

Correct: Under SEC Rule 15g-1, transactions with institutional accredited investors are exempt from the penny stock disclosure requirements (Rules 15g-2 through 15g-6). This exemption exists because institutional investors are deemed to have the sophistication and resources to evaluate the risks of penny stocks without the specific mandated disclosures required for retail investors. Incorrect: Option b refers to a common misconception regarding ‘established customers,’ but the actual rule for established customers (Rule 15g-9) requires a one-year history or three prior penny stock purchases, and it only exempts them from the suitability statement, not all 15g disclosures. Option c describes a financial threshold that might exclude a security from being defined as a penny stock, but it is not a transaction-based exemption under 15g-1. Option d is incorrect because recommended trades are the primary target of penny stock regulations; unsolicited (non-recommended) trades are the ones that qualify for an exemption under 15g-1(e). Takeaway: SEC Rule 15g-1 provides specific exemptions from penny stock disclosure rules for transactions with institutional accredited investors and non-recommended trades.

Correct: For non-qualified variable annuities, the IRS mandates Last-In, First-Out (LIFO) taxation for partial withdrawals. This means the first dollars withdrawn are considered earnings and are taxed as ordinary income. Since the client is 60 years old, they have passed the 59.5 age threshold, meaning the 10% premature distribution penalty does not apply. Incorrect: The suggestion that distributions follow FIFO (First-In, First-Out) is incorrect, as that treatment typically applies to life insurance policies, not annuities. Capital gains rates do not apply to annuity earnings; they are taxed as ordinary income. A Section 1035 exchange is intended for contract-to-contract transfers and does not provide a mechanism for tax-free cash withdrawals. Loans from variable annuities are generally treated as taxable distributions under LIFO rules and are not a standard method for avoiding tax on a withdrawal. Takeaway: Partial withdrawals from non-qualified variable annuities are taxed as ordinary income on a LIFO basis, with the 10% penalty waived for individuals aged 59.5 or older.

Correct: SEC Rule 135b provides that the Options Disclosure Document (ODD) is not deemed a prospectus or an offer to sell if it is limited to a description of the risks and characteristics of standardized options. By maintaining a neutral, descriptive tone and avoiding promotional content like performance data or specific investment advice, the firm ensures the document remains within the safe harbor of Rule 135b. Incorrect: Including historical performance data would likely transform the document into a promotional piece, causing it to lose its status as a non-prospectus under Rule 135b. Filing the document as a formal registration statement is incorrect because Rule 135b specifically exists to exempt the ODD from such requirements. Restricting distribution to institutional investors with waivers is irrelevant, as the ODD is a mandatory disclosure for all options customers and its regulatory status is determined by its content, not the recipient’s status. Takeaway: To maintain the non-prospectus status under Rule 135b, the Options Disclosure Document must strictly limit its content to the risks and characteristics of the products rather than promotional or performance-based information.

Correct: Regulation S-P requires that a firm provide a ‘reasonable’ means for a consumer to opt out of the disclosure of nonpublic personal information to non-affiliated third parties. Providing a toll-free number or a simple check-off box is explicitly cited in the regulation as a reasonable method because it does not place an undue burden on the consumer. Incorrect: Requiring a formal written letter or a physical visit to a branch to sign a notarized document is considered an unreasonable burden under Regulation S-P, as these methods are designed to discourage consumers from exercising their opt-out rights. Furthermore, the right to opt out is not limited to a 30-day window at account opening; consumers must be allowed to opt out at any time during the life of the relationship. Takeaway: Under Regulation S-P, firms must provide consumers with a simple and accessible ‘reasonable’ method to opt out of sharing nonpublic personal information with non-affiliated third parties.

Correct: Under FINRA Rule 2210 and SEC Rule 156, communications with the public must be fair and balanced. A fundamental principle is that footnotes or ‘fine print’ cannot be used to correct a statement in the main body of the text that would otherwise be misleading. If the primary text makes a claim (like a guarantee) that is heavily qualified or contradicted by a footnote, the communication is considered misleading because the footnote does not ‘cure’ the initial false impression. Incorrect: Relying on footnotes to provide all material risks while the main text remains unbalanced is a violation of the ‘fair and balanced’ requirement. Institutional communications still require accuracy and cannot be misleading, so the distinction in the second wrong option is incorrect. While legibility is required, there is no specific FINRA rule mandating that footnotes be two points larger than the primary text; the focus is on the clarity and the relationship between the disclosure and the claim. Takeaway: Footnotes must supplement and clarify the main text rather than serve as the sole source of contradictory material risk disclosures that would otherwise make the communication misleading.

Correct: Under FINRA Rule 2210, any written or electronic communication distributed to more than 25 retail investors within any 30-calendar-day period is defined as a retail communication. Most retail communications, especially those promoting specific investment company products like mutual funds, require approval by a registered principal before they are sent to the public to ensure they are fair, balanced, and not misleading. Incorrect: Classifying the communication as correspondence is incorrect because the recipient count exceeds 25 retail investors within a 30-day period, which triggers the retail communication status. While certain firms in their first year of operation or those using specific rankings must pre-file with FINRA, established firms generally focus on internal principal approval for standard mutual fund advertisements. Containing prospectus information does not waive the requirement for internal principal approval of retail communications. Takeaway: Retail communications sent to more than 25 retail investors within a 30-day period require prior approval by a registered principal.

Correct: Under FINRA’s Code of Arbitration Procedure, the signing of a predispute arbitration agreement makes the process mandatory and the resulting decision final. This means that parties are generally prohibited from pursuing the same claim in court, and the grounds for challenging an arbitration award are extremely narrow under the Federal Arbitration Act.

Correct: Under Subchapter M and the conduit (or pipeline) theory, a mutual fund must distribute at least 90% of its net investment income (NII) to shareholders to qualify as a Regulated Investment Company (RIC). By meeting this requirement, the fund acts as a conduit, passing the tax liability to the shareholders and avoiding double taxation. If the fund fails to meet the 90% threshold, it is taxed as a regular corporation on all of its net income, not just the portion it retained. Incorrect: The 90% distribution requirement is a strict threshold for RIC status; there is no provision for a simple 10% penalty to preserve the tax-exempt status of the distributed portion if the threshold is missed. Reinvesting capital gains is a separate management decision and does not remedy a failure to distribute net investment income. The requirement is specifically 90% of net investment income, not 95% of gross income, and the penalty for failure is tax-related rather than a suspension of share issuance. Takeaway: To qualify as a regulated investment company under conduit theory, a fund must distribute a minimum of 90% of its net investment income to shareholders to avoid corporate-level taxation.

Correct: Under the Securities Act of 1933, the cooling-off period allows for the distribution of a preliminary prospectus (red herring) and the collection of non-binding indications of interest. However, it strictly prohibits the use of supplemental sales literature, such as summary sheets or performance data, because these are considered ‘offers to sell’ that do not meet the statutory requirements of a prospectus. Sales literature may only be used once the registration is effective and must be accompanied or preceded by a final prospectus. Incorrect: Distributing a preliminary prospectus is a standard and permitted activity during the cooling-off period designed to provide disclosure to the public. There is no regulatory limit on the number of prospective clients a representative may contact to solicit non-binding indications of interest. While financial statements are included in the registration statement and the final prospectus, there is no specific requirement to attach a separate audited balance sheet to a preliminary prospectus when it is distributed to prospects. Takeaway: During the cooling-off period, the preliminary prospectus is the only written sales material permitted; supplemental sales literature or performance summaries are prohibited until the registration is effective.

Correct: In a non-discretionary account, the registered representative must obtain the client’s consent before executing any transaction, as the representative does not have the authority to make independent investment decisions. 12b-1 fees are annual fees charged by a mutual fund to pay for marketing and distribution costs. Mortality and expense (M&E) charges are specific to variable annuities and are assessed by the insurance company to cover the risks associated with the death benefit and the guarantee of lifetime income payments. Incorrect: The suggestion that surrender charges are a form of 12b-1 fee is incorrect, as surrender charges (contingent deferred sales charges) are back-end loads paid to the fund or insurer, while 12b-1 fees are for distribution. Discretionary authority does not waive surrender charges. Mortality and expense charges are not the primary fees for a standard brokerage account; they are specific to insurance products. Furthermore, 12b-1 fees are ongoing annual expenses, not one-time charges or transaction cost offsets. Takeaway: Registered representatives must accurately distinguish between ongoing distribution fees, insurance-related risk charges, and the specific authorization requirements of non-discretionary accounts to ensure regulatory compliance and client transparency.

Correct: Accelerated depreciation methods, such as double-declining balance, allow a firm to recognize a greater portion of an asset’s cost as an expense in the early years of its life. This results in a higher depreciation expense and a corresponding decrease in reported net income during those initial years, which more accurately reflects the rapid loss of value in technology assets.

Correct: According to FINRA Rule 2214, member firms that provide investment analysis tools to retail customers must provide the FINRA Advertising Regulation Department with access to the tool within 10 days of a request. Additionally, the rule requires specific disclosures, including a description of the methodology and assumptions used, and a clear statement that the results are hypothetical and do not guarantee future results. Incorrect: Filing source code with the SEC is not a requirement under Rule 2214; the focus is on FINRA’s oversight of communications. While a principal must supervise the use of the tool, they are not required to approve every individual output for every retail client. There is no specific regulatory requirement that limits data strictly to a 10-year lookback period, though the data used must be reasonable and the methodology must be disclosed. Takeaway: Firms using investment analysis tools must ensure they are accessible to FINRA upon request and include robust disclosures regarding the hypothetical nature of the projections.

Correct: ABLE accounts (529A plans) and LGIPs are both classified as municipal fund securities. ABLE accounts are designed for individuals with disabilities, and a key eligibility requirement is that the disability onset must have occurred before age 26. LGIPs are established by states to provide local government entities with a short-term investment vehicle. Both are exempt from the Investment Company Act of 1940 but are subject to the rules of the Municipal Securities Rulemaking Board (MSRB). Incorrect: Option b is incorrect because municipal fund securities are exempt from the Investment Company Act of 1940 and use program disclosure documents rather than statutory prospectuses. Option c is incorrect because LGIPs are for government entities, not individuals, and ABLE eligibility is based on the age of disability onset, not the age when the account is opened. Option d is incorrect because ABLE accounts are not variable life insurance products, and LGIPs are subject to MSRB rules and federal anti-fraud provisions. Takeaway: ABLE accounts and LGIPs are municipal fund securities governed by MSRB rules, with ABLE accounts requiring disability onset before age 26.

Correct: Registered representatives are generally prohibited from accepting cash from customers due to anti-money laundering (AML) concerns and firm risk management policies. Checks must be made payable to the product provider or the broker-dealer, never the representative. Furthermore, FINRA rules and the Securities Exchange Act require that checks and securities be forwarded promptly (typically by the next business day) and recorded in the firm’s books and records (the blotter) to ensure proper safeguarding and prevent misappropriation. Incorrect: Accepting cash is a violation of most firm policies and creates significant AML risks. Holding funds in a branch safe indefinitely pending suitability review violates the requirement for prompt forwarding of customer funds. Directing funds to a representative’s personal business account is a form of commingling and is a serious regulatory violation. Purchasing a cashier’s check on behalf of a client is an inappropriate practice that obscures the original source of funds and bypasses firm oversight. Takeaway: Registered representatives must refuse cash, ensure checks are payable to the appropriate entity, and follow strict prompt-forwarding and record-keeping requirements to safeguard client assets.

Correct: The Statement of Operations is the specific financial statement in an investment company’s annual report that summarizes the financial activities related to the fund’s performance over a specific period. It includes the total investment income earned from dividends and interest, the total operating expenses deducted, and the net result of realized and unrealized gains or losses on the portfolio’s securities, making it the primary tool for fundamental analysis of a fund’s operational success. Incorrect: The Statement of Assets and Liabilities is a snapshot of the fund’s financial position at a specific point in time, showing assets, liabilities, and net asset value, rather than the flow of income and expenses over a period. The Statement of Changes in Net Assets shows how the total net assets changed due to investment operations, distributions to shareholders, and share capital transactions, which includes factors outside of pure investment performance. The Schedule of Investments provides a detailed list of the individual securities owned by the fund and their market values but does not aggregate the total income, expenses, or gains and losses for the period. Takeaway: The Statement of Operations is the primary financial statement used to analyze a mutual fund’s income, expenses, and investment results over a fiscal period.

Correct: NFA Compliance Rule 2-4 is a broad, overarching requirement that Members and Associates observe high standards of commercial honor and just and equitable principles of trade. In the context of order routing and execution, this principle dictates that a firm cannot prioritize its own financial gain, such as rebates or soft-dollar benefits, at the expense of the customer’s execution quality. Even if a practice is not explicitly prohibited by a specific technical rule, it can still violate Rule 2-4 if it undermines the integrity of the market or treats customers unfairly. Proper adherence requires full transparency regarding conflicts of interest and a commitment to seeking the most favorable terms for the client. Incorrect: The approach of focusing on industry averages is insufficient because Rule 2-4 requires an absolute standard of commercial honor rather than a relative comparison to peers. Relying on signed waivers is also a common misconception; while disclosures are necessary, a waiver does not grant a Member license to engage in practices that are fundamentally inequitable or that prioritize firm profits over client interests. Finally, limiting the scope of the rule to mere record-keeping or the prevention of front-running is too narrow, as Rule 2-4 is designed to cover a wide spectrum of conduct that may not be captured by more specific, technical regulations but still violates the spirit of fair trade. Takeaway: NFA Compliance Rule 2-4 acts as a comprehensive ethical standard that requires firms to prioritize fair dealing and commercial honor above their own financial incentives in all aspects of futures business.

Correct: Under SEC Rule 2a-7, retail money market funds are defined as those with policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. These retail funds are permitted to maintain a stable Net Asset Value (NAV) of $1.00. In contrast, institutional prime money market funds (those not limited to natural persons, such as corporate accounts) are required to use a floating NAV, rounded to the fourth decimal place, to reflect the actual market value of the underlying assets. Incorrect: While institutional funds often have higher minimum investment requirements, these thresholds are set by the fund company and are not the regulatory definition of the fund type. Both retail and institutional funds are subject to the same strict credit quality and maturity requirements under Rule 2a-7. The method of interest calculation and accrual is generally consistent across money market products to ensure competitive yields and is not a regulatory differentiator between retail and institutional categories. Takeaway: The fundamental regulatory distinction between retail and institutional money market funds is that retail funds are restricted to natural persons and can maintain a stable NAV, while institutional prime funds must use a floating NAV.

Correct: The definition of a Futures Commission Merchant (FCM) is fundamentally based on two criteria: the solicitation or acceptance of orders for futures or options on futures, and the acceptance of money, securities, or property to margin, guarantee, or secure those trades. This dual capacity is what distinguishes an FCM from an Introducing Broker (IB). Under CFTC regulations and NFA standards, the moment a firm moves beyond mere solicitation and begins to hold or handle customer collateral for the purpose of securing contracts on a designated contract market, it must register as an FCM and comply with stringent capital and segregation requirements. Incorrect: The approach of soliciting orders without accepting customer funds describes the role of an Introducing Broker (IB), which must utilize an FCM to clear trades and hold margin. The approach involving providing advice for compensation or profit regarding the value of futures contracts describes a Commodity Trading Advisor (CTA), which is a separate registration category focused on advisory services rather than trade execution or fund custody. The approach involving the physical or electronic execution of trades for others within an exchange pit or platform describes a Floor Broker (FB), which is an individual registration focused on the mechanics of execution rather than the firm-level responsibility of maintaining customer accounts and margin. Takeaway: The essential regulatory distinction of a Futures Commission Merchant (FCM) is its authority to accept and hold customer funds to margin or guarantee futures and options transactions.

Correct: According to FINRA and SEC standards for communications with the public, any discussion of tax-exempt interest must be fair and balanced. While municipal bond interest is generally exempt from federal income tax, it can trigger the Alternative Minimum Tax (AMT) for certain investors. Additionally, unless the bonds are issued within the investor’s home state, state and local taxes typically apply. Failing to disclose these nuances would be considered misleading. Incorrect: Describing return of capital as an increase in cost basis is factually incorrect; return of capital actually reduces the investor’s cost basis. Claiming that capital gains within a municipal fund are tax-exempt is a common misconception, as capital gains are generally subject to taxation even if the interest income is not. Providing a guarantee regarding future tax legislation is prohibited as it constitutes an unwarranted forecast and a guarantee against loss or change. Takeaway: Communications regarding tax-exempt investment returns must include specific disclosures about the potential impact of the Alternative Minimum Tax and state-level taxation to avoid being misleading.

Correct: The scenario describes ‘structuring,’ a red flag where a client makes multiple deposits just below the $10,000 Currency Transaction Report (CTR) threshold to evade detection. This must be escalated to the firm’s AML officer for SAR consideration. Furthermore, under FINRA Rule 2210 and SEC Rule 482, a firm must ensure the client receives a prospectus that meets specific regulatory standards; a representative cannot rely on unverified third-party materials to satisfy disclosure obligations for a variable contract sale. Incorrect: Proceeding with the transaction without proper disclosure or failing to escalate suspicious activity to the AML officer violates both FINRA suitability and AML protocols. Informing a client they are being monitored for structuring is considered ‘tipping off,’ which is a serious regulatory violation. SEC Rule 135a refers to generic advertising and does not satisfy the specific prospectus delivery requirements for a variable annuity. SEC Rule 498 allows for summary prospectuses, but they must be the official versions filed by the issuer, not unverified forum posts. Bond volatility ratings are not a substitute for a variable annuity prospectus. Takeaway: Registered representatives must identify and escalate suspicious patterns like structuring to the AML officer while ensuring all investment product sales are accompanied by firm-approved, regulatory-compliant disclosures and prospectuses.

Correct: In the context of the Capital Asset Pricing Model (CAPM), alpha is a measure of the active return on an investment, representing the portion of the return that is not explained by market movements (systematic risk). Beta measures the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. A positive alpha indicates that the fund manager has added value beyond what would be expected based on the fund’s beta. Incorrect: The statement that alpha measures volatility and beta represents excess return is incorrect because it reverses the definitions of the two terms. A fund with a beta of 1.0 is expected to move in lockstep with the market, but this does not guarantee a positive alpha; alpha depends on the manager’s ability to outperform the benchmark. Alpha and beta are distinct concepts and are not used interchangeably; beta specifically addresses systematic risk, whereas alpha addresses performance relative to that risk. Takeaway: Alpha quantifies the value added by a manager relative to a benchmark, while beta measures the portfolio’s exposure to systematic market risk.

Correct: The prospectus is the primary legal disclosure document for mutual funds. Reviewing the specific CDSC schedule—which typically shows a declining percentage over a set number of years—allows the client to make an informed decision about the timing of their redemption or tender. This ensures the client understands the exact financial impact of the back-end load before the transaction is finalized, fulfilling the representative’s duty of disclosure. Incorrect: Relying on an automated compliance engine is an internal firm control but does not satisfy the requirement for client-facing disclosure. Providing generic disclosure documents is insufficient because CDSC schedules vary significantly between different fund families and share classes. Obtaining a general waiver is inadequate because it does not provide the specific, material information regarding the actual costs the client will incur for that specific transaction. Takeaway: The most effective safeguard for protecting clients from unexpected CDSC costs is the timely and specific disclosure of the surrender schedule as detailed in the fund’s prospectus prior to execution of a redemption or tender request.

Correct: Under FINRA Rule 2210(b)(4)(A), firms are required to maintain a record of the name of the person who prepared each retail and institutional communication and the name of any registered principal who approved the communication. These records must be kept for a period of three years from the date of last use, with the first two years in an easily accessible place. Incorrect: The suggestion that only the final version and date of use are required is incorrect because the identity of the approving principal is a mandatory component of the record. The claim that approval records are only for institutional communications is false; retail communications have more stringent approval and recordkeeping requirements. The retention period of ‘life of the firm plus six years’ is incorrect as the standard requirement for these specific communication records is three years. Takeaway: Firms must maintain records of both the preparer and the approving principal for all retail communications for a minimum of three years from the date of last use.

Correct: Under Rule 504 of Regulation D, the exemption is specifically unavailable to investment companies (as defined by the Investment Company Act of 1940) and blank check companies. Furthermore, securities issued under this rule are typically ‘restricted securities,’ meaning they cannot be resold without registration or an exemption from registration, unless the offering meets specific state-level registration and disclosure requirements. Incorrect: Reporting companies are actually prohibited from using the Rule 504 exemption; it is designed for smaller, non-reporting issuers. The limitation of 35 non-accredited investors is a hallmark of Rule 506(b), not Rule 504, which has no specific limit on the number of investors. A full statutory prospectus is a requirement for registered offerings under Section 5 of the 1933 Act, whereas Rule 504 is an exemption from such registration requirements. Takeaway: Rule 504 allows non-reporting companies to raise up to $5 million in a 12-month period but excludes investment companies and blank check companies from participation.

Correct: In a non-qualified deferred compensation (NQDC) plan, the employee’s right to receive the deferred amounts must be subject to a substantial risk of forfeiture to maintain tax deferral. If the assets are shielded from the employer’s creditors (as in a ‘secular trust’), the IRS considers the compensation to be ‘constructively received,’ and the employee is taxed immediately. Therefore, the assets must remain part of the employer’s general assets, making the employee an unsecured creditor of the company. Incorrect: The second approach is incorrect because shielding assets from creditors would trigger immediate income taxation for the participants, defeating the purpose of a deferred compensation plan. Furthermore, NQDC plans are specifically designed to be exempt from most ERISA requirements, such as funding and non-discrimination rules. The first approach’s claim regarding immediate tax deductions is incorrect because the employer only receives a tax deduction when the employee actually receives the compensation and recognizes it as income. Immediate voting rights are not a requirement for NQDC plans and would likely indicate constructive receipt of the stock. Takeaway: To preserve tax-deferred status in a non-qualified deferred compensation plan, the assets must remain subject to the claims of the employer’s general creditors.

Correct: Under FINRA Rule 2330, a registered principal must review and approve the transaction prior to transmitting the application to the issuing insurance company. The rule specifically mandates that this review and determination must occur no later than seven business days after an office of supervisory jurisdiction (OSJ) of the member receives a complete and correct application package. Incorrect: The requirement for review within 30 days is incorrect as the rule requires approval prior to transmission to the insurer. The ten-business-day window is incorrect because the regulatory limit is seven business days. The suggestion that approval is only required for specific age or net worth thresholds is incorrect, as Rule 2330 applies to all recommended purchases or exchanges of deferred variable annuities regardless of the client’s specific demographics. Takeaway: FINRA Rule 2330 requires principal approval of a deferred variable annuity application within seven business days of receipt at an OSJ and always prior to transmitting the application to the insurance company.