2014 Compliance Challenge Quiz

1.

1 point

The firm's Code of Ethics (the “Code”), including the Personal Trading Policy, exists for which of the following reason(s):

To detect and prevent not only situations involving actual or potential conflicts of interest or unethical conduct, but also those situations involving even the appearance of these.

To ensure that the firm is in compliance with rules and regulations mandated by the SEC.

To ensure that the firm’s fiduciary duty to its clients is upheld and maintained.

All of the above.

2.

1 point

A Covered Security is defined under the Code as:

Only large cap securities - those that have a market capitalization that exceeds $5 billion.

Any equity or debt security and any equivalent, any derivative, instrument representing, or any rights relating to, a security, including closed-end funds, ETFs, municipal obligations and securities issued by agencies and instrumentalities of the U.S. Government.

Certain equity securities and any open-ended mutual funds.

Any security traded on the U.S. stock exchange.

3.

1 point

True or False: I may invest in an initial public offering (IPO) if my manager has approved the trade.

True

False

4.

1 point

If I wish to invest in a private placement, I must do which of the following:

Private placements are prohibited under the Code.

Prepare a written request.

Complete and submit a Private Investment Disclosure in Compliance11.

Send an e-mail to Compliance.

5.

1 point

True or False: I need to have my participation in an Outside Business Activity pre-approved by Compliance.

True

False

6.

1 point

On Tuesday, I submitted a pre-clearance request to divest IBM prior to the close of the market and received approval from Compliance11. On Friday, I learned that the broker was unable to execute my trade from the previous day and executed the trade that morning, what should I do?

Notify Compliance as soon as possible.

Place an order to sell the shares.

Contact the broker and reverse the trade.

Do nothing, since I have already been approved.

7.

1 point

I received a gift of 200 shares of GE from my grandfather, and the shares were deposited into my existing Fidelity brokerage account. What are my Code requirements with regards to these shares?

I must pre-clear the transaction only, since reporting is not required.

This transaction and holding is not subject to either pre-clearance or reporting under the Code since it was a gift.

I must pre-clear, and then report the transaction on my next quarterly certification.

Pre-clearance is not required, but I must report the receipt of the shares on my next quarterly certification and report the holding on my next Annual Holdings Report.

8.

1 point

True or False: All transactions involving ETFs are exempt from pre-clearance and reporting.

True

False

9.

1 point

I just opened a new brokerage/retirement account. When do I need to report this to Compliance?

A new account does not need to be disclosed until the Annual Certification.

I don't need to disclose any new brokerage or retirement accounts.

A new account does not need to be reported until the following Quarterly Certification is completed.

I must report any account that holds or can hold Covered Securities immediately upon opening the Account.

10.

1 point

True or False: All of my personal accounts are maintained with Fidelity (a broker that has an electronic feed with Numeric) so all of my transactions and holdings come into Compliance11 automatically through the electronic feed. Therefore, it is not necessary for me to verify my transactions during the quarterly certification period since I can just rely on the information in Compliance11.

True

False

11.

1 point

True or False: Employees need to report 401K plans from a prior employer even if they are unable to make future contributions to the plan.

True

False

12.

1 point

True or False: I have an account that is managed by my adviser at ABC Investments and I have no investment discretion over the account, therefore I do not need to report the transactions or holdings in this account during the quarterly and annual Code certification periods.

True

False

13.

1 point

My spouse received notification that he has received shares of stock from a relative's estate. Do I need to report this?

Neither the stock nor the account is reportable since this was inherited by my spouse.

The stock and the account do not need to be reported until the next Annual certification period.

Both the stock and the account must be reported to Compliance at the time they were inherited since I am deemed to be a beneficial owner in my spouse’s assets.

14.

1 point

I have been a Numeric employee for 5 years, and I recently married. Is there anything I need to do in order to properly fulfill my reporting requirements under the Code?

Spousal accounts and investments only need to be reported if I am married at the time of my start date with the firm.

If my spouse only has a 401k account, then I do not need to report it to Compliance.

Spousal accounts that hold or can hold Covered Securities must be reported immediately to Compliance and entered into Compliance11 upon my marriage and also during the appropriate certification period.

Spousal accounts are not subject to the pre-clearance, trading restrictions or reporting requirements of the Code.

15.

1 point

On a quarterly basis, I must submit Quarterly Certifications containing the following information related to personal securities transactions:

Whether or not I have opened or closed any brokerage accounts.

All my Covered Security transactions for the quarter

All my quarterly holding positions as of the last day of the quarterly period.

A full listing of accounts for which I have Beneficial Ownership and/or Investment Control.

Both a and b.

All of the above.

16.

1 point

On an annual basis, I must complete and submit an Annual Compliance Questionnaire in which I will:

Confirm and/or list all Covered Securities holdings in which I have beneficial ownership and/or investment control.

Acknowledge that I have received, read and understood the Code.

Acknowledge that I am subject to the Code and that I have complied with the requirements of the Code during the past year.

Acknowledge whether I have a spouse, partner, immediate family member or close friend who is an officer and/or director of a publicly traded company.

All of the above.

17.

1 point

True or False: If I have no personal trade activity within a given calendar quarter or year, then I am not subject to any reporting requirements under the Code.

True

False

18.

1 point

What is a fiduciary duty? (Select all that apply)

Obligation that arises from federal and state laws.

Duty to perform the services rendered to clients with the care, prudence and diligence that a prudent person acting in a like capacity and familiarity with such matters would use.

A requirement to to treat all clients equitably and put their interests ahead of the firm’s and our own.

19.

1 point

Which of the following activities is NOT permitted by Numeric as a fiduciary to its clients?

Making exaggerated claims about a product or service.

Favoring certain clients over others, such as allocating favorable trades to its best clients.

Business dealings between its clients and its affiliates in which Numeric’ affiliate receives an undisclosed benefit.

All of the above.

20.

1 point

What are some examples of fiduciary duty? (Select all that apply)

Disclosing actual or potential conflicts of interest.

Managing client assets in the best interests of the client.

Refraining from charging hidden fees.

Keeping confidential its dealings with a client.

21.

1 point

Which of these situations best describes acting as a fiduciary?

A Numeric affiliate offers a new service which optimizes the asset allocation for client portfolios. Numeric is offered a cut-rate if it can utilize the service in a significant number of client accounts. While Numeric requests client permission first, it does not disclose that the service is being provided by affiliate.

A consultant, in appreciation for Numeric providing access to its internal research, offers to recommend Numeric for a mandate for one of its largest clients. Since the research arrangement doesn't hurt the client, Numeric does not disclose it to the prospective client.

A portfolio manager violates an investment guideline for a client, which fortunately has resulted in a large profit for the client. Once the breach is discovered, the security is sold. Since there was no harm to the client, the portfolio manager decides to not notify the client.

Numeric places an order to purchase 1,000,000 shares in a hot IPO, but only receives 500,000 shares so it allocates the 500,000 shares pro-rata to the accounts participating in the order.

22.

1 point

What are the consequences of a breach of fiduciary duty?

Loss of client confidence/relationships.

Damage to business reputation.

Government enforcement risk – fines, penalties and/or suspension of business.

Criminal liability and imprisonment.

All of the above.

23.

1 point

True or False: A client complaint is any client communication of a grievance in connection with the execution of a transaction, the management of the client’s funds or assets, or the failure to satisfy a contractual requirement of the client.

True

False

24.

1 point

Upon receipt of an oral or written client complaint you should:

Inform your supervisor of the complaint.

Respond to the client immediately.

Inform the Chief Compliance Officer or any member of the Compliance Team immediately.

Ignore it and hope the issue goes away.

25.

1 point

I believe I have come into contact with material non-public information on a particular security. What should I do?

Quickly try to act on that information for personal benefit before the news becomes public.

Ensure the firm’s investment teams are aware of this information so our clients can benefit.

Refrain from trading on and/or sharing the information with anyone, and immediately contact the Compliance Team for direction.

Both b and c.

26.

1 point

Which of the following is an example of a violation of the firm’s Material Nonpublic Information Policy?

You sell a company’s securities because you became aware of an impending announcement regarding its poor earnings.

A broker-dealer provides you with non-public information that you were not previously aware of and that you believe is material, so you discuss it with your supervisor in order to obtain his/her opinion on the matter.

You sell a company’s shares after your broker confidentially informs you that the CEO of that company recently sold stock, but the sale has not yet been publicly reported.

All of the above.

27.

1 point

On May 1st, your brother-in law, an executive at ABC Inc., a publicly traded company, learned that the company’s earnings for the previous quarter were terrible. While the news was to be announced on May 5th, he mentioned it to you because you previously mentioned that you were considering selling the shares you inherited from your grandfather. Since you were planning on selling it anyway you decided to request pre-clearance immediately and sold it on May 2nd. Is this a problem?

Yes, because you knew about the earnings report before the general public.

No, because you planned on purchasing the stock prior to the discussion with your brother-in law.

28.

1 point

True or False: Your spouse works for ALY Inc. as a consultant, and has received material, non-public information about ABC Inc., which ALY is planning to acquire. Your spouse informs you of the pending acquisition, but since you have no intention to trade either company’s shares or share the information with anyone, there is no need to inform the Chief Compliance Officer.

True

False

29.

1 point

True or False: A broker-dealer shares with you that his neighbor, a CEO of a publicly traded company was rushed to the hospital last night in an ambulance, and you are unable to locate the information in the public domain. While the information caught your attention, you do not believe it is material, so it is permissible for you to share it with the research analysts and portfolio managers who follow the company.

True

False

30.

1 point

Yes or No: While at a group lunch, you overheard two employees that you manage discussing their intention to divest shares of Apple based upon earnings results they became aware of before they were announced. You didn’t report this to the Compliance Team, nor did you confront the employees involved. Two months later you learn that these employees are being charged with insider trading. Are you liable as well?

Yes

No

31.

1 point

True or False: My husband is an officer (e.g., Vice President) at Raytheon, a publicly traded company. I am not required to report this to the Compliance Team.

True

False

32.

1 point

If it has been determined by the CCO that an employee has received material non-public information on a company, which of the following may take place?

If the information has been shared with others in the firm, the company’s securities will be placed on the firm’s restricted list and all trading, including derivatives of that security, in client and employee accounts will be prohibited until the information is made public or is deemed no longer to be material.

If it is reasonably certain that other employees of the firm have not been given access to the material non-public information, and the CCO has determined that a firewall can be erected to isolate the information, trading in the company’s securities by other members of the firm may take place.

Employees may discuss the material non-public information with individuals outside of Numeric to act on since the firm’s restricted list only applies to employees and clients of Numeric.

Both a and b.

Both a and c.

33.

1 point

The firm’s Gifts, Business Entertainment and Political Contributions policies exist for which of the following reasons:

To help the firm avoid the potential conflicts of interest that could arise from excessive gifts or entertainment.

To help ensure the firm is in compliance with current regulatory thresholds with respect to gifting.

To protect the firm’s reputation for integrity.

All of the above.

34.

1 point

True or False: Employees are prohibited from giving gifts of any kind to clients, prospective clients, and consultants.

True

False

35.

1 point

True or False: The gift and entertainment laws of most state jurisdictions are fairly consistent. Once you are familiar with the requirements of one jurisdiction, you can feel comfortable that you are familiar with most jurisdictions. Therefore, Numeric does not require pre-approval when entertaining public employees and officials.

True

False

36.

1 point

Numeric has implemented a Business Entertainment Policy that all Numeric Employees must adhere to. The Policy has been established for which of the following reasons:

To comply with new federal laws on gift and entertainment reporting.

To make sure Numeric employees aren’t being entertained too much.

To both demonstrate our commitment to ensuring the interests of the client always come first and to protect the firm from regulatory scrutiny.

To help deter all forms of business entertainment.

37.

1 point

True or False: As a firm, Numeric does not participate in the political process or contribute to candidates or political parties. In addition, employees must pre-clear all political contributions made to candidates for state, local and federal offices, political action committees and state and local political parties.

True

False

38.

1 point

The Privacy Policy and Electronic Communications Compliance Policy adopted by Numeric are intended to protect which kinds of information:

Proprietary firm research.

Both c and d.

The non-public personal information of Numeric employees.

Privileged, non-public information that the firm may possess.

The non-public personal information of our clients.

39.

1 point

True or False: You do not need a client’s consent to include the client in client lists or other types of marketing materials.

True

False

40.

1 point

With what frequency must Numeric deliver its Privacy Policy to clients?

Upon entering into a formal business relationship only.

Quarterly.

Upon entering into a formal business relationship and then annually thereafter.

On an annual basis beginning one year after a formal business relationship is established.

41.

1 point

Which of the following safeguards has Numeric enacted to protect the sensitive personal information of its clients and employees:

Restrictions on the accessibility of sensitive information.

Requirements for the physical and electronic storage of sensitive information.

Requirements for the destruction of sensitive information.

Requirements for the transmission of sensitive information.

All of the above.

42.

1 point

True or False: The loss or theft of any document containing sensitive information or any portable electronic device which may access sensitive information must be reported to Technology and the CCO immediately.

True

False