Question

A registered representative solicits a new customer to purchase a "penny stock." Prior to effecting the transaction, which procedure is required

Answer 1

Answer: StatusB B. Have the customer sign a statement that he understands the risks involved prior to executing the order

Explanation:

The options to the question are:

StatusA A. Send a prospectus to the customer

StatusB B. Have the customer sign a statement that he understands the risks involved prior to executing the order

StatusC C. Have the branch manager approve the order and then fill the customer's order in the same manner as with any other security

StatusD D. Send the customer a Subscription Agreement to be signed before filling the order.

The correct answer is StatusB B. Have the customer sign a statement that he understands the risks involved prior to executing the order.

Under the penny stock rule of the Securities exchange commission, when a new customer is being solicited by a registered representative to purchase an over-the-counter stock non-NASDAQ, a detailed statement must be completed by the registered representative on behalf of the customer.