General Securities Sales Supervisor (Series10) Practice Exam

If an "in-whole" call on a bond is announced prior to trade date, what can happen if this is not disclosed at trade time?

1. The trade may be executed without issue

2. Reclamation is not possible

3. The trade may be rejected

4. The securities cannot be reclaimed

The correct answer is: The trade may be rejected

When an "in-whole" call on a bond is announced prior to the trade date and is not disclosed at the time of the trade, the transaction may be subject to rejection. This scenario arises because the buyer of the bond is not made aware that the bond is being called, which alters the conditions of the investment and its expected return. If the buyer had known about the call, they might not have completed the transaction, as the ability to hold the bond until maturity is fundamentally impacted. Therefore, following the trade, if the call is revealed, the buyer has grounds to reject the trade based on a lack of full disclosure, leading to potential ramifications for the seller. This is in line with regulatory requirements that emphasize the importance of transparency and full disclosure in securities transactions to protect all parties involved. In this context, the other options would not necessarily be accurate. For instance, executing the trade without issue implies that there are no complications arising from the lack of disclosure, which is not the case here. Additionally, reclamation typically refers to the process of reversing a trade, often due to settlement or error issues, but in the scenario where a bond is called, the initial buyer will likely seek to reject the trade rather than reclaim the securities