General Securities Sales Supervisor (Series10) Practice Exam

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Which of the following describes a control relationship that must be disclosed to customers?

  1. A A principal in a municipal firm is the supervisor of the school board whose bonds the firm is underwriting

  2. B The Treasurer of the township, whose bonds the firm is offering on an agency basis, is on the Board of Directors of the municipal firm

  3. C A principal in a municipal firm is the supervisor of the school board whose bonds the firm is trading

  4. D All of the above

The correct answer is: D All of the above

A control relationship refers to a situation where there is a significant influence over the decisions or operations of a firm, typically due to a position of authority or a personal connection. In the context of securities and municipal finance, disclosing such relationships is crucial for maintaining transparency and integrity in transactions, as they could potentially impact the decision-making process. In this case, each of the provided scenarios presents a distinct situation where a control relationship exists and would require disclosure to customers. A principal of a municipal firm being the supervisor of the school board whose bonds the firm is underwriting indicates a clear conflict of interest, as personal relationships could influence the underwriting process. Similarly, if the Treasurer of the township, whose bonds are being offered, is on the Board of Directors of the municipal firm, this creates a potential conflict that necessitates disclosure because decisions regarding those bonds could directly affect both parties. Lastly, there is also a notable relationship if a principal in the firm acts as a supervisor for a school board about the bonds being traded, leading again to potential biases in decision-making. Since all the aforementioned relationships inherently involve significant influence or oversight in a way that could affect bond transactions, it is essential for these situations to be disclosed to customers. This practice helps to maintain trust and

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