Free Limited Futures Examination-Regulations Practice Questions

Sample Practice Questions

Try these 10 sample questions from the Limited Futures Examination-Regulations practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1An FCM's regional sales director supervises branch managers who supervise soliciting salespersons. No exemption applies. How does AP registration apply to the director?

   1. A. It applies only to persons directly supervising solicitations.
   2. B. It applies only to persons directly accepting customer orders.
   3. C. It applies to every person throughout the supervisory chain.
   4. D. It applies only to persons directly soliciting customer funds.

   Answer: C

   Explanation: NFA states: "The registration requirements apply to any person in the supervisory chain-of-command and not only to persons who directly supervise the solicitations of orders, customers or funds." The director is in the sales supervisory chain even without direct customer contact.

   Reference: Associated Person (AP) Registration — AP Registration, supervisory chain-of-command

2. 2A guaranteed IB introduces a new customer's futures account. Which FCM must carry that account?

   1. A. An FCM independently selected by the introducing broker
   2. B. An FCM independently selected by the account customer
   3. C. An FCM selected solely for its lowest clearing charges
   4. D. The FCM that guarantees the introducing broker's obligations

   Answer: D

   Explanation: NFA specifies: "Accounts of customers of guaranteed IBs must be carried by the guarantor FCM." The guarantee determines the carrying FCM for these customer accounts.

   Reference: NFA Regulatory Requirements for FCMs, IBs, CPOs and CTAs — p. 3, Operations and Activities of IBs

3. 3An NFA Member CPO violates applicable CFTC Regulation 4.22. Which NFA Compliance Rule expressly deems violation of this CFTC regulation a violation of an NFA requirement?

   1. A. Rule 2-13
   2. B. Rule 2-8
   3. C. Rule 2-29
   4. D. Rule 2-30

   Answer: A

   Explanation: Rule 2-13(a) states: "Any Member who violates any of CFTC Regulations 4.1, 4.7, 4.12 and 4.16 through 4.41 shall be deemed to have violated an NFA requirement." Regulation 4.22 falls within the incorporated range. Rules 2-8, 2-29 and 2-30 address different obligations.

   Reference: NFA Compliance Rule 2-13: CPO/CTA Regulations — Rule 2-13(a)

4. 4A retail customer timely seeks NFA arbitration against an NFA Member FCM over its handling of futures transactions. The customer is not a Member, Associate, FCM or floor broker. How is the dispute treated under Section 2(a)?

   1. A. It requires a new post-dispute consent from the FCM.
   2. B. It requires a prior CFTC enforcement judgment against the FCM.
   3. C. It requires a prior exchange disciplinary finding against the FCM.
   4. D. It is subject to mandatory arbitration under the Code.

   Answer: D

   Explanation: Section 2(a)(1) commands: "Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, the following disputes shall be arbitrated under this Code if the dispute involves commodity futures contracts:" The listed category includes "a dispute for which arbitration is sought by a customer against a Member or employee thereof, or Associate, provided that:" The timely retail-customer claim against a Member FCM over futures meets the stated category and its customer, subject-matter and Member-type conditions. A fresh FCM consent or prior enforcement judgment is unnecessary.

   Reference: NFA Code of Arbitration — Section 2(a)(1)(i)

5. 5A customer complaint indicates a possible NFA violation by an IB. Which NFA unit is charged with investigating violations and preparing investigation reports?

   1. A. Appeals Committee
   2. B. Hearing Committee
   3. C. Finance Committee
   4. D. Member Oversight Department

   Answer: D

   Explanation: Rule 3-1(a) states: "There is hereby established a Member Oversight Department, which shall conduct examinations, and shall investigate violations of NFA requirements, prepare reports and conduct prosecutions, as provided in this Part." This assigns investigations and reports to Member Oversight rather than the listed committees.

   Reference: NFA Compliance Rules, Part 3: Compliance Procedures — Rule 3-1(a)

6. 6CFTC enforcement staff recommend an action against a futures firm. Which body must authorize the enforcement action?

   1. A. The National Futures Association Business Conduct Committee
   2. B. The designated contract market's disciplinary committee
   3. C. The Commodity Futures Trading Commission
   4. D. The Financial Industry Regulatory Authority Board

   Answer: C

   Explanation: The controlling source states: "The Commission must authorize all enforcement actions" Staff recommendations require Commission authorization.

   Reference: CFTC Division of Enforcement — Division in Action

7. 7A FINRA registered representative wants to use the AP registration exception described by NFA. To which activity must the representative limit the futures business?

   1. A. Solicitation of participations in commodity investment pools
   2. B. Solicitation of separately managed discretionary futures accounts
   3. C. Solicitation of orders for individual commodity futures accounts
   4. D. Supervision of solicitation of individual commodity option orders

   Answer: A

   Explanation: NFA states: "The individual is already registered with the Financial Industry Regulatory Authority (FINRA) as a registered representative and limits futures activity to the solicitation of participations in a commodity pool." The exception specifically limits this representative to soliciting pool participations.

   Reference: Associated Person (AP) Registration — AP Registration, exceptions to registration

8. 8An FCM has authorized an IB in writing to receive checks payable to that FCM. What is the latest ordinary forwarding or qualifying-deposit time for a check received by the IB?

   1. A. The next business day
   2. B. The day of receipt
   3. C. Two business days after receipt
   4. D. Five business days after receipt

   Answer: B

   Explanation: NFA specifies: "the checks are forwarded to the FCM or deposited in a qualifying bank account on the day the checks are received." The same-day condition accompanies the limited authority to receive checks payable to the FCM.

   Reference: NFA Regulatory Requirements for FCMs, IBs, CPOs and CTAs — p. 3, Operations and Activities of IBs

9. 9A CPO forms a commodity pool and has no Commission exemption from Rule 4.20(a)(1). What legal-entity relationship must the pool have to the operator?

   1. A. An operating division within the operator's legal entity
   2. B. An internal trading desk within the operator's legal entity
   3. C. A separately named account within the operator's legal entity
   4. D. A legally cognizable entity separate from the operator

   Answer: D

   Explanation: The governing provision states: "a legal entity separate from that of the pool operator." A separate account label or internal division does not establish the required separate legal entity.

   Reference: 17 CFR Part 4: Commodity Pool Operators and Commodity Trading Advisors — 17 CFR 4.20(a)(1)

10. 10An IB's predispute customer arbitration agreement fails to comply with CFTC Rule 166.5. What is its status under NFA's Code of Arbitration?

    1. A. Enforceable against both parties under the Code
    2. B. Unenforceable against either party under the Code
    3. C. Enforceable against the customer alone under the Code
    4. D. Enforceable against the Member alone under the Code

    Answer: B

    Explanation: Section 3 states the noncomplying agreement "shall be unenforceable under this Code." This agreement cannot be enforced against either party under this Code; that contractual defect does not eliminate a separate mandatory customer-arbitration duty.

    Reference: NFA Code of Arbitration — Section 3