Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

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What is the obligation of broker-dealers regarding changes in membership status?

They must notify customers only
They must file a terminal report within 2 business days
They must file a termination report 30 days later
They need not file any report

The correct answer is: They must file a terminal report within 2 business days

Broker-dealers have a specific obligation to file a termination report within two business days when there is a change in their membership status. This requirement is in place to ensure that the appropriate regulatory bodies, such as FINRA, are promptly informed of significant changes that might affect the broker-dealer's ability to operate and fulfill its obligations. The timely filing of a terminal report helps maintain transparency in the market and provides regulators with updated information regarding the broker-dealer's status. This obligation is particularly important as it allows the regulatory authorities to monitor firms effectively and take necessary measures to protect investors and uphold market integrity. Reporting within two business days is crucial because it allows immediate attention to any changes in a firm's compliance or operational capabilities, which could impact clients and the overall market. The options that suggest notifying customers only, filing a report after 30 days, or not needing to file any report do not align with the regulatory requirements, which emphasize the importance of timely communication to regulators over customer notifications or delaying the reporting process.