Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

If a client sends a check to purchase securities during the cooling-off period, what action should an RR take?

1. Deposit the check immediately

2. Keep the check until the period ends

3. Return the check to the customer

4. Void the check

The correct answer is: Return the check to the customer

During the cooling-off period of a new security offering, which typically lasts for a minimum of 20 days after the prospectus is filed with the SEC, certain restrictions apply to ensure that investors have adequate time to evaluate the investment. The critical aspect during this period is that no securities can be sold, and this includes processing any payments for those securities. In this context, if a client sends a check to purchase securities during the cooling-off period, the registered representative (RR) must return the check to the customer. This is because the transaction cannot be finalized until the cooling-off period is over and the registration statement becomes effective. Accepting the payment or depositing the check would essentially be acting on a transaction that is not permissible at this stage of the offering. This practice protects both the client and the firm by maintaining compliance with SEC regulations concerning unregistered securities, ensuring that no transactions are conducted until the appropriate time. By returning the check, the RR adheres to regulatory requirements and upholds the ethical obligation to provide clients with appropriate time to review their investment decisions before any funds are committed.