FINRA RULES FINAL PRACTICE
QUESTIONS WITH CORRECT
ANSWERS
All of the following statements are true regarding the U.S. securiti
k k k k k k k k k k
es markets EXCEPT:
k k
k
A. FINRA has regulatory authority over the markets and market p
k k k k k k k k k k
articipants in the trading of all non-exempt securities k k k k k k k
B. the Federal Reserve Board decides securities can be traded o
k k k k k k k k k k
n margink
C. the Securities and Exchange Commission has regulatory auth
k k k k k k k k
ority over the securities markets and its participants
k k k k k k k
D. the MSRB has regulatory authority over the markets and mark
k k k k k k k k k k
et participants in the trading of all exempt securities -
k k k k k k k k k
CORRECT ANSWER-The best answer is D.
k k k k k k k
The MSRB only regulates the trading of municipal bonds -
k k k k k k k k k
not U.S. Government or Agency bonds -
k k k k k k k
so the statement that the MSRB regulates trading in all exempt s
k k k k k k k k k k k k
ecurities is untrue. Both FINRA and the SEC regulate the U.S. se
k k k k k k k k k k k
curities markets and market participants. FINRA is the SRO (Self
k k k k k k k k k k
Regulatory Organization) that regulates the markets under SEC k k k k k k k k
oversight. The Federal Reserve decides which securities are mar
k k k k k k k k
ginable, since it has power over margin rules given under the Sec
k k k k k k k k k k k
urities Exchange Act of 1934. k k k k
FINRA enforces regulations in which of the following markets?
k k k k k k k k
I First Market
k k
II Second Market
k k
III Third Market
k k
IV Fourth Market
k k
k
A. I only k k
B. II only k k
,C. I, III, IV
k k k
D. I, II, III, IV - CORRECT ANSWER-The best answer is D.
k k k k k k k k k k k k
FINRA is the regulator for all of the securities markets -
k k k k k k k k k k
the Primary Market (new issues); the First Market (trades on exc
k k k k k k k k k k k
hanges); the Second Market (OTC trades of non-k k k k k k k
exchange listed securities); the Third Market (OTC trades of exch
k k k k k k k k k
ange listed issues) and the Fourth Market (direct trading between
k k k k k k k k k
institutions on ECNs and ATSs).
k k k k k
Who does NOT have to be licensed in a broker-dealer?
k k k k k k k k k
k
A. Chief Executive Officer
k k k
B. Partner who only provides capital
k k k k k
C. Chief Financial Officer
k k k
D. Sales individual - CORRECT ANSWER-The best answer is B.
k k k k k k k k k k
Passive owners of broker- k k k
dealers, who can be officers, are not required to be licensed. All o
k k k k k k k k k k k k
ther officers, traders, and salespersons must be registered and lic
k k k k k k k k k
ensed.
Registered representatives may be compensated based on whic
k k k k k k k
h of the following?
k k k
I Trading commissions paid by the brokerage firm to the represen
k k k k k k k k k k
tative
II Trading commissions paid by the customer to the representativ
k k k k k k k k k
e
III Salary paid by the brokerage firm to the representative
k k k k k k k k k
IV Salary paid by the customer to the representative
k k k k k k k k
k
A. I and IIIk k k
B. I and IV k k k
C. II and III
k k k
D. II and IV - CORRECT ANSWER-The best answer is A.
k k k k k k k k k k k
Compensation cannot be paid by the customer to the registered r k k k k k k k k k k
epresentative. Only the broker- k k k
dealer may pay compensation to the registered representative.
k k k k k k k
,What activity undertaken by a registered representative will requi
k k k k k k k k
re written notice to the firm, along with following the firm's instructi
k k k k k k k k k k k
ons covering this activity?
k k k
k
A. Volunteering at a local soup kitchen after work
k k k k k k k k
B. Traveling to a foreign country on vacation
k k k k k k k
C. Selling a proprietary growth mutual fund to a client with a growt
k k k k k k k k k k k k
h investment objective
k k
D. Driving for Uber after the markets have closed and securities tr
k k k k k k k k k k k
ansactions are not occurring - CORRECT ANSWER- k k k k k k
The best answer is D. k k k k k
Driving for Uber is work for pay - k k k k k k k
kand to take an outside job, the representative must give notice to
k k k k k k k k k k k k
the firm, follow the firm's instructions (so if the firm says no, the an
k k k k k k k k k k k k k
swer is no), and must and his or her U4 to show this "OBA" -
k k k k k k k k k k k k k k
kOutside Business Activity. k k
Volunteer work for no pay is not an OBA, unless it places the repr k k k k k k k k k k k k k
esentative in a control position to direct the management of invest k k k k k k k k k k
ment funds. Traveling by a representative does not have to be rep
k k k k k k k k k k k
orted to the firm. Selling investments, whether proprietary (meani
k k k k k k k k
ng products of that firm) or nonproprietary, (meaning products of
k k k k k k k k k k
other securities issuers) is the job description of a registered repr
k k k k k k k k k k
esentative.
A registered representative services the brokerage account of he
k k k k k k k k
r father-in-law at her broker-dealer. The father-in-
k k k k k k
law has asked the registered representative to act as the trustee i
k k k k k k k k k k k
n a trust account for her spouse and children. The following asset
k k k k k k k k k k k
s are being donated by the father-in-law into the trust:
k k k k k k k k k
Office Building: $15,500,000 k k
Construction Company: $20,000,000 k k
Construction Equipment: $ 2,000,000 k k k
The registered representative has agreed not to charge a trustee'
k k k k k k k k k
s fee to do this. Does she have to get permission of her broker-
k k k k k k k k k k k k k
dealer to act as trustee? k k k k
k
, A. No, because it is a family relationship
k k k k k k k
B. No, because the trust does not hold securities
k k k k k k k k
C. No, because she is not being compensated to be the trustee
k k k k k k k k k k k
D. Yes, because this is an outside business activity -
k k k k k k k k k
kCORRECT ANSWER-The best answer is D. k k k k k k
Any "OBA" - Outside Business Activity -
k k k k k k
kmust be reported to the firm and must be approved by the firm. Fu
k k k k k k k k k k k k k
rthermore, it must be reported on that registered representative's k k k k k k k k k
U4 Form and is disclosed in that individual's BrokerCheck report.
k k k k k k k k k k
Remember that an individual does not have to be paid for an OBA k k k k k k k k k k k k
kto exist. If the representative is in the position to steer investment
k k k k k k k k k k k k
activities of the outside business entity - k k k k k k
kthat makes it an OBA. The fact that the registered representative,
k k k k k k k k k k
kas trustee, would get to oversee the activities of an office building
k k k k k k k k k k k
kand a construction company -k k k k
kand both of these entities could have operating and investment a
k k k k k k k k k k
ccounts - makes this an OBA. k k k k k
Which of the following gifts are allowed under FINRA rules?
k k k k k k k k k
I Gift of $75 in cash
k k k k k
II Gift of baseball tickets with a value of $75
k k k k k k k k k
III Gift of $150 cash
k k k k
IV Gift of baseball tickets with a value of $150
k k k k k k k k k
k
kA. I and II only k k k k
B. III and IV only
k k k k
C. I and III only
k k k k
D. II and IV only - CORRECT ANSWER-The best answer is A.
k k k k k k k k k k k k
FINRA limits gifts related to one's activities in the securities indust
k k k k k k k k k k
ry to a maximum of $100 value per person per year. This limit is a
k k k k k k k k k k k k k k
pplied to either giving, or receiving, the gift.
k k k k k k k
A mutual fund sponsor wants to hold a sales contest to promote s
k k k k k k k k k k k k
ales during the typically slow month of January. The terms of the
k k k k k k k k k k k k
contest are that the salesperson in the fund selling group that sell
k k k k k k k k k k k
s the most of the sponsor's funds during the month of January will
k k k k k k k k k k k k k
get the keys to a new Mercedes sports car. Under FINRA rules, th
k k k k k k k k k k k k
is is an example of:
k k k k
k
QUESTIONS WITH CORRECT
ANSWERS
All of the following statements are true regarding the U.S. securiti
k k k k k k k k k k
es markets EXCEPT:
k k
k
A. FINRA has regulatory authority over the markets and market p
k k k k k k k k k k
articipants in the trading of all non-exempt securities k k k k k k k
B. the Federal Reserve Board decides securities can be traded o
k k k k k k k k k k
n margink
C. the Securities and Exchange Commission has regulatory auth
k k k k k k k k
ority over the securities markets and its participants
k k k k k k k
D. the MSRB has regulatory authority over the markets and mark
k k k k k k k k k k
et participants in the trading of all exempt securities -
k k k k k k k k k
CORRECT ANSWER-The best answer is D.
k k k k k k k
The MSRB only regulates the trading of municipal bonds -
k k k k k k k k k
not U.S. Government or Agency bonds -
k k k k k k k
so the statement that the MSRB regulates trading in all exempt s
k k k k k k k k k k k k
ecurities is untrue. Both FINRA and the SEC regulate the U.S. se
k k k k k k k k k k k
curities markets and market participants. FINRA is the SRO (Self
k k k k k k k k k k
Regulatory Organization) that regulates the markets under SEC k k k k k k k k
oversight. The Federal Reserve decides which securities are mar
k k k k k k k k
ginable, since it has power over margin rules given under the Sec
k k k k k k k k k k k
urities Exchange Act of 1934. k k k k
FINRA enforces regulations in which of the following markets?
k k k k k k k k
I First Market
k k
II Second Market
k k
III Third Market
k k
IV Fourth Market
k k
k
A. I only k k
B. II only k k
,C. I, III, IV
k k k
D. I, II, III, IV - CORRECT ANSWER-The best answer is D.
k k k k k k k k k k k k
FINRA is the regulator for all of the securities markets -
k k k k k k k k k k
the Primary Market (new issues); the First Market (trades on exc
k k k k k k k k k k k
hanges); the Second Market (OTC trades of non-k k k k k k k
exchange listed securities); the Third Market (OTC trades of exch
k k k k k k k k k
ange listed issues) and the Fourth Market (direct trading between
k k k k k k k k k
institutions on ECNs and ATSs).
k k k k k
Who does NOT have to be licensed in a broker-dealer?
k k k k k k k k k
k
A. Chief Executive Officer
k k k
B. Partner who only provides capital
k k k k k
C. Chief Financial Officer
k k k
D. Sales individual - CORRECT ANSWER-The best answer is B.
k k k k k k k k k k
Passive owners of broker- k k k
dealers, who can be officers, are not required to be licensed. All o
k k k k k k k k k k k k
ther officers, traders, and salespersons must be registered and lic
k k k k k k k k k
ensed.
Registered representatives may be compensated based on whic
k k k k k k k
h of the following?
k k k
I Trading commissions paid by the brokerage firm to the represen
k k k k k k k k k k
tative
II Trading commissions paid by the customer to the representativ
k k k k k k k k k
e
III Salary paid by the brokerage firm to the representative
k k k k k k k k k
IV Salary paid by the customer to the representative
k k k k k k k k
k
A. I and IIIk k k
B. I and IV k k k
C. II and III
k k k
D. II and IV - CORRECT ANSWER-The best answer is A.
k k k k k k k k k k k
Compensation cannot be paid by the customer to the registered r k k k k k k k k k k
epresentative. Only the broker- k k k
dealer may pay compensation to the registered representative.
k k k k k k k
,What activity undertaken by a registered representative will requi
k k k k k k k k
re written notice to the firm, along with following the firm's instructi
k k k k k k k k k k k
ons covering this activity?
k k k
k
A. Volunteering at a local soup kitchen after work
k k k k k k k k
B. Traveling to a foreign country on vacation
k k k k k k k
C. Selling a proprietary growth mutual fund to a client with a growt
k k k k k k k k k k k k
h investment objective
k k
D. Driving for Uber after the markets have closed and securities tr
k k k k k k k k k k k
ansactions are not occurring - CORRECT ANSWER- k k k k k k
The best answer is D. k k k k k
Driving for Uber is work for pay - k k k k k k k
kand to take an outside job, the representative must give notice to
k k k k k k k k k k k k
the firm, follow the firm's instructions (so if the firm says no, the an
k k k k k k k k k k k k k
swer is no), and must and his or her U4 to show this "OBA" -
k k k k k k k k k k k k k k
kOutside Business Activity. k k
Volunteer work for no pay is not an OBA, unless it places the repr k k k k k k k k k k k k k
esentative in a control position to direct the management of invest k k k k k k k k k k
ment funds. Traveling by a representative does not have to be rep
k k k k k k k k k k k
orted to the firm. Selling investments, whether proprietary (meani
k k k k k k k k
ng products of that firm) or nonproprietary, (meaning products of
k k k k k k k k k k
other securities issuers) is the job description of a registered repr
k k k k k k k k k k
esentative.
A registered representative services the brokerage account of he
k k k k k k k k
r father-in-law at her broker-dealer. The father-in-
k k k k k k
law has asked the registered representative to act as the trustee i
k k k k k k k k k k k
n a trust account for her spouse and children. The following asset
k k k k k k k k k k k
s are being donated by the father-in-law into the trust:
k k k k k k k k k
Office Building: $15,500,000 k k
Construction Company: $20,000,000 k k
Construction Equipment: $ 2,000,000 k k k
The registered representative has agreed not to charge a trustee'
k k k k k k k k k
s fee to do this. Does she have to get permission of her broker-
k k k k k k k k k k k k k
dealer to act as trustee? k k k k
k
, A. No, because it is a family relationship
k k k k k k k
B. No, because the trust does not hold securities
k k k k k k k k
C. No, because she is not being compensated to be the trustee
k k k k k k k k k k k
D. Yes, because this is an outside business activity -
k k k k k k k k k
kCORRECT ANSWER-The best answer is D. k k k k k k
Any "OBA" - Outside Business Activity -
k k k k k k
kmust be reported to the firm and must be approved by the firm. Fu
k k k k k k k k k k k k k
rthermore, it must be reported on that registered representative's k k k k k k k k k
U4 Form and is disclosed in that individual's BrokerCheck report.
k k k k k k k k k k
Remember that an individual does not have to be paid for an OBA k k k k k k k k k k k k
kto exist. If the representative is in the position to steer investment
k k k k k k k k k k k k
activities of the outside business entity - k k k k k k
kthat makes it an OBA. The fact that the registered representative,
k k k k k k k k k k
kas trustee, would get to oversee the activities of an office building
k k k k k k k k k k k
kand a construction company -k k k k
kand both of these entities could have operating and investment a
k k k k k k k k k k
ccounts - makes this an OBA. k k k k k
Which of the following gifts are allowed under FINRA rules?
k k k k k k k k k
I Gift of $75 in cash
k k k k k
II Gift of baseball tickets with a value of $75
k k k k k k k k k
III Gift of $150 cash
k k k k
IV Gift of baseball tickets with a value of $150
k k k k k k k k k
k
kA. I and II only k k k k
B. III and IV only
k k k k
C. I and III only
k k k k
D. II and IV only - CORRECT ANSWER-The best answer is A.
k k k k k k k k k k k k
FINRA limits gifts related to one's activities in the securities indust
k k k k k k k k k k
ry to a maximum of $100 value per person per year. This limit is a
k k k k k k k k k k k k k k
pplied to either giving, or receiving, the gift.
k k k k k k k
A mutual fund sponsor wants to hold a sales contest to promote s
k k k k k k k k k k k k
ales during the typically slow month of January. The terms of the
k k k k k k k k k k k k
contest are that the salesperson in the fund selling group that sell
k k k k k k k k k k k
s the most of the sponsor's funds during the month of January will
k k k k k k k k k k k k k
get the keys to a new Mercedes sports car. Under FINRA rules, th
k k k k k k k k k k k k
is is an example of:
k k k k
k
