FINRA COMPLETE CORRECT QUESTIONS AND ANSWERS

FINRA COMPLETE CORRECT
QUESTIONS AND ANSWERS


The enforcement authorities for the U.S. securities markets and
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market participants include: k k


I FINRA
k


II SEC k


III MSRB k
k

A. I only k k


B. I and II k k k


C. II and III
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D. I, II, III - CORRECT ANSWER-The best answer is B.
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Both FINRA and the Securities and Exchange Commission (SEC
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) regulate, and have enforcement capability over, the U.S. securiti
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es markets and market participants. The Municipal Securities Rul
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emaking Board creates rules for municipal market participants, b
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ut has no enforcement ability -
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kenforcement of MSRB rules is performed by FINRA. k k k k k k k




FINRA enforces regulations in which of the following markets?
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I First Market
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II Second Market
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III Third Market
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IV Fourth Market
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k

A. I only k k


B. II only k k


C. I, III, IV
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D. I, II, III, IV - CORRECT ANSWER-The best answer is D.
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FINRA is the regulator for all of the securities markets -
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the Primary Market (new issues); the First Market (trades on exc
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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
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,ange listed issues) and the Fourth Market (direct trading between
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institutions on ECNs and ATSs).
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Who does NOT have to be licensed in a broker-dealer?
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k

A. Presidentk


B. Equity trader
k k


C. ACATS clerk
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D. Sales individual - CORRECT ANSWER-The best answer is C.
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Clerical personnel who are not "client facing" are not required to b
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e licensed. ACATS is the Automated Customer Account Transfer
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System, which is run by DTC (Depository Trust Corporation) to m
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anage client account transfers from one firm to another.
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Operating officers and owners (but not passive owners), traders,
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and salespersons must be registered and licensed.
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Registered representatives may be compensated based on all of
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the following EXCEPT:
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k

A. salary paid by the brokerage firm to the representative
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B. asset based fees paid by the customer to the brokerage firm
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C. trading commissions paid by the customer to the brokerage fir
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m
D. trading commissions paid by the customer to the representativ
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e - CORRECT ANSWER-The best answer is D.
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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.
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To take a second job, under FINRA rules, prior written approval m
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ust be obtained from:
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I Branch Manager
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II FINRAk


III Securities and Exchange Commission
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k

A. I only k k


B. I and II k k k


C. II and III
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,D. I, II, III - CORRECT ANSWER-The best answer is A.
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For a registered representative to take a second job requires appr
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oval of the branch manager under FINRA rules. The manager is a
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cting for the member firm when doing so. There is no requirement
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to get approval from FINRA or the SEC.
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A registered representative at a FINRA member firm has been el
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ected to his cooperative apartment building's Board of Directors.
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Which statement is TRUE? k k k
k

A. This event must be reported to FINRA
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B. This event must be reported to his or her employer
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C. This event must be reported to both FINRA and his or her empl
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oyer
D. No report is required to either FINRA or the employing member
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kfirm - CORRECT ANSWER-The best answer is B.
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Any "OBA" - Outside Business Activity -
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kmust be reported to the firm and must be approved by the firm. Fu
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rthermore, it must be reported on that registered representative's
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U4 Form and is disclosed in that individual's BrokerCheck report.
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Remember that an individual does not have to be paid for an OBA
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kto exist. If the representative is in the position to steer investment
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activities of the outside business entity - k k k k k k


kthat makes it an OBA. The fact that the registered representative,
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kon the Board of Directors of the cooperative apartment house, w
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ould be in a position to steer the investment activities of the coop'
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s operating and reserve funds - makes this an OBA.
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A customer has generated a lot of business this year, and the repr
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esentative wants to give the customer an appropriate "thank you"
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gift. Knowing that FINRA has a $100 gratuity limit, the representat
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ive arranges to have a friend who works outside the securities ind
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ustry buy the customer a $400 gift certificate. For this, the represe
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ntative will reimburse the friend. Which statement is TRUE?
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k

A. This action is acceptable because the payment was not made
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by an associated person
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B. This action is acceptable only if FINRA approves in advance
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, C. This action is acceptable only if the payment is made by the re
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presentative and not by the friend k k k k k


D. This action is a violation of FINRA rules -
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CORRECT ANSWER-The best answer is D.
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One cannot get around the gift limit rules by having a third party gi
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ve the gift! k k




A registered representative is provided with an all-
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expenses paid trip by a mutual fund sponsor to a resort in Hawaii.
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FINRA defines this as: k k k
k

A. a gift k k


B. a gratuity
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C. non-cash compensation
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D. business entertainment - CORRECT ANSWER-
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The best answer is C. k k k k k


FINRA prohibits registered representatives from accepting a gift i
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n the amount of more than $100. This does not prohibit business
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entertainment where the cost is greater than $100, but such "ente k k k k k k k k k k


rtainment" requires that the registered representative and the clie k k k k k k k k


nt are together, say at a ball game or at dinner. If a registered repr
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esentative accepts "non-cash compensation" - such as this all- k k k k k k k k


expense paid trip - this is a violation of FINRA rules.
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Which are permitted under FINRA rules? k k k k k


I A registered representative accepts a $300 gift from a customer
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II A registered representative pays for a $300 meal with a custom
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er
III A registered representative gives a customer $200 tickets to a
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show
IV A registered representative accompanies a customer to a sho
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w, for which the representative paid $200 for the tickets
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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 D.
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Business entertainment does not fall under the $100 gift limit. Bus
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iness entertainment is permitted as long as it is not too excessive
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