Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
1. Which regulatory body is primarily responsible for the registration of broker-
dealers in the United States?
A) Federal Reserve
B) Securities and Exchange Commission (SEC)
C) Department of Commerce
D) Internal Revenue Service (IRS)
Answer: B) Securities and Exchange Commission (SEC)
Explanation: The SEC is the primary regulator overseeing broker-dealer registrations to
ensure compliance with federal securities laws.
2. What form must a broker-dealer file with the SEC to register its business?
A) Form D
B) Form BD
C) Form 10-K
D) Form 8-K
Answer: B) Form BD
Explanation: Form BD is the uniform application for broker-dealer registration with the
SEC.
3. Which of the following is a requirement for a firm to register as a broker-dealer?
A) Minimum net capital requirement
B) Submission of audited financial statements only
C) Proof of office lease
D) Listing on a national exchange
Answer: A) Minimum net capital requirement
,Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
Explanation: Broker-dealers must maintain a minimum net capital as required by
regulations to ensure financial stability.
4. Who must be included in the registration of a broker-dealer?
A) Only the principal executive officer
B) All associated persons and affiliates
C) Shareholders owning more than 10%
D) External auditors
Answer: B) All associated persons and affiliates
Explanation: All associated persons, including officers, directors, and significant
affiliates, must be disclosed during registration.
5. Which state-level organization must broker-dealers also register with in addition to
the SEC?
A) State Department of Revenue
B) State Attorney General
C) Financial Industry Regulatory Authority (FINRA)
D) State securities regulator
Answer: D) State securities regulator
Explanation: Broker-dealers must register with both federal (SEC) and state securities
regulators where they conduct business.
Maintaining and Updating Registration Information
6. How often must broker-dealers update their Form BD with the SEC?
A) Annually
B) Biennially
C) Every two years
D) Only when significant changes occur
,Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
Answer: D) Only when significant changes occur
Explanation: Broker-dealers must update Form BD promptly when there are material
changes to their business or ownership.
7. Which of the following events requires immediate reporting to FINRA for a
registered broker-dealer?
A) Minor staff changes
B) Change in principal executive officer
C) Routine office maintenance
D) Annual meeting of shareholders
Answer: B) Change in principal executive officer
Explanation: Significant changes, such as alterations in key management positions, must
be reported immediately to FINRA.
8. What is the primary purpose of maintaining up-to-date registration information?
A) To increase marketing efforts
B) To comply with regulatory requirements and ensure transparency
C) To reduce tax liabilities
D) To attract more investors
Answer: B) To comply with regulatory requirements and ensure transparency
Explanation: Keeping registration information current ensures compliance with
regulations and maintains transparency for regulators and clients.
9. Which document must broker-dealers file to report changes in their ownership
structure?
A) Form 10-Q
B) Form U4
C) Form BD Amendments
D) Form ADV
, Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
Answer: C) Form BD Amendments
Explanation: Amendments to Form BD are required to report significant changes,
including ownership structure alterations.
10. Failure to update registration information can result in which of the following
consequences?
A) Increased profits
B) Regulatory fines and possible suspension
C) Automatic renewal of registration
D) Tax benefits
Answer: B) Regulatory fines and possible suspension
Explanation: Non-compliance with updating registration can lead to penalties, fines, and
even suspension of broker-dealer registration.
Personnel Management
Recruitment and Hiring Practices
11. Which of the following is a key factor in the recruitment of broker-dealer
personnel?
A) Personal connections only
B) Compliance with regulatory qualifications and background checks
C) Hiring based solely on academic qualifications
D) Prior experience in unrelated industries
Answer: B) Compliance with regulatory qualifications and background checks
Explanation: Regulatory qualifications and thorough background checks are essential to
ensure the integrity and competence of broker-dealer personnel.
12. What is the primary purpose of conducting background checks during the hiring
process for broker-dealers?
A) To verify educational qualifications
B) To assess credit history
Principal Practice Exam
1. Which regulatory body is primarily responsible for the registration of broker-
dealers in the United States?
A) Federal Reserve
B) Securities and Exchange Commission (SEC)
C) Department of Commerce
D) Internal Revenue Service (IRS)
Answer: B) Securities and Exchange Commission (SEC)
Explanation: The SEC is the primary regulator overseeing broker-dealer registrations to
ensure compliance with federal securities laws.
2. What form must a broker-dealer file with the SEC to register its business?
A) Form D
B) Form BD
C) Form 10-K
D) Form 8-K
Answer: B) Form BD
Explanation: Form BD is the uniform application for broker-dealer registration with the
SEC.
3. Which of the following is a requirement for a firm to register as a broker-dealer?
A) Minimum net capital requirement
B) Submission of audited financial statements only
C) Proof of office lease
D) Listing on a national exchange
Answer: A) Minimum net capital requirement
,Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
Explanation: Broker-dealers must maintain a minimum net capital as required by
regulations to ensure financial stability.
4. Who must be included in the registration of a broker-dealer?
A) Only the principal executive officer
B) All associated persons and affiliates
C) Shareholders owning more than 10%
D) External auditors
Answer: B) All associated persons and affiliates
Explanation: All associated persons, including officers, directors, and significant
affiliates, must be disclosed during registration.
5. Which state-level organization must broker-dealers also register with in addition to
the SEC?
A) State Department of Revenue
B) State Attorney General
C) Financial Industry Regulatory Authority (FINRA)
D) State securities regulator
Answer: D) State securities regulator
Explanation: Broker-dealers must register with both federal (SEC) and state securities
regulators where they conduct business.
Maintaining and Updating Registration Information
6. How often must broker-dealers update their Form BD with the SEC?
A) Annually
B) Biennially
C) Every two years
D) Only when significant changes occur
,Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
Answer: D) Only when significant changes occur
Explanation: Broker-dealers must update Form BD promptly when there are material
changes to their business or ownership.
7. Which of the following events requires immediate reporting to FINRA for a
registered broker-dealer?
A) Minor staff changes
B) Change in principal executive officer
C) Routine office maintenance
D) Annual meeting of shareholders
Answer: B) Change in principal executive officer
Explanation: Significant changes, such as alterations in key management positions, must
be reported immediately to FINRA.
8. What is the primary purpose of maintaining up-to-date registration information?
A) To increase marketing efforts
B) To comply with regulatory requirements and ensure transparency
C) To reduce tax liabilities
D) To attract more investors
Answer: B) To comply with regulatory requirements and ensure transparency
Explanation: Keeping registration information current ensures compliance with
regulations and maintains transparency for regulators and clients.
9. Which document must broker-dealers file to report changes in their ownership
structure?
A) Form 10-Q
B) Form U4
C) Form BD Amendments
D) Form ADV
, Series 26 – Investment Company Products/Variable Contracts Limited
Principal Practice Exam
Answer: C) Form BD Amendments
Explanation: Amendments to Form BD are required to report significant changes,
including ownership structure alterations.
10. Failure to update registration information can result in which of the following
consequences?
A) Increased profits
B) Regulatory fines and possible suspension
C) Automatic renewal of registration
D) Tax benefits
Answer: B) Regulatory fines and possible suspension
Explanation: Non-compliance with updating registration can lead to penalties, fines, and
even suspension of broker-dealer registration.
Personnel Management
Recruitment and Hiring Practices
11. Which of the following is a key factor in the recruitment of broker-dealer
personnel?
A) Personal connections only
B) Compliance with regulatory qualifications and background checks
C) Hiring based solely on academic qualifications
D) Prior experience in unrelated industries
Answer: B) Compliance with regulatory qualifications and background checks
Explanation: Regulatory qualifications and thorough background checks are essential to
ensure the integrity and competence of broker-dealer personnel.
12. What is the primary purpose of conducting background checks during the hiring
process for broker-dealers?
A) To verify educational qualifications
B) To assess credit history
