SERIES 26 TEST BREAKDOWN Exam
Which responsibility is primarily held by the General Securities Principal
within a broker-dealer?
A) Executing client orders directly
B) Supervising and overseeing the firm's securities activities
C) Setting the firm's marketing strategies
D) Managing client portfolios
Answer: B
Explanation: The General Securities Principal is responsible for supervising
the firm's securities activities, ensuring compliance with regulations and
overseeing staff to maintain ethical standards.
Which of the following is an ethical obligation of a General Securities
Principal?
A) Prioritizing sales over compliance
B) Ensuring all employees adhere to regulatory requirements
C) Ignoring customer complaints
D) Avoiding recordkeeping responsibilities
Answer: B
Explanation: Ethical obligations include ensuring compliance with laws and
regulations, maintaining integrity, and supervising staff to uphold ethical
standards.
, SERIES 26 TEST BREAKDOWN Exam
Which organizational structure element would typically report directly to the
Chief Compliance Officer?
A) Marketing Department
B) Trading Desk Supervisors
C) Compliance Department
D) Human Resources
Answer: C
Explanation: The Compliance Department reports directly to the Chief
Compliance Officer to ensure regulatory adherence across all activities.
What is a primary function of the primary securities market?
A) Trading securities among investors
B) Issuing new securities directly from issuers
C) Facilitating secondary trading
D) Regulating ongoing securities transactions
Answer: B
Explanation: The primary market involves the issuance of new securities
directly from issuers to investors, such as in IPOs.
Which market participant is responsible for issuing securities to the public?
A) Investors
B) Issuers
, SERIES 26 TEST BREAKDOWN Exam
C) Market makers
D) Retail brokers
Answer: B
Explanation: Issuers, such as corporations or governments, are responsible for
issuing securities in the primary market.
How does an over-the-counter (OTC) market differ from an exchange?
A) OTC is centralized; exchanges are decentralized
B) OTC involves direct negotiation between parties without a centralized
exchange
C) OTC only trades government securities
D) OTC requires physical presence on a trading floor
Answer: B
Explanation: OTC markets involve direct negotiations between buyers and
sellers without a centralized exchange, often for less liquid or customized
securities.
What is a key characteristic of a firm commitment underwriting?
A) The underwriter agrees to sell as much as possible without guarantee
B) The underwriter guarantees the sale of the entire offering at a set price
C) The underwriter only assists with marketing
D) The underwriter acts as an agent without financial risk
, SERIES 26 TEST BREAKDOWN Exam
Answer: B
Explanation: In a firm commitment underwriting, the underwriter guarantees
the sale of the entire issue, purchasing securities from the issuer and reselling
to the public.
During the due diligence process, which document is prepared to disclose
essential information about a new security issuance?
A) Annual report
B) Prospectus
C) Earnings statement
D) Balance sheet
Answer: B
Explanation: A prospectus is prepared during due diligence to provide
potential investors with detailed information about the securities being
offered.
What is the primary purpose of stabilization procedures in the underwriting
process?
A) To manipulate the stock price
B) To prevent the price from falling below the offering price immediately
after issuance
C) To increase the volatility of the security
D) To ensure the underwriters do not sell below cost
Which responsibility is primarily held by the General Securities Principal
within a broker-dealer?
A) Executing client orders directly
B) Supervising and overseeing the firm's securities activities
C) Setting the firm's marketing strategies
D) Managing client portfolios
Answer: B
Explanation: The General Securities Principal is responsible for supervising
the firm's securities activities, ensuring compliance with regulations and
overseeing staff to maintain ethical standards.
Which of the following is an ethical obligation of a General Securities
Principal?
A) Prioritizing sales over compliance
B) Ensuring all employees adhere to regulatory requirements
C) Ignoring customer complaints
D) Avoiding recordkeeping responsibilities
Answer: B
Explanation: Ethical obligations include ensuring compliance with laws and
regulations, maintaining integrity, and supervising staff to uphold ethical
standards.
, SERIES 26 TEST BREAKDOWN Exam
Which organizational structure element would typically report directly to the
Chief Compliance Officer?
A) Marketing Department
B) Trading Desk Supervisors
C) Compliance Department
D) Human Resources
Answer: C
Explanation: The Compliance Department reports directly to the Chief
Compliance Officer to ensure regulatory adherence across all activities.
What is a primary function of the primary securities market?
A) Trading securities among investors
B) Issuing new securities directly from issuers
C) Facilitating secondary trading
D) Regulating ongoing securities transactions
Answer: B
Explanation: The primary market involves the issuance of new securities
directly from issuers to investors, such as in IPOs.
Which market participant is responsible for issuing securities to the public?
A) Investors
B) Issuers
, SERIES 26 TEST BREAKDOWN Exam
C) Market makers
D) Retail brokers
Answer: B
Explanation: Issuers, such as corporations or governments, are responsible for
issuing securities in the primary market.
How does an over-the-counter (OTC) market differ from an exchange?
A) OTC is centralized; exchanges are decentralized
B) OTC involves direct negotiation between parties without a centralized
exchange
C) OTC only trades government securities
D) OTC requires physical presence on a trading floor
Answer: B
Explanation: OTC markets involve direct negotiations between buyers and
sellers without a centralized exchange, often for less liquid or customized
securities.
What is a key characteristic of a firm commitment underwriting?
A) The underwriter agrees to sell as much as possible without guarantee
B) The underwriter guarantees the sale of the entire offering at a set price
C) The underwriter only assists with marketing
D) The underwriter acts as an agent without financial risk
, SERIES 26 TEST BREAKDOWN Exam
Answer: B
Explanation: In a firm commitment underwriting, the underwriter guarantees
the sale of the entire issue, purchasing securities from the issuer and reselling
to the public.
During the due diligence process, which document is prepared to disclose
essential information about a new security issuance?
A) Annual report
B) Prospectus
C) Earnings statement
D) Balance sheet
Answer: B
Explanation: A prospectus is prepared during due diligence to provide
potential investors with detailed information about the securities being
offered.
What is the primary purpose of stabilization procedures in the underwriting
process?
A) To manipulate the stock price
B) To prevent the price from falling below the offering price immediately
after issuance
C) To increase the volatility of the security
D) To ensure the underwriters do not sell below cost
