FINRA RULES ELABORATED QUESTIONS WITH ANSWERS

FINRA RULES ELABORATED
QUESTIONS WITH ANSWERS


A representative wishes to invite 10 of her best customers to an in
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timate dinner, to be followed by a presentation that the represent
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ative will make on investing. If the representative includes analys
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es of specific stocks in the speech; and the attendees use this inf
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ormation to determine whether to invest in those securities; then t
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he:
I presentation is considered to be a research report
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II presentation is not considered to be a research report
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III representative is required to make all of the disclosures require
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d of research analysts
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IV representative is not required to make all of the disclosures req
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uired of a research analyst k k k k


A I and III
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B I and IV
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C II and III
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D II and IV - CORRECT ANSWER-The best answer is D.
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The SEC defines a research report as "any client communication
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that analyzes individual securities or companies if it provides infor
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mation reasonably sufficient upon which to base an investment d
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ecision and is distributed to at least 15 persons."
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If a representative gives a presentation to clients that meets this d
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efinition, then the representative would be considered an "analyst
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" and must give all of the required disclosures of potential conflict
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s of interest required of research analysts when they recommend
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a security. In this case, since only 10 customers are invited, the d
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efinition is not met. k k k




All of the following persons can be on securities industry arbitratio
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n panels EXCEPT:
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A disinterested persons who are affiliated with member firms
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, B interested persons who are affiliated with member firms
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C members of the general public
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D attorneys who are members of the bar - CORRECT ANSWER-
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The best answer is B. k k k k


Arbitration panels consist of individuals affiliated with member fir
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ms and representatives from the general public. Attorneys are als
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o permitted on arbitration panels (a nice source of income for atto
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rneys who are retired). All of these individuals must be "disinteres
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ted" - k


kmeaning they cannot have business, family, or other connections
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kto the parties involved in the arbitration proceeding.
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Which of the following gifts CANNOT be accepted by a registered
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krepresentative from a mutual fund sponsor? k k k k k


I All expenses paid trip to Bermuda
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II $50 gift certificate
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III $500 cash
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IV $1,000 towards the purchase of fund shares
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A II and III only
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B I and IV only
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C I, III, and IV
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D I, II, III, IV - CORRECT ANSWER-The best answer is C.
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The FINRA "anti- k k


reciprocal" rule prohibits investment companies from compensati k k k k k k


ng salesmen at broker-
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dealers for selling their shares outside of the sales charges stated
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kin the Prospectus. FINRA does allow a maximum gift of $100 val
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ue per person per year from a mutual fund sponsor to a registered
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krepresentative that is not considered as "compensation." An all e k k k k k k k k k


xpense-
paid trip to Bermuda clearly exceeds the limit, as does $500 cash
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or $1,000 credited towards the purchase of fund shares.
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Which statements are TRUE? k k k


I A registered representative is permitted to buy a new issue direc
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tly from the underwriter(s)
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