FINRA RULES WITH CORRECT QUESTIONS AND ANSWERS

FINRA RULES WITH CORRECT
QUESTIONS AND ANSWERS


Which of the following is an SRO?
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A
MSRB
B
SEC
C
SIPC
D
FDIC - CORRECT ANSWER-A.
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Both FINRA and the MSRB are SROs - self-
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regulatory organizations under SEC oversight. The MSRB write r
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ules for municipal market participants, but it does not enforce tho
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se rules. Enforcement of MSRB rules is performed by FINRA for b
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roker-dealers.
SIPC is the Securities Investor Protection Corporation, which ins
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ures customer accounts at broker-dealers from B/D failure.
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FDIC (Federal Deposit Insurance Corporation) insures customer
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accounts at banks from bank failure. k k k k k




FINRA enforces regulations in all of the following markets EXCE
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PT:
A
First Market
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B
Second Market k


C
Third Market k


D
Futures Market - CORRECT ANSWER-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-
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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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FINRA has no regulatory authority over the futures markets -
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that function is performed by the CFTC -
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the Commodities Futures Trading Commission.
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The SIE Exam allows an individual to:
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A
perform the functions of a registered representative with the exce
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ption of solicitation of potential clients
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B
sell securities that are either issued or guaranteed by the U.S. Go
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vernment or its wholly-owned agencies k k k k


C
become licensed upon passing the appropriate representative qu
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alification exam k


D
only sell redeemable securities of investment companies register
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ed under the Investment Company Act of 1940 -
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kCORRECT ANSWER- k


C. The SIE is a "corequisite exam." In order to be licensed as a re
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gistered representative, the SIE must be passed; and the appropr
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iate representative qualification exam must be passed (e.g., Seri
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es 6 or Series 7).
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Who does NOT have to be licensed in a broker-dealer?
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A
President
B
Equity trader k


C
ACATS clerk k


D

,Sales individual - CORRECT ANSWER-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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Who does NOT have to be licensed in a broker-dealer?
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A
Chief Executive Officer k k


B
Chairman of the Board of Directors k k k k k


C
Chief Financial Officer k k


D
Chief Compliance Officer - CORRECT ANSWER-B.
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Only operating officers of broker-dealers must be registered -
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kthis would include the CEO, CFO and CCO. A member of the Bo
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ard of Directors is not required to be licensed unless that person i
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s also an operating officer. Also note that passive owners of broke
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r-dealers who are also officers are not required to be licensed.
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And, of course, all traders, and salespersons must be registered
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and licensed. k




What must be disclosed on a U4 Form by an individual applying f
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or registration with a member firm?
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A
Individual's primary residence for the past 5 years k k k k k k k


B
Any foreign bank accounts currently owned by the applicant
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C
Individual's personal financial statement showing a positive net w
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orth of at least $2,500
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D
Names and contact information of any immediate family member
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s who work in the securities industry - CORRECT ANSWER-
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, A. On the U4 questionnaire, the individual must disclose residenc
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e addresses for the past 5 years (that way, if the authorities want t
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o find that person, they know where to look!). There is no require
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ment to disclose bank accounts; financial status; or the names of
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other family members who work in the securities industry. Note, h
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owever, that if the individual has declared bankruptcy or is the su
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bject to a financial judgment or lien on assets, these must be discl
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osed.

Salespersons may be compensated based on which of the followi k k k k k k k k k


ng?
A
Trading commissions paid by the brokerage firm to the represent
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ative
B
Trading commissions paid by the customer to the representative
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C
Fees paid by the customer to the investment advisor representati
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ve
D
Salary paid by the customer to the representative -
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kCORRECT ANSWER-A. k


Broker-dealers earn commissions or mark-ups/mark- k k k k


downs for execution transactions. Investment Advisers earn fees
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for rendering advice.
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Compensation cannot be directly paid by the customer to any sal k k k k k k k k k k


esperson. All compensation must be paid by the salesperson's e
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mployer.

What activity undertaken by a registered representative will requi
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re written notice to the firm, along with following the firm's instructi
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ons covering this activity?
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A
Volunteering at a local soup kitchen after work k k k k k k k


B
Traveling to a foreign country on vacation k k k k k k


C