FINRA SIE — Securities Industry Essentials — All Questions

The over-the-counter (OTC) market is best described as:

• a.A single physical trading floor in New York, where exchange specialists match all incoming customer orders
• b.The primary market in which all initial public offerings are sold to investors by the issuing corporation
• c.A decentralized dealer network where securities trade directly between parties rather than on a centralized exchange floor✓
• d.A market that trades United States Treasury securities exclusively, under Federal Reserve supervision

The OTC market is a decentralized network of dealers who trade securities directly with one another and with customers, rather than through a centralized exchange auction. Many bonds and some equities trade OTC, with prices negotiated between dealers.

A firm that maintains an inventory of a security and stands ready to buy and sell it for its own account is acting as a:

• a.Dealer (principal)✓
• b.Broker (agent)
• c.Clearing member
• d.Transfer agent

A dealer, also called a principal, trades for its own account, maintaining an inventory and profiting from the markup or markdown on transactions. A broker, by contrast, acts as an agent, arranging trades between buyers and sellers for a commission.

An issuer sells commercial paper that matures in 180 days. Under the Securities Act of 1933, this short-term instrument is:

• a.Exempt from registration because it is short-term corporate debt maturing in 270 days or less✓
• b.Available to the public only through a Regulation A offering circular filed with the SEC
• c.Required to file a full registration statement with the SEC and deliver a final prospectus
• d.Prohibited from being sold to the public because notes under one year are not securities

Commercial paper and other short-term corporate debt with a maturity of 270 days or less is exempt from registration under the Securities Act of 1933. This exemption allows corporations to raise short-term financing efficiently without the full registration process.Securities Act of 1933

During the cooling-off period, a registered representative may lawfully do which of the following with a prospective investor?

• a.Send a preliminary prospectus and accept a non-binding indication of interest✓
• b.Guarantee the investor a firm allocation of shares at the expected offering price
• c.Accept the investor's payment and finalize a binding sale of the shares
• d.Send the investor the final prospectus and confirm the offering price

During the cooling-off period, no sales may be completed and no money may be accepted, but a representative may distribute a preliminary prospectus (red herring) and take non-binding indications of interest. Actual sales can occur only after the registration becomes effective.

The Federal Open Market Committee (FOMC) is the body within the Federal Reserve responsible for:

• a.Setting federal income tax rates and federal spending levels
• b.Directing open market operations to implement monetary policy✓
• c.Insuring customer brokerage accounts against broker-dealer failure
• d.Registering new securities offerings before they are sold to the public

The FOMC is the Federal Reserve committee that sets the target for the federal funds rate and directs open market operations, the buying and selling of government securities. These decisions are the Fed's principal means of implementing monetary policy.

An investor is concerned that rising inflation will erode the purchasing power of a bond's fixed interest payments. This concern is known as:

• a.Purchasing-power (inflation) risk✓
• b.Credit risk from an issuer default
• c.Liquidity risk in a thin resale market
• d.Reinvestment risk at lower coupon rates

Purchasing-power risk, also called inflation risk, is the danger that rising prices will reduce the real value of a fixed stream of income, such as a bond's coupon payments. It is a particular concern for long-term, fixed-rate securities.

Which of the following describes the fourth market?

• a.Direct trading of securities between institutions without using an exchange or broker-dealer intermediary✓
• b.The market in which only municipal securities are traded, kept separate from all corporate and government issues
• c.Trading of newly issued securities sold directly by the issuer to investors in the primary market
• d.Trading of exchange-listed securities away from the floor in the over-the-counter dealer market

The fourth market refers to direct trading of securities between large institutions, often through electronic communication networks, without the intermediation of a traditional broker-dealer or exchange. The third market, by contrast, is the trading of exchange-listed securities in the OTC market.

Which of the following statements about the relationship between the economy and the stock market is MOST accurate?

• a.Stock prices are unrelated to expectations about the economy and respond only to company earnings reports
• b.The stock market is considered a leading indicator, often reflecting investors' expectations about future economic conditions✓
• c.Stock prices track current-quarter GDP one-for-one, so a 2% rise in GDP lifts the market exactly 2%
• d.The stock market is considered a lagging indicator that merely confirms economic turns months after they occur

The stock market is generally treated as a leading economic indicator because prices reflect investors' expectations about future earnings and economic conditions. As a result, the market often turns before the broader economy does.

In an offering that is entirely secondary, all of the proceeds go to:

• a.The SEC, which collects the proceeds as filing fees
• b.The underwriting syndicate members, not the sellers
• c.The selling shareholders, not the issuing company✓
• d.The issuing company, which receives the new capital

In a purely secondary offering, the shares being sold are already outstanding and owned by existing holders, so the proceeds go to those selling shareholders rather than the company. The issuer does not raise new capital in a secondary distribution.

A syndicate uses an 'all-or-none' (AON) underwriting arrangement. What does this mean?

• a.The offering is canceled and investors' money returned unless the entire issue is sold✓
• b.The issuer must repurchase every share the syndicate fails to place within a year
• c.Only accredited investors may participate, and each must subscribe equally
• d.The underwriter buys the entire issue outright and guarantees the proceeds

In an all-or-none arrangement, a type of best-efforts underwriting, the entire issue must be sold or the offering is canceled and all funds are returned to investors. This protects the issuer from raising only a partial, insufficient amount of capital.

Which of the following institutions serves as the central bank of the United States?

• a.The Federal Reserve System✓
• b.The World Bank's IBRD lending arm
• c.The U.S. Treasury Department
• d.The FDIC's Deposit Insurance Fund

The Federal Reserve System is the central bank of the United States, responsible for conducting monetary policy, supervising banks, and promoting financial stability. The Treasury, by contrast, manages federal finances and issues government debt.

A startup raises money by selling securities only to a small group of wealthy accredited investors, with no general advertising, relying on Rule 506(b) of Regulation D. This is an example of a:

• a.An intrastate offering exempt under Rule 147
• b.Private placement exempt from full registration✓
• c.A Regulation A mini-registration capped at $5 million
• d.A registered initial public offering of new shares

Selling securities to accredited investors without general solicitation under Rule 506(b) of Regulation D is a private placement, which is exempt from full SEC registration under the Securities Act of 1933. Such offerings involve less disclosure but produce restricted securities that cannot be freely resold.Securities Act of 1933

Which federal agency has ultimate authority to oversee the U.S. securities markets and the self-regulatory organizations that operate within them?

• a.The Securities and Exchange Commission (SEC)✓
• b.The Financial Industry Regulatory Authority (FINRA)
• c.The Commodity Futures Trading Commission (CFTC)
• d.The Federal Reserve Board

The SEC, created by the Securities Exchange Act of 1934, is the top federal regulator of the securities industry. Self-regulatory organizations such as FINRA and the MSRB write and enforce their own rules but operate under SEC oversight, and their rules must be approved by the SEC.Securities Exchange Act of 1934

A broker-dealer wants to begin conducting a securities business for the first time. Which form must the firm file to register as a broker-dealer?

• a.Form U5
• b.Form U4
• c.Form BD✓
• d.Form ADV

A firm registers as a broker-dealer by filing Form BD (Broker-Dealer). Form U4 and U5 apply to individual associated persons, and Form ADV is used by investment advisers. Form BD is filed through the Central Registration Depository (CRD) system.17 CFR 240.15b1-1 (Exchange Act §15(b))

When a person applies to become registered as an associated person of a member firm, which form does the firm submit on their behalf?

• a.Form BD (the broker-dealer's own registration application)
• b.Form U5 (the Uniform Termination Notice filed when a person leaves a firm)
• c.Form ADV (the investment adviser's registration application)
• d.Form U4 (Uniform Application for Securities Industry Registration)✓

Form U4 is the Uniform Application for Securities Industry Registration or Transfer, filed by a member firm to register an associated person. It collects the applicant's employment, disciplinary, and background information. Form BD registers the firm itself, Form U5 is used later when the person's employment ends, and Form ADV is the registration application for investment advisers, not for a broker-dealer's associated persons.FINRA Rules

A registered representative resigns from her broker-dealer to take a job in a different industry. Within how many days must the firm file a Form U5 to report her termination?

• a.10 days
• b.60 days
• c.30 days✓
• d.45 days

A member firm must file Form U5 within 30 days of an associated person's termination. The firm must also provide a copy of the U5 to the individual. The U5 reports the reason for termination and any disclosures that arose.FINRA Rules

Which self-regulatory organization has primary jurisdiction over rules governing the municipal securities market, including the conduct of municipal securities dealers?

• a.The Chicago Board Options Exchange (CBOE)
• b.The SEC (Securities and Exchange Commission)
• c.The Municipal Securities Rulemaking Board (MSRB)✓
• d.FINRA (the Financial Industry Regulatory Authority)

The MSRB writes rules for the municipal securities market and for dealers and advisors in that market. However, the MSRB does not conduct examinations or enforcement itself; FINRA and bank regulators enforce MSRB rules for the firms they oversee.FINRA Rules

The Securities Industry Essentials (SIE) exam differs from a qualification exam such as the Series 7 in that the SIE:

• a.Permits an individual to transact securities business immediately upon passing, with no other exam
• b.Must be retaken every two years or the candidate's passing result is voided permanently
• c.Requires prior association with a member firm that must sponsor the candidate for testing
• d.Assesses basic securities industry knowledge and does not require sponsorship by a firm✓

The SIE is an introductory exam covering fundamental securities knowledge and can be taken by anyone 18 or older without firm sponsorship. To actually transact business, a person must also pass a qualification (top-off) exam like the Series 6 or 7, which does require association with a member firm.FINRA Rules

Under FINRA's continuing education requirements, the Regulatory Element is designed primarily to:

• a.Train representatives on the new products and services their firm intends to sell
• b.Keep registered persons current on regulatory, compliance, and ethical standards✓
• c.Satisfy each state's annual insurance licensing renewal requirements
• d.Provide sales, marketing, and client-prospecting skills training

The Regulatory Element is a FINRA-administered continuing education program that keeps registered persons up to date on regulatory, compliance, and ethical topics. It must be completed annually. The Firm Element is separately administered by each firm and focuses on products, services, and business practices.FINRA Rules

The Firm Element of continuing education is:

• a.Developed and administered by each member firm based on an annual needs analysis✓
• b.Required only of a firm's registered principals and supervisors, not its representatives
• c.Administered directly by the SEC through one standard nationwide curriculum
• d.A one-time requirement completed only at the time of initial registration

The Firm Element is a continuing education program that each member firm develops and administers itself, based on an annual needs analysis of its business and the securities its covered persons handle. It must, at minimum, address investment features, risks, suitability, and applicable regulatory requirements.FINRA Rules

A registered representative accepts a part-time job as a bookkeeper for a friend's restaurant on weekends, receiving compensation. Under FINRA rules on outside business activities, the representative must:

• a.Obtain written approval from the SEC before starting
• b.Do nothing, since the work is unrelated to securities
• c.Provide prior written notice to their employing member firm✓
• d.Register the restaurant as a branch office of the firm

FINRA Rule 3270 requires a registered person to provide prior written notice to their member firm before engaging in any outside business activity for compensation, even if unrelated to securities. The firm can then evaluate the activity and impose conditions or prohibit it if necessary.FINRA Rules

A registered representative wants to help set up private investments in a startup for several clients, outside of and without notice to her firm, receiving selling compensation. This activity is best described as:

• a.A standard brokerage transaction that requires no disclosure because the clients are her own
• b.A permissible outside business activity that needs only prompt written notice after the fact
• c.An acceptable referral arrangement under the $300 annual limit in FINRA's gift rule
• d.A private securities transaction ('selling away') requiring prior written notice and firm approval✓

Effecting securities transactions outside the regular course of one's employment for compensation is a private securities transaction, commonly called 'selling away.' FINRA Rule 3280 requires prior written notice to, and written approval from, the member firm; the firm must then supervise and record the transactions. Doing so without notice is a violation.FINRA Rule 3280

Under FINRA's gift rule, what is the maximum value of gifts a member or associated person may give to a single person per year in relation to the recipient's business?

• a.$300✓
• b.$100
• c.$50
• d.$500

FINRA Rule 3220 caps gifts at $300 per person per year when the gift relates to the recipient’s business. $100 was the limit until March 30, 2026, when Regulatory Notice 26-05 (SR-FINRA-2025-003) raised it to $300 — study material still printing $100 is out of date. Ordinary business entertainment and certain de minimis or personal gifts are treated separately, and firms must keep records of gifts given and received.FINRA Rules

MSRB Rule G-37 addresses political contributions by municipal securities dealers. What is the primary consequence if a dealer's covered associate makes a disqualifying political contribution to an official of an issuer?

• a.The dealer is banned from municipal securities business with that issuer for two years✓
• b.The contribution is refunded automatically and the matter is closed with no other penalty
• c.The associate must pay a $100 fine to the MSRB, and the dealer faces no business restriction
• d.The dealer must file a Form BD amendment within 10 days and may then continue that business

MSRB Rule G-37 generally bans a municipal securities dealer from engaging in municipal securities business with an issuer for two years after certain political contributions by the dealer or its covered associates to officials of that issuer. The rule is meant to curb 'pay-to-play' practices. A de minimis exception allows small contributions to candidates the contributor can vote for.FINRA Rules

A person applying for registration in the securities industry was convicted of a securities-related felony four years ago. This individual is most likely:

• a.Required only to complete extra continuing education
• b.Exempt from filing a Form U4
• c.Subject to statutory disqualification✓
• d.Automatically approved after a 30-day waiting period

A felony conviction, or a securities-related misdemeanor, within the past ten years can cause a person to be statutorily disqualified under the Securities Exchange Act of 1934 and FINRA rules. A statutorily disqualified person generally may not associate with a member firm unless FINRA grants relief through an eligibility proceeding. Other triggers include certain regulatory bars and injunctions.Securities Exchange Act of 1934

Before a person can be fingerprinted and registered as an associated person, fingerprinting is required primarily to:

• a.Determine the applicant's credit score before registration is granted
• b.Support a criminal background check for the registration process✓
• c.Confirm the applicant's citizenship status with immigration authorities
• d.Verify the applicant's college degree and other credentials

Exchange Act Rule 17f-2 requires each partner, director, officer and employee of a broker-dealer to be fingerprinted unless an exemption applies (for example, a person who is not engaged in sales, has no regular access to securities, money or original books and records, and has no supervisory responsibility over such persons). The fingerprints are submitted to the Attorney General (the FBI) for identification processing, which supports a criminal background check that helps identify statutory disqualifications. Fingerprints do not establish credit score, immigration status or educational credentials.Exchange Act Rule 17f-2 (17 CFR 240.17f-2)

A customer and a member firm have a monetary dispute arising from the customer's account. The customer signed an account agreement containing a predispute arbitration clause. The dispute will most likely be resolved through:

• a.FINRA arbitration under the Code of Arbitration Procedure✓
• b.An SEC administrative proceeding before an ALJ panel
• c.Mediation that is automatically binding on both parties
• d.A jury trial in federal district court in the customer's state

Most customer-firm disputes are resolved through FINRA's Dispute Resolution forum under the Code of Arbitration Procedure, especially when a predispute arbitration agreement exists. Arbitration decisions are generally final and binding with very limited grounds for appeal. Mediation is voluntary and non-binding unless a settlement is reached.FINRA Rules

FINRA's Code of Procedure (the Rule 8000 and 9000 series) primarily governs:

• a.How issuers file registration statements with the SEC before an IPO
• b.How FINRA investigates and disciplines members for rule violations✓
• c.How customers and firms arbitrate their monetary disputes before a panel
• d.How firms register new associated persons and their branch offices

The Code of Procedure governs FINRA's disciplinary process: how alleged rule violations are investigated, how complaints are brought, hearings held, and sanctions imposed. It is distinct from the Code of Arbitration Procedure, which handles monetary disputes between parties such as customers and firms. Sanctions can include fines, suspensions, and bars from the industry.FINRA Rules

A registered representative changes her residential address and also is charged with a felony. Which of these events requires an amendment to her Form U4?

• a.The felony charge alone requires a U4 amendment
• b.Both the change of address and the felony charge✓
• c.Neither event requires an amendment to the U4
• d.Only the address change, not the felony charge

Form U4 must be kept current: registered individuals have a continuing obligation to update changes to the information on the form by filing an amendment within the time FINRA rules and the form instructions prescribe. A change of residential address is a change to information reported on the form, and a felony charge is a reportable disclosure event, so both require an amendment. Answers that cover only one of the two events, or neither, are wrong because each change triggers its own update.FINRA Rules

Which of the following best describes the jurisdiction of the Chicago Board Options Exchange (CBOE) as a self-regulatory organization?

• a.It approves all broker-dealer registrations before FINRA does
• b.It supervises investment adviser registration for all fifty states
• c.It writes the rules governing every municipal securities dealer
• d.It operates an options exchange and enforces trading rules for its markets✓

The CBOE is a national securities exchange and self-regulatory organization focused on options trading and, through its exchange, enforces rules for trading on its markets. Exchanges like the CBOE and NYSE are SROs with jurisdiction over activity conducted on their platforms. FINRA and the MSRB handle broader member-firm and municipal rulemaking respectively.FINRA Rules

An individual passed the SIE exam but has not yet been hired by a member firm. How long do SIE exam results generally remain valid?

• a.10 years
• b.4 years✓
• c.2 years
• d.1 year

SIE exam results are generally valid for four years. Within that period, an individual who is hired and passes the appropriate qualification (top-off) exam can complete registration. If more than four years pass without registration, the SIE would need to be retaken.FINRA Rules

A candidate wants to sell mutual funds and variable annuities but not general equities or options. In addition to the SIE, which qualification exam is the appropriate 'top-off' for this limited scope?

• a.Series 7 (General Securities Representative, the exam required to sell mutual funds)
• b.Series 6 (Investment Company and Variable Contracts Products Representative)✓
• c.Series 63 (Uniform Securities Agent State Law, FINRA's packaged-products exam)
• d.Series 24 (General Securities Principal, required of every fund salesperson)

The Series 6 is a top-off qualification exam for representatives who sell packaged products such as mutual funds and variable annuities. The Series 7 covers a broader range of securities including equities, options, and bonds. Both are taken in addition to the SIE, and a firm must sponsor the candidate.FINRA Rules

A member firm receives a written customer complaint alleging misconduct by a registered representative involving the customer's funds. What is the firm's general obligation regarding this complaint?

• a.Keep it on file for one year, then discard it if no arbitration claim has been filed
• b.Report it to FINRA only after the representative has been found liable in arbitration or court
• c.Keep a record of the complaint and report it as required, including on the representative's Form U4 if applicable✓
• d.Respond to the customer directly and keep no record if the representative denies the allegation in writing

Written customer complaints must be kept on file even if the representative denies the allegation or the customer never files an arbitration claim. FINRA Rule 4513 requires complaint records to be preserved for at least four years, not one. Under Rule 4530 the firm must report certain complaints to FINRA, such as written complaints alleging theft, misappropriation or forgery, within 30 calendar days after it knows or should have known of them, and must file quarterly complaint statistics; it does not wait for a finding of liability. Where required, the representative's Form U4 disclosures are updated as well.FINRA Rules 4513 and 4530

Which statement about the relationship between FINRA and the SEC is most accurate?

• a.FINRA is a federal government agency that supervises and approves the SEC's rules
• b.The SEC drafts FINRA's rulebook and enforces it directly against registered representatives
• c.FINRA is a self-regulatory organization whose rules and disciplinary actions are subject to SEC oversight✓
• d.FINRA and the SEC operate independently, with neither overseeing the other's rules

FINRA is a non-governmental self-regulatory organization registered with and overseen by the SEC. FINRA proposes rules that require SEC approval, and its disciplinary decisions can be appealed to the SEC. The SEC retains ultimate statutory authority over the securities markets.FINRA Rules

Under general recordkeeping rules of the Securities Exchange Act of 1934, certain fundamental broker-dealer records, such as blotters and ledgers, must generally be retained for a minimum of:

• a.1 year
• b.2 years
• c.6 years✓
• d.3 years

SEC Rules 17a-3 and 17a-4 set recordkeeping and retention requirements for broker-dealers. Certain core records such as blotters, general ledgers, and customer account records must generally be retained for at least six years, with the first two years in an easily accessible place. Other records have shorter retention periods, such as three years.Securities Exchange Act of 1934

A newly hired individual will supervise the firm's general securities sales activities and approve new accounts. To act as a supervisor, this person must typically qualify as a:

• a.Principal (for example, by passing the Series 24)✓
• b.Representative only, by passing SIE and Series 7
• c.Municipal advisor representative (Series 50)
• d.Investment banking representative (Series 79)

Individuals who supervise the securities business of a member firm must generally register as principals, such as by passing the Series 24 General Securities Principal exam. A representative registration (SIE plus Series 7) qualifies a person to sell to customers but not to manage and supervise that activity or approve new accounts. The Series 50 qualifies municipal advisor representatives, and the Series 79 qualifies investment banking representatives; neither covers supervising general securities sales. Both representatives and principals must also pass the SIE.FINRA Rules

A registered representative gives a client four tickets to a concert worth $80 total as a thank-you related to their business relationship. Under the FINRA gift rule, this gift is:

• a.Permissible because it is under the $300 annual limit and should be recorded✓
• b.A violation because FINRA Rule 3220 caps non-cash customer gifts at $50 a year
• c.A violation because FINRA Rule 3220 prohibits all gifts to customers outright
• d.Permissible only if the SEC first approves the gift in writing before it is given

The $80 gift is within FINRA’s $300 annual per-person gift limit under Rule 3220, so it is generally permissible, though the firm should record it. The limit was $100 until Regulatory Notice 26-05 (SR-FINRA-2025-003) raised it to $300 effective March 30, 2026. Multiple gifts to the same person exceeding the annual limit would violate the rule. Business entertainment where the rep attends is evaluated under separate standards.FINRA Rules

How does the Form U5 filed by a departing representative's firm affect the individual's ability to move to a new member firm?

• a.It has no effect on future registration because Form U5 is kept confidential inside FINRA
• b.The new firm reviews the U5, and any disclosures on it may need to be addressed during the new registration✓
• c.It automatically transfers all of the representative's customer accounts to the new member firm
• d.It permanently bars the person from re-registering with another FINRA member firm in any capacity

When a representative leaves a firm, the firm files Form U5, which may include disclosures about the reason for departure or any pending matters. A new hiring firm reviews the U5 as part of due diligence and must address any disclosed issues in the new Form U4. Inaccurate U5 disclosures can create liability for the filing firm.FINRA Rules

Which of the following is generally NOT within FINRA's direct regulatory jurisdiction?

• a.Advertising and communications with the public by members
• b.Sales practices of member firms
• c.The conduct of a broker-dealer's registered representatives
• d.The rulemaking authority over the U.S. futures markets✓

FINRA regulates broker-dealers and their associated persons, including sales practices and communications with the public. The U.S. futures markets are regulated by the CFTC and the National Futures Association, not FINRA. Understanding which regulator governs which market is a core SIE concept.FINRA Rules

A registered person fails to complete their required Regulatory Element continuing education by the applicable deadline. What is the typical consequence?

• a.The person's registration becomes CE inactive, and they cannot perform activities requiring registration until it is completed✓
• b.The person is permanently barred from the securities industry by an automatic FINRA disciplinary action
• c.There is no consequence at all, provided the person's annual Firm Element training has been completed
• d.The person must retake and pass the SIE exam before returning to any registered activity at the firm

If a registered person does not complete the Regulatory Element by the deadline, their registration becomes 'CE inactive,' and they may not perform activities requiring registration until they complete it. The Regulatory Element must be completed annually for each registration category held. This is separate from the Firm Element, which the firm administers.FINRA Rules

The Central Registration Depository (CRD) system, operated by FINRA, primarily serves to:

• a.Set the initial margin requirements that apply to customer accounts under Regulation T
• b.Approve securities for listing on the national securities exchanges before trading may begin
• c.Clear and settle securities trades between member firms and guarantee their completion
• d.Store registration, employment, and disciplinary information about firms and associated persons✓

The CRD is the central licensing and registration system for the U.S. securities industry, maintained by FINRA. It houses information from Forms BD, U4, and U5, including employment history and disciplinary records. Much of this information is made available to the public through BrokerCheck.FINRA Rules

A representative wants to participate in a private securities transaction on behalf of a customer and will NOT receive any selling compensation. Under FINRA rules, the representative must at minimum:

• a.Obtain the firm's prior written approval and supervision exactly as if compensation were paid
• b.Report the transaction directly to the SEC on Form 4 within two business days
• c.Provide prior written notice to the firm, which may then require it to be supervised✓
• d.Do nothing at all, since Rule 3280 does not apply without selling compensation

Under FINRA Rule 3280, when a representative engages in a private securities transaction without selling compensation, they must still provide prior written notice to the firm. The firm may, at its discretion, require that the transaction be recorded and supervised. When compensation IS received, the firm must approve and supervise the transaction and record it on its books.FINRA Rules

In a FINRA arbitration involving a public customer, which statement is generally TRUE about the outcome?

• a.Only monetary damages up to $10,000 may be awarded, and no other relief
• b.The hearing panel must include two industry arbitrators and one public arbitrator
• c.The arbitration award is final and binding with very limited grounds to challenge it✓
• d.The losing party may freely appeal the decision and have the case retried in state court

FINRA arbitration awards are final and binding, and courts will overturn them only on very narrow grounds such as fraud or arbitrator misconduct. Customer disputes are heard by panels structured under FINRA rules, often allowing customers to choose an all-public panel. Arbitration is generally faster and less formal than court litigation.FINRA Rules

The Securities Exchange Act of 1934 is best known for:

• a.Regulating the secondary trading of securities and creating the SEC✓
• b.Governing the structure of mutual funds
• c.Setting rules exclusively for municipal bond issuers
• d.Requiring registration of securities before their initial public offering

The Securities Exchange Act of 1934 regulates the secondary market (trading of already-issued securities), broker-dealers, and exchanges, and it created the SEC. By contrast, the Securities Act of 1933 focuses on the primary market and the registration of new securities offerings. Understanding this distinction is fundamental to the SIE.Securities Exchange Act of 1934

A firm discovers that one of its representatives opened a brokerage account at another member firm without notifying either firm. Under FINRA rules on accounts at other broker-dealers, the representative generally must:

• a.Report the account only to the SEC within 30 calendar days of opening it
• b.Take no action, because personal brokerage accounts are private and fall outside FINRA rules
• c.Notify the executing firm of their association and notify their employer of the account✓
• d.Close the account immediately and file a written explanation with FINRA

Under FINRA Rule 3210, an associated person who opens an account at another firm must generally notify their employing member firm and inform the executing firm of their association. The executing firm must, upon request, send duplicate confirmations and statements to the employer. This allows firms to monitor associated persons' personal trading.FINRA Rules

Which of the following registration categories would a person most likely need to sell general securities, including stocks and bonds, to retail customers?

• a.Series 27 Financial and Operations Principal
• b.Series 6 Investment Company Products representative
• c.Series 24 General Securities Principal
• d.Series 7 General Securities Representative✓

The Series 7 General Securities Representative registration, taken together with the SIE, qualifies a person to sell a broad range of securities including stocks, bonds, and options to retail customers. The Series 6 is limited to packaged products. Principal categories such as Series 24 and 27 are for supervisory and financial-operations roles, not general retail sales.FINRA Rules

A representative is offered, and wants to accept, an appointment to the board of directors of a private company in exchange for a fee. Under FINRA rules, this is best handled as:

• a.An outside business activity requiring prior written notice to the firm✓
• b.A reportable gift, logged against FINRA's $300 annual per-person gift limit
• c.A political contribution subject to the two-year ban under MSRB Rule G-37
• d.A private securities transaction requiring the firm's prior written approval

Serving as a director of an outside company for compensation is an outside business activity under FINRA Rule 3270, requiring prior written notice to the employing member firm. The firm then evaluates whether the activity raises conflicts or must be limited. This is different from a private securities transaction, which involves effecting securities transactions away from the firm.FINRA Rules

FINRA's BrokerCheck tool is best described as:

• a.An internal tool used only by SEC examiners when building enforcement cases against firms
• b.An order-entry system that member firms use to place and route customer securities trades
• c.A private subscription database available only to member firms and their compliance staff
• d.A free public service that discloses registration and disciplinary information about firms and brokers✓

BrokerCheck is a free online tool operated by FINRA that lets the public research the background, registration status, and disciplinary history of brokerage firms and individual brokers. Much of its information is drawn from the CRD system, including data from Forms U4 and U5. It helps investors make informed decisions before doing business with a firm or representative.FINRA Rules

An investor buys 200 shares of a long-public company on an exchange. Who receives the money from this purchase?

• a.The investor who sold the shares✓
• b.The issuing company, as new capital
• c.The SEC, which holds it in escrow
• d.The underwriting syndicate

This is a secondary-market trade in an existing security, so the money goes from the buyer to the investor who sold the shares — not to the issuing company, which received its capital back at the original offering. The SEC and the underwriters are not parties to a routine secondary trade.

Which federal law primarily governs the registration and disclosure requirements for a new issue of securities sold to the public?

• a.The Securities Exchange Act of 1934
• b.The Investment Company Act of 1940
• c.The Bank Secrecy Act
• d.The Securities Act of 1933✓

The Securities Act of 1933 governs the registration and prospectus-disclosure requirements for new issues sold to the public. The 1934 Act governs the secondary market and the SEC; the 1940 Act covers investment companies; the BSA is anti-money-laundering law.