SIE Regulations (FINRA Rules) Exam Questions and
Answers Graded A FULL Test Bank
What is the U.S. Government agency that has enforcement authority over the U.S.
securities markets? - ANSWER SEC
Both FINRA and the Securities and Exchange Commission (SEC) regulate and have
enforcement capability over the U.S. securities markets and market participants.
However, the SEC is a government agency, while FINRA is an SRO - a self-
regulatory organization under SEC oversight.
The Municipal Securities Rulemaking Board is another SRO that creates rules for
municipal market participants, but has no enforcement ability - enforcement of MSRB
rules is performed by FINRA.
The CFTC regulates futures and commodities.
Which of the following is an SRO? - ANSWER MSRB
Both FINRA and the MSRB are SROs - self-regulatory organizations under SEC
oversight. The MSRB write rules for municipal market participants, but it does not
enforce those rules. Enforcement of MSRB rules is performed by FINRA for broker-
dealers.
SIPC is the Securities Investor Protection Corporation, which insures customer
accounts at broker-dealers from B/D failure.
FDIC (Federal Deposit Insurance Corporation) insures customer accounts at banks
from bank failure.
FINRA enforces regulations in all of the following markets EXCEPT: - ANSWER
Futures Market
FINRA is the regulator for all of the securities markets - the Primary Market (new
issues); the First Market (trades on exchanges); the Second Market (OTC trades of
non-exchange listed securities); the Third Market (OTC trades of exchange listed
issues) and the Fourth Market (direct trading between institutions on ECNs and
ATSs).
FINRA has no regulatory authority over the futures markets - that function is
performed by the CFTC - the Commodities Futures Trading Commission.
Who does NOT have to be licensed in a broker-dealer? - ANSWER Partner who
only provides capital
,Passive owners of broker-dealers, who can be officers, are not required to be
licensed. All other officers, traders, and salespersons must be registered and
licensed.
Salespersons may be compensated based on which of the following? - ANSWER
Trading commissions paid by the brokerage firm to the representative
Broker-dealers earn commissions or mark-ups/mark-downs for execution
transactions. Investment Advisers earn fees for rendering advice.
Compensation cannot be directly paid by the customer to any salesperson. All
compensation must be paid by the salesperson's employer.
To take a second job, under FINRA rules, a registered representative must obtain
prior written approval from (the): - ANSWER Branch Manager
For a registered representative to take a second job requires approval of the branch
manager under FINRA rules. The manager is acting for the member firm when doing
so. There is no requirement to get approval from FINRA or the SEC.
What activity undertaken by a registered representative will require written notice to
the firm, along with following the firm's instructions covering this activity? - ANSWER
Driving for Uber after the markets have closed and securities transactions are not
occurring
Driving for Uber is work for pay - and to take an outside job, the representative must
give notice to the firm, follow the firm's instructions (so if the firm says no, the answer
is no), and must and his or her U4 to show this "OBA" - Outside Business Activity.
Volunteer work for no pay is not an OBA, unless it places the representative in a
control position to direct the management of investment funds. Traveling by a
representative does not have to be reported to the firm. Selling investments, whether
proprietary (meaning products of that firm) or nonproprietary, (meaning products of
other securities issuers) is the job description of a registered representative.
A registered representative at a FINRA member firm has been elected to his
cooperative apartment building's Board of Directors. Which statement is TRUE? -
ANSWER This event must be reported to his or her employer
Any "OBA" - Outside Business Activity - must be reported to the firm and must be
approved by the firm. Furthermore, it must be reported on that registered
representative's U4 Form and is disclosed in that individual's BrokerCheck report.
Remember that an individual does not have to be paid for an OBA to exist. If the
representative is in the position to steer investment activities of the outside business
entity - that makes it an OBA. The fact that the registered representative, on the
Board of Directors of the cooperative apartment house, would be in a position to
steer the investment activities of the coop's operating and reserve funds - makes this
an OBA.
, Under FINRA rules, the maximum permitted annual gift from a registered
representative to another person in the securities business or financial information
media is: - ANSWER $100
Under FINRA rules, the maximum permitted gift that can be given to another person
in the securities business or the financial news media is $100 per person per year.
What item given from a mutual fund sponsor to a registered representative is NOT
considered to be "non-cash compensation"? - ANSWER An expense-paid trip to an
educational conference
FINRA prohibits registered representatives from accepting a gift in the amount of
more than $100, and also prohibits representatives from accepting "non-cash
compensation" from someone other than their employer that exceeds this $100 limit.
Note that an exception to the prohibition is given to sponsor-held educational
seminars. The sponsor can pay for the registered representative's travel,
accommodations, and meals at the conference. However, the conference cannot be
promotional - it must be educational. Furthermore, the sponsor cannot pay for friends
and family of the registered representative to come along.
Which action is permitted under FINRA rules? - ANSWER Business entertainment
does not fall under the $100 gift limit. Business entertainment is permitted as long as
it is not too excessive ($1200 for raw fish seems excessive!) or too frequent and it
must comply with the firm's policies and procedures. Business entertainment means
that the representative and the customer are together at some type of event.
A client of a registered representative refers a new potential customer. This
customer is interested in purchasing an oil and gas limited partnership unit. What
percentage of the purchase amount can the representative share with the referring
client as a finder's fee? - ANSWER 0%
Registered representatives cannot share commissions, sales charges, or pay referral
fees, to anyone other than another registered person at the same member firm.
A registered representative at another member firm has a client who wishes to buy a
Direct Participation Program (DPP) unit, a product that is not offered through his firm.
He has a friend that is a registered representative at another member firm where
DPPs are sold, and offers to refer the prospective client in exchange for a small fee.
Which statement is TRUE? - ANSWER This is prohibited
Registered representatives can only share commissions or pay referral fees to other
registered persons at the same broker-dealer. Because these 2 representatives work
for different firms, payment of the referral fee is prohibited.
The Firm Element component of the "Continuing Education" requirement must be
completed: - ANSWER annually
Answers Graded A FULL Test Bank
What is the U.S. Government agency that has enforcement authority over the U.S.
securities markets? - ANSWER SEC
Both FINRA and the Securities and Exchange Commission (SEC) regulate and have
enforcement capability over the U.S. securities markets and market participants.
However, the SEC is a government agency, while FINRA is an SRO - a self-
regulatory organization under SEC oversight.
The Municipal Securities Rulemaking Board is another SRO that creates rules for
municipal market participants, but has no enforcement ability - enforcement of MSRB
rules is performed by FINRA.
The CFTC regulates futures and commodities.
Which of the following is an SRO? - ANSWER MSRB
Both FINRA and the MSRB are SROs - self-regulatory organizations under SEC
oversight. The MSRB write rules for municipal market participants, but it does not
enforce those rules. Enforcement of MSRB rules is performed by FINRA for broker-
dealers.
SIPC is the Securities Investor Protection Corporation, which insures customer
accounts at broker-dealers from B/D failure.
FDIC (Federal Deposit Insurance Corporation) insures customer accounts at banks
from bank failure.
FINRA enforces regulations in all of the following markets EXCEPT: - ANSWER
Futures Market
FINRA is the regulator for all of the securities markets - the Primary Market (new
issues); the First Market (trades on exchanges); the Second Market (OTC trades of
non-exchange listed securities); the Third Market (OTC trades of exchange listed
issues) and the Fourth Market (direct trading between institutions on ECNs and
ATSs).
FINRA has no regulatory authority over the futures markets - that function is
performed by the CFTC - the Commodities Futures Trading Commission.
Who does NOT have to be licensed in a broker-dealer? - ANSWER Partner who
only provides capital
,Passive owners of broker-dealers, who can be officers, are not required to be
licensed. All other officers, traders, and salespersons must be registered and
licensed.
Salespersons may be compensated based on which of the following? - ANSWER
Trading commissions paid by the brokerage firm to the representative
Broker-dealers earn commissions or mark-ups/mark-downs for execution
transactions. Investment Advisers earn fees for rendering advice.
Compensation cannot be directly paid by the customer to any salesperson. All
compensation must be paid by the salesperson's employer.
To take a second job, under FINRA rules, a registered representative must obtain
prior written approval from (the): - ANSWER Branch Manager
For a registered representative to take a second job requires approval of the branch
manager under FINRA rules. The manager is acting for the member firm when doing
so. There is no requirement to get approval from FINRA or the SEC.
What activity undertaken by a registered representative will require written notice to
the firm, along with following the firm's instructions covering this activity? - ANSWER
Driving for Uber after the markets have closed and securities transactions are not
occurring
Driving for Uber is work for pay - and to take an outside job, the representative must
give notice to the firm, follow the firm's instructions (so if the firm says no, the answer
is no), and must and his or her U4 to show this "OBA" - Outside Business Activity.
Volunteer work for no pay is not an OBA, unless it places the representative in a
control position to direct the management of investment funds. Traveling by a
representative does not have to be reported to the firm. Selling investments, whether
proprietary (meaning products of that firm) or nonproprietary, (meaning products of
other securities issuers) is the job description of a registered representative.
A registered representative at a FINRA member firm has been elected to his
cooperative apartment building's Board of Directors. Which statement is TRUE? -
ANSWER This event must be reported to his or her employer
Any "OBA" - Outside Business Activity - must be reported to the firm and must be
approved by the firm. Furthermore, it must be reported on that registered
representative's U4 Form and is disclosed in that individual's BrokerCheck report.
Remember that an individual does not have to be paid for an OBA to exist. If the
representative is in the position to steer investment activities of the outside business
entity - that makes it an OBA. The fact that the registered representative, on the
Board of Directors of the cooperative apartment house, would be in a position to
steer the investment activities of the coop's operating and reserve funds - makes this
an OBA.
, Under FINRA rules, the maximum permitted annual gift from a registered
representative to another person in the securities business or financial information
media is: - ANSWER $100
Under FINRA rules, the maximum permitted gift that can be given to another person
in the securities business or the financial news media is $100 per person per year.
What item given from a mutual fund sponsor to a registered representative is NOT
considered to be "non-cash compensation"? - ANSWER An expense-paid trip to an
educational conference
FINRA prohibits registered representatives from accepting a gift in the amount of
more than $100, and also prohibits representatives from accepting "non-cash
compensation" from someone other than their employer that exceeds this $100 limit.
Note that an exception to the prohibition is given to sponsor-held educational
seminars. The sponsor can pay for the registered representative's travel,
accommodations, and meals at the conference. However, the conference cannot be
promotional - it must be educational. Furthermore, the sponsor cannot pay for friends
and family of the registered representative to come along.
Which action is permitted under FINRA rules? - ANSWER Business entertainment
does not fall under the $100 gift limit. Business entertainment is permitted as long as
it is not too excessive ($1200 for raw fish seems excessive!) or too frequent and it
must comply with the firm's policies and procedures. Business entertainment means
that the representative and the customer are together at some type of event.
A client of a registered representative refers a new potential customer. This
customer is interested in purchasing an oil and gas limited partnership unit. What
percentage of the purchase amount can the representative share with the referring
client as a finder's fee? - ANSWER 0%
Registered representatives cannot share commissions, sales charges, or pay referral
fees, to anyone other than another registered person at the same member firm.
A registered representative at another member firm has a client who wishes to buy a
Direct Participation Program (DPP) unit, a product that is not offered through his firm.
He has a friend that is a registered representative at another member firm where
DPPs are sold, and offers to refer the prospective client in exchange for a small fee.
Which statement is TRUE? - ANSWER This is prohibited
Registered representatives can only share commissions or pay referral fees to other
registered persons at the same broker-dealer. Because these 2 representatives work
for different firms, payment of the referral fee is prohibited.
The Firm Element component of the "Continuing Education" requirement must be
completed: - ANSWER annually
