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FINRA SIE TEST 2026/2027 | Final Exam & Practice Exam |
Complete Questions with Detailed Verified Answers | 100%
Correct | Already Graded A+ | Pass Guaranteed
PRACTICE EXAM - 75 QUESTIONS - INSTRUCTIONAL WITH EXTENDED
RATIONALES
P1: Regulatory Framework & Professional Conduct (Q1-18)
Q1. A retail investor asks her registered representative whether the SEC or FINRA is
responsible for examining her brokerage firm for compliance with sales practice
rules. The representative should explain that: A. The SEC directly examines all broker-
dealers for sales practice compliance. B. FINRA is the SRO that examines member
firms for sales practice and financial compliance. C. State securities administrators
examine all broker-dealers instead of FINRA. D. The MSRB examines broker-dealers
for equity trading violations.
B. FINRA is the SRO that examines member firms for sales practice and financial
compliance. [CORRECT] Rationale: FINRA is the self-regulatory organization (SRO)
that regulates member broker-dealers, while the SEC oversees FINRA and the
markets; the MSRB regulates municipal securities dealers, not equity trading. Correct
Answer: B
Q2. Under the Securities Act of 1933, which of the following statements is TRUE
regarding the registration process for new securities offerings? A. The SEC
guarantees the accuracy of all information in a registration statement. B. The 1933
Act requires full disclosure of material facts but does not guarantee investment merit.
C. The 1933 Act prohibits the sale of all securities unless registered with the SEC. D.
Registration with the SEC ensures the issuer will be profitable.
B. The 1933 Act requires full disclosure of material facts but does not guarantee
investment merit. [CORRECT] Rationale: The Securities Act of 1933 is a disclosure
statute requiring issuers to provide material information; the SEC does not pass on
investment quality or guarantee accuracy, and numerous exemptions allow
unregistered sales. Correct Answer: B
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Q3. A broker-dealer recommends a complex structured product to a 68-year-old
retail customer with a moderate risk tolerance who needs income preservation. The
firm fails to explain the product's illiquidity, embedded fees, or downside risks. Under
Regulation Best Interest, which obligation has the firm most clearly violated? A. The
Disclosure Obligation only. B. The Care Obligation. C. The Conflict of Interest
Obligation only. D. The Compliance Obligation only.
B. The Care Obligation. [CORRECT] Rationale: Reg BI's Care Obligation requires
exercising reasonable diligence, care, and skill to understand the product, the
customer's profile, and reasonably available alternatives; failing to explain risks and
recommend an unsuitable complex product to a conservative retiree violates this
duty. Correct Answer: B
Q4. An affiliate of an issuer wishes to sell restricted securities under Rule 144. The
issuer is a reporting company under the Securities Exchange Act of 1934. What is the
minimum holding period for these restricted securities? A. 30 days. B. 6 months. C. 1
year. D. 2 years.
B. 6 months. [CORRECT] Rationale: Under Rule 144, restricted securities of reporting
companies have a 6-month holding period, while non-reporting companies require
12 months; this is a common SIE trap confusing the two thresholds. Correct Answer:
B
Q5. In its 2026 Annual Regulatory Oversight Report, FINRA emphasized that member
firms must establish governance frameworks to supervise the use of generative AI
(GenAI) in customer communications. Which of the following is a specific control
FINRA expects firms to implement? A. Allowing associated persons to use GenAI
autonomously without principal review. B. Addressing hallucinations, bias,
cybersecurity risks, and ongoing human monitoring of model outputs. C. Prohibiting
all use of AI in customer-facing communications entirely. D. Delegating GenAI
oversight solely to the firm's marketing department.
B. Addressing hallucinations, bias, cybersecurity risks, and ongoing human
monitoring of model outputs. [CORRECT] Rationale: FINRA's 2026 Report explicitly
states that firms must assess regulatory compliance before deploying GenAI and
establish controls addressing hallucinations, bias, cybersecurity risks, and threat-actor
use of AI, with essential ongoing human monitoring. Correct Answer: B
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Q6. Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 are
primarily used to prosecute: A. Issuers that fail to pay dividends to shareholders. B.
Fraudulent and manipulative practices in connection with securities transactions. C.
Broker-dealers that charge excessive markups on municipal bonds. D. Investment
advisers that fail to file Form ADV annually.
B. Fraudulent and manipulative practices in connection with securities transactions.
[CORRECT] Rationale: Section 10(b) and Rule 10b-5 are the primary anti-fraud
provisions prohibiting material misstatements, omissions, and manipulative devices
in securities trading, including insider trading schemes. Correct Answer: B
Q7. An officer of a publicly traded company purchases 1,000 shares of company
stock on March 1 and sells all 1,000 shares at a profit on July 15 of the same year.
Under Section 16(b) of the Securities Exchange Act of 1934, which statement is
TRUE? A. The officer may keep the profit because the sale occurred more than 90
days after purchase. B. The officer must disgorge the profit to the issuer because the
purchase and sale occurred within six months. C. The officer is exempt from Section
16(b) because officers are not subject to short-swing profit rules. D. The officer must
file a Form 144 but may retain the profit.
B. The officer must disgorge the profit to the issuer because the purchase and sale
occurred within six months. [CORRECT] Rationale: Section 16(b) requires officers,
directors, and 10% beneficial owners to disgorge any profits from purchases and
sales within a six-month period regardless of intent; the 90-day period applies to
Form 144, not Section 16(b). Correct Answer: B
Q8. A broker-dealer receives revenue sharing payments from a mutual fund company
for recommending its funds to retail customers but fails to disclose these payments
on trade confirmations or in marketing materials. Under Regulation Best Interest, this
failure most directly violates which obligation? A. The Care Obligation. B. The
Disclosure Obligation. C. The Conflict of Interest Obligation. D. Both the Disclosure
and Conflict of Interest Obligations.
D. Both the Disclosure and Conflict of Interest Obligations. [CORRECT] Rationale:
Reg BI requires firms to disclose material facts about conflicts (Disclosure Obligation)
and to establish, maintain, and enforce policies to identify and mitigate conflicts
(Conflict of Interest Obligation); hiding revenue sharing violates both. Correct
Answer: D
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Q9. Which of the following entities is correctly matched with its regulatory function?
A. FINRA regulates investment advisers. B. The MSRB regulates municipal securities
dealers and municipal advisors. C. The NFA regulates stock exchanges. D. The CFTC
regulates corporate bond issuers.
B. The MSRB regulates municipal securities dealers and municipal advisors.
[CORRECT] Rationale: The MSRB is the SRO for municipal securities; FINRA regulates
broker-dealers, not investment advisers (SEC/state regulators do); the NFA regulates
futures, and the CFTC regulates commodities/futures markets. Correct Answer: B
Q10. Under Rule 144A, a private resale of securities may be made to: A. Any retail
investor with a net worth exceeding $500,000. B. Qualified Institutional Buyers (QIBs)
purchasing at least $500,000 in principal amount. C. Up to 35 non-accredited
investors who are financially sophisticated. D. Any institutional investor without
minimum purchase requirements.
B. Qualified Institutional Buyers (QIBs) purchasing at least $500,000 in principal
amount. [CORRECT] Rationale: Rule 144A permits private resales to QIBs (institutions
owning and investing $100M+ in securities on a discretionary basis) with a minimum
$500,000 investment; it does not involve retail investors or the 35 non-accredited
investor limit. Correct Answer: B
Q11. An issuer wants to raise capital through a private placement using general
solicitation and advertising. Under Regulation D, which exemption allows this
approach? A. Rule 506(b), provided all purchasers are accredited investors. B. Rule
506(c), provided the issuer takes reasonable steps to verify accredited investor status.
C. Rule 504, which permits unlimited non-accredited investors. D. Regulation A+,
which is a public offering framework.
B. Rule 506(c), provided the issuer takes reasonable steps to verify accredited
investor status. [CORRECT] Rationale: Rule 506(c) permits general solicitation
exclusively to accredited investors, but the issuer must verify status (unlike 506(b)
where investors self-certify); Rule 504 has dollar limits, and Regulation A+ is a public
offering exemption. Correct Answer: B
Q12. According to FINRA's 2026 Annual Regulatory Oversight Report, when a
member firm or its associated persons accept, trade, or transfer crypto assets, what
must the firm establish? A. A marketing plan to promote crypto assets to all retail
customers. B. Risk-based, on-chain fraud and AML review procedures with
FINRA SIE TEST 2026/2027 | Final Exam & Practice Exam |
Complete Questions with Detailed Verified Answers | 100%
Correct | Already Graded A+ | Pass Guaranteed
PRACTICE EXAM - 75 QUESTIONS - INSTRUCTIONAL WITH EXTENDED
RATIONALES
P1: Regulatory Framework & Professional Conduct (Q1-18)
Q1. A retail investor asks her registered representative whether the SEC or FINRA is
responsible for examining her brokerage firm for compliance with sales practice
rules. The representative should explain that: A. The SEC directly examines all broker-
dealers for sales practice compliance. B. FINRA is the SRO that examines member
firms for sales practice and financial compliance. C. State securities administrators
examine all broker-dealers instead of FINRA. D. The MSRB examines broker-dealers
for equity trading violations.
B. FINRA is the SRO that examines member firms for sales practice and financial
compliance. [CORRECT] Rationale: FINRA is the self-regulatory organization (SRO)
that regulates member broker-dealers, while the SEC oversees FINRA and the
markets; the MSRB regulates municipal securities dealers, not equity trading. Correct
Answer: B
Q2. Under the Securities Act of 1933, which of the following statements is TRUE
regarding the registration process for new securities offerings? A. The SEC
guarantees the accuracy of all information in a registration statement. B. The 1933
Act requires full disclosure of material facts but does not guarantee investment merit.
C. The 1933 Act prohibits the sale of all securities unless registered with the SEC. D.
Registration with the SEC ensures the issuer will be profitable.
B. The 1933 Act requires full disclosure of material facts but does not guarantee
investment merit. [CORRECT] Rationale: The Securities Act of 1933 is a disclosure
statute requiring issuers to provide material information; the SEC does not pass on
investment quality or guarantee accuracy, and numerous exemptions allow
unregistered sales. Correct Answer: B
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Q3. A broker-dealer recommends a complex structured product to a 68-year-old
retail customer with a moderate risk tolerance who needs income preservation. The
firm fails to explain the product's illiquidity, embedded fees, or downside risks. Under
Regulation Best Interest, which obligation has the firm most clearly violated? A. The
Disclosure Obligation only. B. The Care Obligation. C. The Conflict of Interest
Obligation only. D. The Compliance Obligation only.
B. The Care Obligation. [CORRECT] Rationale: Reg BI's Care Obligation requires
exercising reasonable diligence, care, and skill to understand the product, the
customer's profile, and reasonably available alternatives; failing to explain risks and
recommend an unsuitable complex product to a conservative retiree violates this
duty. Correct Answer: B
Q4. An affiliate of an issuer wishes to sell restricted securities under Rule 144. The
issuer is a reporting company under the Securities Exchange Act of 1934. What is the
minimum holding period for these restricted securities? A. 30 days. B. 6 months. C. 1
year. D. 2 years.
B. 6 months. [CORRECT] Rationale: Under Rule 144, restricted securities of reporting
companies have a 6-month holding period, while non-reporting companies require
12 months; this is a common SIE trap confusing the two thresholds. Correct Answer:
B
Q5. In its 2026 Annual Regulatory Oversight Report, FINRA emphasized that member
firms must establish governance frameworks to supervise the use of generative AI
(GenAI) in customer communications. Which of the following is a specific control
FINRA expects firms to implement? A. Allowing associated persons to use GenAI
autonomously without principal review. B. Addressing hallucinations, bias,
cybersecurity risks, and ongoing human monitoring of model outputs. C. Prohibiting
all use of AI in customer-facing communications entirely. D. Delegating GenAI
oversight solely to the firm's marketing department.
B. Addressing hallucinations, bias, cybersecurity risks, and ongoing human
monitoring of model outputs. [CORRECT] Rationale: FINRA's 2026 Report explicitly
states that firms must assess regulatory compliance before deploying GenAI and
establish controls addressing hallucinations, bias, cybersecurity risks, and threat-actor
use of AI, with essential ongoing human monitoring. Correct Answer: B
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Q6. Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 are
primarily used to prosecute: A. Issuers that fail to pay dividends to shareholders. B.
Fraudulent and manipulative practices in connection with securities transactions. C.
Broker-dealers that charge excessive markups on municipal bonds. D. Investment
advisers that fail to file Form ADV annually.
B. Fraudulent and manipulative practices in connection with securities transactions.
[CORRECT] Rationale: Section 10(b) and Rule 10b-5 are the primary anti-fraud
provisions prohibiting material misstatements, omissions, and manipulative devices
in securities trading, including insider trading schemes. Correct Answer: B
Q7. An officer of a publicly traded company purchases 1,000 shares of company
stock on March 1 and sells all 1,000 shares at a profit on July 15 of the same year.
Under Section 16(b) of the Securities Exchange Act of 1934, which statement is
TRUE? A. The officer may keep the profit because the sale occurred more than 90
days after purchase. B. The officer must disgorge the profit to the issuer because the
purchase and sale occurred within six months. C. The officer is exempt from Section
16(b) because officers are not subject to short-swing profit rules. D. The officer must
file a Form 144 but may retain the profit.
B. The officer must disgorge the profit to the issuer because the purchase and sale
occurred within six months. [CORRECT] Rationale: Section 16(b) requires officers,
directors, and 10% beneficial owners to disgorge any profits from purchases and
sales within a six-month period regardless of intent; the 90-day period applies to
Form 144, not Section 16(b). Correct Answer: B
Q8. A broker-dealer receives revenue sharing payments from a mutual fund company
for recommending its funds to retail customers but fails to disclose these payments
on trade confirmations or in marketing materials. Under Regulation Best Interest, this
failure most directly violates which obligation? A. The Care Obligation. B. The
Disclosure Obligation. C. The Conflict of Interest Obligation. D. Both the Disclosure
and Conflict of Interest Obligations.
D. Both the Disclosure and Conflict of Interest Obligations. [CORRECT] Rationale:
Reg BI requires firms to disclose material facts about conflicts (Disclosure Obligation)
and to establish, maintain, and enforce policies to identify and mitigate conflicts
(Conflict of Interest Obligation); hiding revenue sharing violates both. Correct
Answer: D
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Q9. Which of the following entities is correctly matched with its regulatory function?
A. FINRA regulates investment advisers. B. The MSRB regulates municipal securities
dealers and municipal advisors. C. The NFA regulates stock exchanges. D. The CFTC
regulates corporate bond issuers.
B. The MSRB regulates municipal securities dealers and municipal advisors.
[CORRECT] Rationale: The MSRB is the SRO for municipal securities; FINRA regulates
broker-dealers, not investment advisers (SEC/state regulators do); the NFA regulates
futures, and the CFTC regulates commodities/futures markets. Correct Answer: B
Q10. Under Rule 144A, a private resale of securities may be made to: A. Any retail
investor with a net worth exceeding $500,000. B. Qualified Institutional Buyers (QIBs)
purchasing at least $500,000 in principal amount. C. Up to 35 non-accredited
investors who are financially sophisticated. D. Any institutional investor without
minimum purchase requirements.
B. Qualified Institutional Buyers (QIBs) purchasing at least $500,000 in principal
amount. [CORRECT] Rationale: Rule 144A permits private resales to QIBs (institutions
owning and investing $100M+ in securities on a discretionary basis) with a minimum
$500,000 investment; it does not involve retail investors or the 35 non-accredited
investor limit. Correct Answer: B
Q11. An issuer wants to raise capital through a private placement using general
solicitation and advertising. Under Regulation D, which exemption allows this
approach? A. Rule 506(b), provided all purchasers are accredited investors. B. Rule
506(c), provided the issuer takes reasonable steps to verify accredited investor status.
C. Rule 504, which permits unlimited non-accredited investors. D. Regulation A+,
which is a public offering framework.
B. Rule 506(c), provided the issuer takes reasonable steps to verify accredited
investor status. [CORRECT] Rationale: Rule 506(c) permits general solicitation
exclusively to accredited investors, but the issuer must verify status (unlike 506(b)
where investors self-certify); Rule 504 has dollar limits, and Regulation A+ is a public
offering exemption. Correct Answer: B
Q12. According to FINRA's 2026 Annual Regulatory Oversight Report, when a
member firm or its associated persons accept, trade, or transfer crypto assets, what
must the firm establish? A. A marketing plan to promote crypto assets to all retail
customers. B. Risk-based, on-chain fraud and AML review procedures with
