FINRA Industry Regulations 3

Question 1

Which act established the Securities Investor Protection Corporation (SIPC)?

Accepted Answer

Securities Investor Protection Act of 1970

Answer

The Securities Investor Protection Act of 1970 created SIPC to protect customers of failed broker-dealers up to specified limits.

Question 2

A registered representative convinces elderly customers to frequently switch mutual funds to generate commissions. This activity most likely violates FINRA rules related to:

Accepted Answer

Churning

Answer

Churning involves excessive trading in a customer's account primarily to generate commissions, violating the broker's duty of loyalty.

Question 3

Under FINRA Rule 5130, which of the following persons is generally PROHIBITED from purchasing shares in a new issue (IPO) at the public offering price?

Accepted Answer

A finder who assisted in the IPO for a cash fee

Answer

Rule 5130 prohibits 'restricted persons,' including finders who received compensation related to the offering, from purchasing new issue shares at the public offering price.

Question 4

The 'know your customer' (KYC) obligation under FINRA Rule 2090 requires firms to:

Accepted Answer

Use due diligence to know the essential facts about every customer and account

Answer

Rule 2090 requires broker-dealers to use reasonable diligence to know the essential facts concerning every customer and maintain an understanding of the customer's account.

Question 5

A broker-dealer receives a customer order to buy 1,000 shares and then executes a proprietary buy order in the same security before filling the customer order. This is known as:

Accepted Answer

Front-running

Answer

Front-running occurs when a broker trades for the firm's own account ahead of a known customer order to profit from the anticipated price movement.

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Industry Regulations 3