FINRA Practice and Application 3

Question 1

A broker-dealer firm allows a rep to act as a trustee for a customer's estate. Under FINRA rules, this arrangement requires:

Accepted Answer

Prior written approval from the firm

Answer

Acting as a trustee for a customer is an outside business activity that requires prior written firm approval under FINRA rules.

Question 2

A day trader executes four or more round-trip trades in five business days in a margin account and the trades exceed 6% of total trading activity. The firm must classify this account as a:

Accepted Answer

Pattern day trader account requiring $25,000 minimum equity

Answer

FINRA Rule 4210 defines a pattern day trader as one who executes four or more day trades in five business days if those trades exceed 6% of trading activity, requiring a $25,000 minimum.

Question 3

Which of the following actions by a registered representative would be considered 'churning'?

Accepted Answer

Executing excessive trades in a discretionary account to generate commissions

Answer

Churning involves excessive trading in a customer's account to generate commissions without regard for the customer's investment goals.

Question 4

A customer places a GTC (Good Till Cancelled) limit buy order at $40. The stock pays a $2 cash dividend and the ex-dividend date passes. Under NYSE rules, the limit price is automatically adjusted to:

Accepted Answer

$38

Answer

Open limit orders on the NYSE are reduced by the dividend amount on the ex-dividend date unless the customer specifies 'Do Not Reduce.'

Question 5

Which of the following is a characteristic of Regulation T as it applies to initial margin requirements for purchasing securities?

Accepted Answer

Customers must deposit 50% of the purchase price for most equity securities

Answer

Regulation T, set by the Federal Reserve, requires customers to deposit 50% of the purchase price as initial margin for most equity securities.

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Practice and Application 3