FINRA Securities Industry Essentials

Question 1

What is the primary role of FINRA?

Accepted Answer

Regulate the securities industry

Answer

FINRA (Financial Industry Regulatory Authority) is the largest independent regulator for all securities firms doing business in the United States. Its primary role is to protect investors and ensure market integrity by overseeing broker-dealers, enforcing rules, and examining firms for compliance with federal securities laws. FINRA writes and enforces rules governing the activities of more than 3,700 broker-dealers with 624,000 brokers.

Question 2

Which financial instrument represents ownership in a company?

Accepted Answer

Stocks

Answer

Stocks, also known as equities, represent ownership shares in a company. When an investor buys stock, they become a part-owner of the issuing corporation, gaining rights such as voting on company matters (for common stock) and a claim on the company's assets and earnings. This ownership stake allows investors to participate in the company's growth and profitability.

Question 3

What does the Securities Act of 1933 primarily regulate?

Accepted Answer

Issuance of new securities

Answer

The Securities Act of 1933 is a foundational piece of U.S. securities law primarily regulating the issuance of new securities to the public. It mandates that companies offering securities for sale must provide investors with material information, typically through a registration statement and prospectus, to ensure transparency and prevent fraud in primary market transactions. This act aims to protect investors by requiring full disclosure.

Question 4

Which organization insures customer accounts against brokerage firm failures?

Accepted Answer

SIPC

Answer

The Securities Investor Protection Corporation (SIPC) is a non-profit, member-funded corporation that protects customers of its member brokerage firms in the event the firm fails financially. SIPC protects securities and cash up to $500,000, including $250,000 for cash claims, ensuring investors don't lose their assets if their brokerage goes out of business. It is not an insurance against market losses, but against firm insolvency.

Question 5

What is the function of a market maker?

Accepted Answer

Provide liquidity by buying and selling securities

Answer

A market maker is a firm or individual that stands ready to buy and sell a particular stock or other financial instrument on a regular and continuous basis. Their primary function is to provide liquidity to the market by quoting both a bid (buy) and an ask (sell) price. This facilitates trading and ensures that investors can always find a counterparty for their transactions, making markets more efficient.

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Securities Industry Essentials