FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 111:

  When is it permissible to exercise European-style options contracts?

  A. Only on the last business day before expiration
  B. Only on the day of expiration
  C. Only on the day after expiration
  D. Only on the third Friday of every month
  B. Only on the day of expiration

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  Explanation

  European-Style Options: Can only be exercised on their expiration date, unlike American-style options, which can be exercised any time before expiration.

  Incorrect Options:

  A: Not accurate; the exercise must occur specifically on the expiration date.

  C: Options cannot be exercised after expiration.

  D: The expiration date depends on the option contract, not a specific weekday.

  Options Clearing Corporation (OCC) Guidelines: OCC European Options.

• Question 112:

  Which of the following investors is permitted to purchase shares in an equity initial public offering (IPO)?

  A. A portfolio manager of a bank for their own account
  B. An individual that is defined as an institutional customer
  C. An individual employed at a broker-dealer (BD) in a non-registered capacity
  D. A registered representative at a BD that is not involved with the IPO
  B. An individual that is defined as an institutional customer

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  Explanation

  FINRA rules restrict allocations of shares in certain equity IPOs to prevent improper practices and conflicts of interest, especially involving industry insiders and "restricted persons." However, institutional customers are generally permitted to purchase IPO shares, subject to the firm's allocation policies and applicable restrictions. Therefore, the best answer is B. Choice A is problematic because a bank portfolio manager purchasing "for their own account" may fall into restricted categories depending on role and affiliations; the phrasing suggests a financial industry professional acting personally, which raises restricted person concerns.

  Choice C is also generally restricted: persons associated with a broker-dealer (even in a non-registered role) may be considered restricted persons for IPO allocations, depending on the specifics, because the rule is designed to keep IPO shares from being funneled to industry insiders who could benefit improperly.

  Choice D is similarly suspicious because registered representatives at any broker-dealer may be restricted from buying IPO shares for their own accounts even if their firm is not involved in the offering; the restriction focuses on associated persons and conflicts, not just participation in the specific deal. On the SIE, the tested concept is that IPO allocations are subject to rules designed to protect fairness and prevent "spinning" or insider favoritism. Institutional customers are generally not the prohibited category in this set of options, making them the clean permitted choice.

• Question 113:

  The market price of a stock is generally reduced by the amount of the cash dividend on which of the following dates?

  A. Redemption date
  B. Ex-dividend date
  C. Dividend record date
  D. Dividend payment date
  B. Ex-dividend date

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  Explanation

  A stock's price is generally adjusted downward by the amount of the declared cash dividend on the ex-dividend date, so B is correct. The ex-dividend date is the first day the stock trades without the right to receive the upcoming dividend.

  Investors who purchase on or after the ex-dividend date are not entitled to that declared dividend; the seller retains the right to receive it. Because new buyers are no longer receiving that cash distribution, the market typically reflects this by reducing the stock's price by approximately the dividend amount (all else equal). This is a standard SIE-tested dividend timing concept. The record date (choice C) is the date on which the company reviews its shareholder records to determine who is entitled to receive the dividend. It is a corporate bookkeeping cutoff and is not the date the market typically adjusts the price. The payment date (choice D) is when the company actually pays the dividend to shareholders of record; again, this is not when the stock generally drops by the dividend amount. Choice A is incorrect because "redemption date" applies to instruments like bonds, CDs, or redeemable fund shares-not common stock dividends. This topic sits under corporate actions and dividend mechanics, and the SIE expects you to connect the sequence: declaration date (announced), ex-dividend date (price adjustment / eligibility cutoff for buyers), record date (company records), and payable/ payment date (cash distributed). Understanding the ex-dividend date is crucial for customer communication, trade timing, and explaining why price may appear to "drop" even without negative news.

• Question 114:

  A registered representative (RR) intends to enter into an arrangement for compensation with an unaffiliated entity to participate in the sale of promissory notes to the general public.

  Which of the following statements is true?

  A. This is a permissible arrangement, and the RR is only required to notify his firm.
  B. The RR must receive written approval from his firm prior to entering into this arrangement.
  C. The RR is required to notify his firm regarding this arrangement if compensation received is directly related to transactions.
  D. The RR is not required to provide prior notice to his firm as promissory notes are not considered securities.
  B. The RR must receive written approval from his firm prior to entering into this arrangement.

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  Explanation

  Private Securities Transactions: Under FINRA Rule 3280, RRs must obtain written approval from their employing firm before participating in the sale of securities outside the firm.

  Promissory Notes: These are typically considered securities, requiring prior approval.

  Incorrect Options: A &

  C: Notification alone is insufficient; written approval is required.

  D: Promissory notes are generally treated as securities under federal law. FINRA Rule 3280 (Private Securities Transactions): FINRA Rule 3280.

• Question 115:

  A customer has agreed to purchase a risky investment. The registered representative's (RR's) firm requires the customer's signature on a risk disclosure form; however, the customer is unavailable to sign the form. The RR signs the form on behalf of the customer using a digital signature platform.

  Which of the following statements best describes the permissibility of the RR's actions?

  A. The RR's actions are permissible since the customer was unavailable.
  B. The RR's actions are permissible since the investment is suitable for the customer and the RR has received oral authorization to place the order.
  C. The RR's actions are impermissible since the RR is prohibited from signing on the customer's behalf.
  D. The RR's actions are impermissible since the RR is only permitted to sign on the customer's behalf if using a hard copy form.
  C. The RR's actions are impermissible since the RR is prohibited from signing on the customer's behalf.

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  Explanation

  The RR's actions are impermissible because an RR may not sign a document on behalf of a customer to satisfy documentation requirements, regardless of whether the signature is "digital" or on paper. Signing for a customer is essentially a falsification or "signature of convenience," which is a serious compliance violation. Firms require customer signatures on certain disclosures to evidence that the customer received and acknowledged the risks and terms; if the customer is unavailable, the correct approach is to delay the transaction, obtain the proper signature, or follow firm-approved alternative procedures-not to sign for the customer. Therefore, C is correct. Choice A is incorrect because the customer's unavailability does not justify falsifying documentation.

  Choice B is incorrect because suitability and oral authorization do not permit the RR to execute a customer signature requirement; suitability does not waive documentation rules.

  Choice D is incorrect because the prohibition is not about the medium; signing on the customer's behalf is improper whether digital or hard copy. On the SIE, this ties to books and records integrity and prohibited practices: firms and associated persons must maintain accurate records and cannot create misleading documentation. Regulators treat record falsification as a major violation because it undermines supervision, customer protection, and regulatory examinations.

• Question 116:

  Which of the following best describes systematic risk?

  A. Risk specific to a single company
  B. Risk that can be eliminated through diversification
  C. Market-wide risk affecting all securities
  D. Risk associated with a firm's management decisions
  C. Market-wide risk affecting all securities

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  Explanation

  Systematic Risk: Also known as market risk, it affects the entire market and cannot be diversified away.

  Incorrect Options:

  A, B, and D: Describe unsystematic (company-specific) risk.

• Question 117:

  The SEC is Investigating an individual who Is potentially trading with material nonpublic Information concerning their former employer.

  Which of the following statements describes the authority, if any, that the SEC has?

  A. The SEC has the authority to file civil charges only.
  B. The SEC has the authority to file criminal charges only.
  C. The SEC has the authority to file civil and criminal charges.
  D. The SEC does not have the authority to file charges, only to issue fines and restitution.
  A. The SEC has the authority to file civil charges only.

• Question 118:

  Which of the following is a function of a clearing firm?

  A. Issuing securities
  B. Matching and settling trades
  C. Regulating broker-dealers
  D. Setting interest rates
  B. Matching and settling trades

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  Explanation

  Clearing Firms: Handle trade comparison, clearing, and settlement processes.

  Incorrect Options:

  A: Issuers.

  C: Regulators.

  D: Federal Reserve.

• Question 119:

  A summary prospectus for a mutual fund must contain which of the following information?

  A. Projected return
  B. Investment objectives
  C. Fund's portfolio holdings
  D. Control persons and principal owners of the fund
  B. Investment objectives

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  Explanation

  Summary Prospectus Content: Must include key information such as the fund's investment objectives, risks, fees, and past performance. This helps investors make informed decisions.

  Incorrect Options:

  A: Projected returns are speculative and not included in the prospectus.

  C & D: Detailed portfolio holdings and control persons are included in the full prospectus, not the summary.

  SEC Rule 498 (Summary Prospectuses): SEC Prospectus Requirements.

• Question 120:

  For a customer thinking about purchasing a high-income bond mutual fund, which of the following is considered the primary risk of the underlying securities in the portfolio?

  A. Credit risk
  B. Political risk
  C. Taxability risk
  D. Purchasing power risk
  A. Credit risk

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  Explanation

  High-income bond mutual funds typically invest in lower-rated (junk) bonds that offer higher yields. These bonds are exposed to significant credit risk, as issuers may default on their payments. A is correct because credit risk is the primary concern with high-yield bonds. B is incorrect as political risk is more relevant for international investments.

  C is incorrect because taxability risk is not specific to bond mutual funds. D is incorrect because purchasing power risk is more relevant for fixed-income investments during inflationary periods but is not the primary risk here.

  References:

  SIE Study Guide, Chapter 3: Risks Associated with Bonds