FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 51:

  A registered representative (RR) reads an article online about a thinly traded security that the RR believes has a high likelihood of rapid growth and price appreciation. The RR purchases shares of the security in their own account and recommends to a number of high net worth customers that they purchase shares as well. After the RR's customers make several purchases of the security, the price appreciates, as the RR expected. The RR liquidates their position for a profit and subsequently recommends to customers that they do the same thing.

  Which of the following statements is true regarding this scenario?

  A. This is a deceptive practice that violates FINRA conduct rules.
  B. This is an acceptable practice if the customers' profits were equal to or greater than the RR's.
  C. The RR's recommendations are appropriate as the customers are all high net worth individuals.
  D. The RR violated FINRA rules that state RRs are only permitted to accept unsolicited orders for thinly traded securities.
  A. This is a deceptive practice that violates FINRA conduct rules.

  ---

  Explanation

  This fact pattern describes a classic conflict-and-manipulation style scenario: the RR buys first, promotes purchases to customers in a thinly traded security, benefits from the price increase that customer buying helps create, then sells for a profit and tells customers to sell afterward. In FINRA terms, this is consistent with a deceptive practice that violates standards of commercial honor and fair dealing (e.g., conduct rules requiring ethical behavior and prohibiting manipulative or deceptive devices). Thinly traded securities are especially vulnerable because relatively small buying pressure can move the price materially; when an RR uses their position and influence over customers to create demand that benefits the RR's own account, regulators view that as improper and potentially manipulative. Choice B is wrong because "customers also made money" does not cure a deceptive or manipulative practice. The issue is the RR's conduct, conflicts, and potential misuse of customer recommendations to profit personally.

  Choice C is wrong because suitability and ethical standards apply regardless of a customer's wealth level; high net worth does not make conflicted or deceptive conduct permissible.

  Choice D is wrong because there is no rule that representatives may only accept unsolicited orders for thinly traded securities. Firms may accept solicited orders if recommendations are suitable and communications are fair and balanced, but the scenario here is about deceptive/conflicted trading behavior. On the SIE, this falls under prohibited practices and market manipulation concepts, including ethics, conflicts of interest, and improper trading ahead of customers.

• Question 52:

  What is the sales load of an open-end investment company with a net asset value (NAV) of $14.35 and a public offering price (POP) of $15.50?

  A. 7.40%
  B. 8.00%
  C. 8.50%
  D. 9.25%
  C. 8.50%

  ---

  Explanation

  The sales load is calculated as a percentage of the POP, using the formula: Sales load = (POP # NAV) ?POP ?100

  POP = $15.50, NAV = $14.35.

  Sales load = ($15.50 # $14.35) ?$15.50 ?100 = 8.50%.

  C is correct because the calculation results in an 8.50% load.

  A, B, and D are incorrect due to incorrect calculations.

  References:

  SIE Study Guide, Chapter 5: Mutual Fund Pricing

• Question 53:

  Which of the following rates is subject to the most frequent changes?

  A. Prime
  B. Call loan
  C. Discount
  D. Federal funds
  D. Federal funds

  ---

  Explanation

  The federal funds rate, which is the interest rate banks charge each other for overnight loans, changes frequently due to daily fluctuations in bank reserves and market conditions. D is correct as it is the most sensitive to short-term market forces.

  A, B, and C change less frequently.

  References:

  SIE Study Guide, Chapter 2: Interest Rates

• Question 54:

  SEC regulations permit a company to issue securities exempted from registration requirements of the Securities Act of 1933 under which of the following conditions?

  A. Offerings sold inside of the U.S. to non-U.S. persons
  B. Offerings sold with no more than 40 accredited investors
  C. Offerings sold with an aggregate price exceeding $5 million
  D. Offerings with no more than 35 non-accredited investors and an unlimited number of accredited investors
  D. Offerings with no more than 35 non-accredited investors and an unlimited number of accredited investors

  ---

  Explanation

  Regulation D (Rule 506(b)): Allows offerings to an unlimited number of accredited investors and up to 35 non-accredited investors, provided certain disclosure requirements are met.

  Incorrect Options:

  A: Refers to Regulation S, which governs offshore offerings, not domestic exemptions.

  C: The $5 million limit applies to Rule 504, not Rule 506(b).

  SEC Regulation D: SEC Regulation D.

• Question 55:

  Which of the following events requires reporting on a Form U4?

  A. A misdemeanor speeding ticket
  B. A felony conviction for drunk driving
  C. A bench warrant for missing a court date
  D. A gross-misdemeanor domestic assault conviction
  B. A felony conviction for drunk driving

  ---

  Explanation

  Form U4 (Uniform Application for Securities Industry Registration or Transfer) requires disclosure of any felony convictions, regardless of whether they are securities-related. A felony conviction for drunk driving falls under this requirement. B is correct because a felony conviction must be reported on Form U4. A is incorrect as misdemeanor speeding tickets do not require disclosure unless they involve fraud, theft, or dishonesty. C is incorrect as bench warrants are not reportable unless they lead to a conviction. D is incorrect because gross misdemeanors (except those involving fraud or dishonesty) do not require

  reporting.

  References:

  FINRA By-Laws, Article V, Section 2

  Form U4 Instructions

• Question 56:

  A currency devaluation impacts a country's economic activity in which of the following ways?

  A. Decreases inflation
  B. Decreases gross domestic product (GDP)
  C. Increases imports from merchandise trade countries
  D. Makes exports cost less in merchandise trade countries
  D. Makes exports cost less in merchandise trade countries

  ---

  Explanation

  Currency devaluation reduces the value of a country's currency relative to others, making its exports cheaper and more competitive internationally. This stimulates demand for the country's goods and services. D is correct because devaluation reduces export costs, encouraging foreign buyers. A is incorrect because devaluation can increase inflation by raising the cost of imported goods. B is incorrect because GDP often rises due to increased export demand. C is incorrect because imports become more expensive after devaluation, reducing demand.

  References:

  SIE Study Guide, Chapter 2: International Trade and Currency

• Question 57:

  A broker-dealer (BD) is considering employing a nonregistered person to assist its sales staff in servicing customers.

  Which of the following activities are nonregistered persons permitted to perform?

  A. Taking unsolicited orders from customers
  B. Assisting sales staff in tracing and tabulating commissions
  C. Contacting current customers to determine if they are satisfied with their existing investments
  D. Contacting prospective investors to discuss a BD educational seminar regarding the BD's proprietary mutual fund
  B. Assisting sales staff in tracing and tabulating commissions

  ---

  Explanation

  Nonregistered persons may perform clerical, ministerial, and administrative functions that do not involve securities recommendations, solicitation, or order taking. Assisting sales staff in tracing and tabulating commissions is a classic back-office/administrative task and is permitted for nonregistered personnel, making B correct. This type of activity supports operations but does not involve engaging in securities business that requires registration. Choice A is not permitted because even taking unsolicited orders can be considered participating in securities transactions and can cross into activity reserved for registered persons, depending on the specifics. The SIE expects you to treat order taking as a registered activity unless it is clearly limited to purely clerical receipt and immediate routing under strict supervision-most exam questions treat "taking orders" as requiring registration.

  Choice C is also problematic because contacting customers about whether they are satisfied with their investments can easily become a discussion about performance, holdings, or recommendations. While customer service calls may be allowed if strictly scripted and non-securities related, the wording "satisfied with their existing investments" suggests an investment discussion that can cross into solicitation or advice, which a nonregistered person should not do.

  Choice D is not permitted because contacting prospective investors about a seminar tied to the BD's proprietary mutual fund is effectively marketing/sales-related outreach that can be viewed as solicitation. Even if framed as "educational," it is connected to a specific product and prospecting activity, which generally requires registration. The SIE tests the boundary: nonregistered = administrative support; registered = solicitation, recommendations, and securities business communications.

• Question 58:

  Which of the following assets in an account must a broker-dealer maintain physical possession or control of unless there is an exemption?

  A. All securities in the account
  B. The entire brokerage account
  C. Fully paid-for securities in the account only
  D. Fully paid-for and excess margin securities in the account
  D. Fully paid-for and excess margin securities in the account

  ---

  Explanation

  Broker-dealers are subject to customer protection requirements that include the obligation to maintain physical possession or control of certain customer securities. Specifically, firms generally must maintain possession or control of fully paid-for securities and excess margin securities (unless an exemption applies). That is why D is correct. The concept is investor protection: ensuring that customer securities are safeguarded and readily available, rather than being improperly used by the firm or exposed to unnecessary risk. "Fully paid-for" securities are securities that a customer has paid for in full and therefore should not be encumbered by the firm. "Excess margin" securities are those with a market value greater than what is necessary to support the customer's margin debit. Because these securities represent customer property beyond what is needed as collateral, regulators require heightened safeguards-possession or control-so the firm cannot freely rehypothecate or otherwise misuse them beyond permitted limits. Choice A is too broad; while many securities are protected, not all securities in an account fall under the same possession-or-control requirement in the same way, especially when margin collateral rules allow certain use within limits.

  Choice B is nonsensical because "the entire brokerage account" is not an asset and cannot be physically possessed.

  Choice C is incomplete because it ignores the "excess margin securities" component, which is explicitly included in the standard phrasing of this requirement. For SIE purposes, this is tested as part of custody/safeguarding rules, customer protection concepts, and firm obligations relating to holding customer assets.

• Question 59:

  A city has appointed Broker-dealer XYZ to act as lead underwriter for its upcoming issuance of municipal bonds.

  This is an example of which of the following types of offering?

  A. A follow-on offering
  B. A negotiated offering
  C. A competitive offering
  D. A best-efforts offering
  B. A negotiated offering

  ---

  Explanation

  Negotiated Offering: Occurs when the issuer directly selects an underwriter and negotiates terms.

  Common in municipal bond issuances.

  Incorrect Options:

  A: Follow-on offerings apply to subsequent issuances of equity securities.

  C: Competitive offerings involve multiple underwriters submitting bids.

  D: Best-efforts offerings do not guarantee the sale of all securities.

  MSRB Overview of Municipal Offerings: MSRB Offerings.

• Question 60:

  Under MSRB rules, which of the following information is a municipal securities dealer required to provide annually in writing to each of its customers?

  A. The dealer's year-end income statement
  B. A statement that the dealer is registered with the MSRB
  C. Contact information for the dealer's chief compliance officer
  D. The number of customer complaints that the dealer received in the last year
  B. A statement that the dealer is registered with the MSRB

  ---

  Explanation

  Municipal securities regulation places a strong emphasis on transparency about the dealer's role and regulatory status in the municipal market. Under MSRB customer disclosure expectations, municipal securities dealers are required to provide customers with certain written disclosures, and a commonly tested requirement is that customers receive written notice confirming that the dealer is registered with the MSRB (often tied to annual customer notifications and educational disclosures). Therefore, the correct answer is B. Choice A is incorrect because dealers are not required to distribute their own year-end income statements to customers annually as an MSRB customer disclosure item. Financial statement delivery requirements generally relate to specific contexts (and are not a standard annual customer mailing requirement under MSRB rules for all customers).

  Choice C is not the best choice because while firms must have supervisory and compliance infrastructure and may provide contacts, an annual written requirement to provide the chief compliance officer's contact information is not the standard MSRB annual disclosure item being tested here.

  Choice D is incorrect because dealers do not provide customers an annual count of complaints as a required MSRB disclosure; complaint reporting and recordkeeping are internal compliance matters and may be reportable to regulators, but not typically distributed as a required annual customer disclosure. On the SIE, when you see "municipal securities dealer" + "annual written disclosure," you should think MSRB-focused customer protection messaging-especially disclosures about the dealer's municipal regulatory framework and how municipal customers can access educational resources and regulatory information. The cleanest match among the options is the dealer's written statement of MSRB registration.