FINRA

A firm charges a 4.6% markup on a thinly traded stock, and its principal argues the charge must be acceptable because it came in under the threshold. FINRA's 5% policy is:

1. A.A fairness guideline for markups and commissionsCorrect - a guideline, not a strict cap.
2. B.A hard maximum commission of 5%The number in the name invites this reading, but the policy is a guideline rather than a ceiling. What matters is whether the total charge is fair given the security, the size of the trade, and the work involved.
3. C.A tax rateNothing about the policy concerns taxation. It addresses what a broker-dealer may charge a customer in markups, markdowns, and commissions.
4. D.A minimum commissionThis turns the guideline upside down. It exists to keep charges from becoming excessive, and a rule requiring firms to charge at least a set amount would work against the customer it is meant to protect.

Why: The 5% policy is a guideline that markups, markdowns, and commissions should be fair and reasonable - not a hard limit.

Which of the following is a self-regulatory organization?

1. A.The Federal ReserveThe Fed is the central bank — a government institution, not an industry membership organization.
2. B.The FDICThe FDIC is a federal deposit insurer, not an industry self-regulator.
3. C.FINRACorrect — FINRA is a private body regulating its own members under SEC oversight, the definition of an SRO.
4. D.The SECThe SEC is a federal government agency — it oversees SROs but is not one.

Why: FINRA is a private industry body that regulates its own broker-dealer members under SEC oversight — the definition of an SRO. The SEC is a government agency, the FDIC is a government corporation, and the Federal Reserve is the central bank.

FINRA's 5% markup policy does NOT apply to:

1. A.Corporate bonds in the secondary marketThis runs the question backward. Secondary-market corporate bond trades sit squarely inside the policy's reach, and the stem is hunting for what falls outside it, so a covered transaction cannot be the answer.
2. B.Secondary-market common stockThis is the policy's core case rather than an exception to it. Dealer markups and markdowns on secondary-market equity trades are precisely what the 5% guideline was written to police.
3. C.All transactionsSaying the policy reaches nothing contradicts a guideline that governs most secondary-market dealer transactions. An all-or-nothing option is also the wrong shape for a question asking you to isolate one carved-out category.
4. D.Securities sold via a prospectus (new issues, mutual funds)Correct - prospectus offerings are excluded.

Why: The 5% policy does not apply to securities sold via a prospectus, such as new issues and mutual funds.

Which of the following employees is REQUIRED to register with FINRA?

1. A.An IT technician who maintains the firm's serversTechnical support unrelated to the securities business is not a registered activity.
2. B.A receptionist who forwards phone callsPurely clerical work like forwarding calls does not require registration.
3. C.An employee who accepts customer securities ordersCorrect — accepting customer orders is a registered activity requiring FINRA registration.
4. D.An officer who plays no role in the securities businessOfficers with no securities role are excluded from registration.

Why: Accepting customer securities orders is a registered activity. Purely clerical, ministerial, or non-securities roles — a receptionist, an IT technician, or an officer with no securities role — are excluded.