Finra SIE Exam Practice Test Instant Access

Question 1

A registered representative (RR) owns 500 shares of a thinly traded security. A customer of the firm calls the RR to place a sell order for 10,000 shares of the same security. The RR sells his shares before entering the customer's order to sell. Which of the following activities has the RR just engaged in?

ASelling away

BFront running

CInsider trading

DMarket manipulation

Answer : B

Step by Step Explanation:

Front Running Definition: Occurs when a broker executes a personal trade ahead of a customer's order to profit from the anticipated market movement.

Thinly Traded Security: Front running is particularly impactful in low-liquidity securities.

Other Options:

Selling Away: Involves unapproved securities transactions outside the employing firm.

Insider Trading: Involves trading on material non-public information.

Market Manipulation: Encompasses activities like wash trading or spoofing, not specific to this scenario.

FINRA Rule 5270 (Front Running of Block Transactions): FINRA Rule 5270.

Question 2

A real estate investment trust (REIT) is required to invest what percentage of total assets in real-estate-related assets to maintain favorable tax treatment?

AAt least 50% of total assets

BAt least 75% of total assets

CAt least 90% of total assets

D100% of assets

Answer : B

Step by Step Explanation:

REIT Requirements: REITs must invest at least 75% of their total assets in real estate to qualify for favorable tax treatment under IRS regulations.

90% Rule: Refers to the distribution requirement for taxable income, not asset allocation.

100% Rule: There is no requirement to allocate 100% of assets to real estate.

IRS Publication 542 (Real Estate Investment Trusts): IRS REIT Guidelines.

Question 3

A municipal securities dealer makes a political contribution of $990 to a local mayoral candidate. At the end of the quarter, to whom, if anyone, must the dealer report the contribution?

ASEC

BMSRB

CFINRA

DNo disclosure required as the amount is below the reporting threshold

Answer : B

Step by Step Explanation:

MSRB Rule G-37: Requires municipal securities dealers to report contributions to the MSRB, even if the amount is below the $1,000 threshold that would trigger a two-year prohibition on municipal business.

Incorrect Options:

SEC and FINRA: Not involved in reporting political contributions for municipal securities.

MSRB Rule G-37 (Political Contributions): MSRB Rule G-37.

Question 4

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?

AThis is a permissible arrangement, and the RR is only required to notify his firm.

BThe RR must receive written approval from his firm prior to entering into this arrangement.

CThe RR is required to notify his firm regarding this arrangement if compensation received is directly related to transactions.

DThe RR is not required to provide prior notice to his firm as promissory notes are not considered securities.

Answer : B

Step by Step 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 5

Which of the following statements best describes a characteristic of 529 savings plan accounts?

AThere are no contribution limits to the account.

BThe number of contributors to the account is limited.

CUsing funds for undergraduate or graduate studies is permissible.

DEarnings are taxed to the donor at the time of a qualified withdrawal.

Answer : C

Step by Step Explanation:

529 Savings Plans: These plans allow tax-advantaged savings for education expenses. They can be used for both undergraduate and graduate studies, as well as certain K-12 expenses.

Contribution Limits: Contributions are subject to gift tax limits but have no specific statutory maximum under federal law.

Tax Treatment: Earnings grow tax-deferred and are tax-free if used for qualified education expenses.

IRS Section 529 Guidance: IRS 529 Plans.

Question 6

A hypothecation agreement gives the broker-dealer the right to engage in which of the following activities?

ASharing customers' nonpublic personal information with nonaffiliated third parties

BEntering trades in a customer's account without prior authorization from the customer

CSelling a customer's securities when the customer has failed to pay for trades in a cash account

DUsing securities that a customer has bought on margin as collateral to obtain a loan from a bank

Answer : D

Step by Step Explanation:

Hypothecation Agreement: Required for margin accounts, it authorizes the broker-dealer to use the customer's margin securities as collateral to secure loans for funding customer transactions.

Incorrect Options:

A: Sharing customer information is regulated under privacy rules (Regulation S-P).

B: Unauthorized trading violates securities laws.

C: Selling unpaid securities in cash accounts pertains to Regulation T, not hypothecation agreements.

FINRA Margin Account Rules: FINRA Rule 4210.

Question 7

Under which of the following circumstances, if any, is a member firm permitted to send gifts to registered representatives (RRs) of another member firm?

ANo single gift exceeds $100; no limit on the number of gifts

BNo single gift exceeds $100; maximum value of all gifts per RR per year is $200

CValue of all gifts to an RR during a period of one year does not exceed $100

DUnder no circumstance

Answer : C

FINRA Rule 3220 prohibits member firms from giving gifts exceeding $100 per individual per year to ensure that gifts do not influence business conduct. The rule applies to gifts given in connection with the firm's business.

C is correct because it adheres to FINRA's $100 annual limit.

A is incorrect because the total value of gifts must also not exceed $100 annually.

B is incorrect as there is no $200 limit.

D is incorrect as gifts are allowed within the $100 limit.

Finra SIE Securities Industry Essentials Exam Practice Test