Chapter 14 - Business Conduct Rules

Question 1

Which two of the following documents would be considered an advertisement under MSRB rules?

I. a dealer offering sheet
II. an abstract of an official statement
III. a form letter
IV. an interoffice memo
A) II and III
B) I and II
C) II and IV
D) III and IV

Answer 1

A) II and III

Answer Explanation
Materials prepared by dealers, or third parties on their behalf, that is designed to communicate with the public are advertisements. Preliminary Official Statements, Official Statements, dealer offering lists, and memos for internal use only are not communications with the public. An abstract or summary or abstract of an Official Statement and form letters are considered advertising.

Textbook Reference
Please see textbook section 14.5.4

Question 2

For communications with the public to be treated as institutional, what is the maximum number of retail investors to which it may be distributed?
A) 24
B) Five
C) 15
D) None

Answer 2

D) None

Answer Explanation
If communications are distributed to even one retail investor, it is not institutional. Then, the 25-investor test applies to determine if it is retail communications or correspondence.

Textbook Reference
Please see textbook section 14.5.1

Question 3

A firm must report to FINRA a change in the person named as its Anti-Money Laundering Officer within
A) 10 days of the change
B) 30 days of the change
C) 15 days of the change
D) 25 days of the change

Answer 3

B

Answer Explanation
A firm must report a change in the person designated as it Anti-Money Laundering Officer within 30 days.

Textbook Reference
Please see textbook section 14.3.3.1

Question 4

A firm’s procedures to protect the free flow of material, non-public information to trading and sales departments

I. Prohibit or restrict the purchase or sale of securities on watch lists
II. Permit the purchase or sale of securities on watch lists but subject the transactions to scrutiny
III. Prohibit or restrict the purchase or sale of securities on restricted lists
IV. Permit the purchase or sale of securities on restricted lists but subject the transactions to scrutiny
A) I and III
B) II and III
C) II and IV
D) I and IV

Answer 4

B

Answer Explanation
A firm must develop Chinese Wall procedures to prevent the misuse of material non-public information. As part of its procedures it should develop watch lists and restricted lists. Trades are not prohibited for securities on watch lists, however, any trades in securities on watch lists are subject to heightened review. Firms typically prohibit the trading of securities on restricted lists.

Textbook Reference
Please see textbook section 14.2.3

Question 5

Which of the following statements regarding FINRA limits on gifts and gratuities are true?

I. A firm is restricted from employing associated persons of other firms if the value of employment exceeds FINRA’s limit on annual gifts and gratuities to persons associated with other firms

II. A firm is not restricted from employing persons associated with other firms by FINRA’s rule on gifts and gratuities as long as there is a written employment agreement

III. A firm may give gifts and gratuities to employees of other firms if they exceed no more than $50 annually

IV. A firm may give gifts and gratuities to employees of other firms if they exceed no more than $100 annually
A) II and III
B) I and IV
C) II and IV
D) I and III

Answer 5

C) II and IV

Answer Explanation
A firm may give gifts and gratuities to employees of other firms if they exceed no more than $100. This Rule does not apply to contracts of employment provided there is a written contact in place, and there is written approval from the employee’s principal.

Textbook Reference
Please see textbook section 14.4.7

Question 6

All of the following statements regarding penalties for insider trading and securities fraud are true EXCEPT
A) Violators may be subject to civil penalties equal to three times the profits made or losses avoided
B) Violators may be imprisoned for no more than 5 years if proven guilty
C) Both the tipper and tippee can be liable and subject to penalty under the Act
D) A bounty is payable to persons who inform the SEC of insider trading activities

Answer 6

b

Answer Explanation
Penalties for insider trading and securities fraud exist for both civil and criminal violations. Civil penalties may equal up to three times the profits made or losses avoided. Criminal penalties include a maximum $5 million fine and 20 years in prison. Both tippers who share inside information, and tippees who may act on it, can be held liable. The SEC encourages the reporting of potential insider trading violations and offers a bounty to informants.

Textbook Reference
Please see textbook section 14.2.2

Question 7

The primary responsibility of the IRS (Internal Revenue Service) is the
A) collection of taxes and the enforcement of federal tax laws.
B) establishment and monitoring of anti-money laundering rules in the US.
C) supervision and oversight of broker-dealers operating in the US.
D) creation and enforcement of US securities laws.

Answer 7

A

Answer Explanation
The IRS is a US Government agency responsible for the collection of income taxes and the enforcement of federal tax laws.

Textbook Reference
Please see textbook section 14.3

Question 8

A registered representative has knowledge of material non-public information. The representative
A) may contact a customer and ask if she would like to place a trade.
B) may accept an unsolicited order from a customer.
C) is prohibited from accepting any orders from a customer
D) should contact FINRA so the information may be made public.

Answer 8

B

Answer Explanation
If a registered representative has material non-public information, they may accept an unsolicited order from a customer.

Textbook Reference
Please see textbook section 14.2.3.1

Question 9

While having dinner with the CFO of Issuer P, he tells you about an upcoming strategic change in a business model that the company plans to announce next month and implement in the next quarter. You should
A) Not share this information with anyone who can then trade on the information
B) Draft a memo to your top institutional clients to alert them to this significant news and discuss the implications for their investing strategy
C) Notify your head trader so that the desk can execute a trading strategy based on this information
D) Not trade the common stock of Issuer P, but may adjust your holdings in the convertible bonds of P

Answer 9

A

Answer Explanation
Federal securities laws prevent you from acting on this information in any way.

Textbook Reference
Please see textbook section 14.2

Question 10

For the purpose of FINRA rules involving borrowing and lending money to customers, an immediate family member is a(n)

I. grandparent
II. Aunt or uncle
III. Cousin
A) I, II, and III
B) I and III only
C) III only
D) I only

Answer 10

A) I, II, and III

Answer Explanation
FINRA rules regarding the borrowing and lending of money to customers broadly defines the following persons as immediate family members: parents, grandparents, mother-in-law or father-in-law, husband or wife, brother or sister, brother-in-law or sister-in-law, son-in law or daughter-in-law, children, grandchildren, cousin, aunt or uncle, or niece or nephew, and shall also include any other person whom the registered person supports, directly or indirectly, to a material extent. Note that immediate family members under the rules on IPO distributions (FINRA Rule 5130) are defined more narrowly.

Textbook Reference
Please see textbook section 14.4.9

Question 11

A representative is required to notify the firm of all of the following activities EXCEPT
A) Investing money in wind energy as a silent partner
B) Receiving a finder’s fee for introductions between a business and investors
C) Accepting compensation for preparing several tax returns
D) Receiving consulting fees for helping a start-up business engaged in manufacturing create a business plan

Answer 11

A

Answer Explanation
A representative is required to notify the firm of any outside business activities where the representative is employed by a third party or accepts compensation from outside the firm. A passive investment activity does not require notification.

Textbook Reference
Please see textbook section 14.4.4

Question 12

Which statement regarding delivery of the summary of the broker-dealer’s business continuity plan to customers is not accurate?
A) Customers must be able to access the plan on the broker-dealer’s website.
B) Customers must receive a copy of the plan at account opening.
C) Customers must be mailed a copy of the plan upon request.
D) Customers must be mailed a copy of the plan at least annually.

Answer 12

d

Answer Explanation
Customers must receive a copy of the business continuity plan at account-opening. It also must be on the broker-dealer’s website and customers must be mailed a hard copy on request. It is not required to be mailed to customers annually.

Textbook Reference
Please see textbook section 14.6

Question 13

The USA PATRIOT Act requires all of the following of broker-dealers EXCEPT
A) The prohibition of transactions with individuals listed on the terrorist list compiled by OFAC (Office of Financial Assets Control)
B) The establishment of Customer Identification Procedures (CIPs) by broker-dealers
C) The mandatory information sharing with financial authorities when requested by federal law enforcement authorities
D) The filing of CTRs by financial institutions when cash transaction by a customer exceed $10,000 in a single day

Answer 13

D

Answer Explanation
The Bank Secrecy Act (BSA) requires the filing of CTRs for cash transactions of more than $10,000 in a single day. The USA PATRIOT Act imposed the following AML obligations on broker-dealers:
* the development of an AML compliance program and customer identification programs
* prohibitions on transactions with foreign shell banks and persons on terrorist lists compiled by OFAC (Office of Financial Assets Control)
* mandatory information sharing in response to requests by federal law enforcement
* compliance with any other special measures imposed by U.S. Treasury to address AML concerns.

Textbook Reference
Please see textbook section 14.3.3

Question 14

FINRA rules state that anti-money laundering programs
I. are required for all broker-dealers
II. are required only for those broker-dealers that hold customer accounts
III. include anti-money laundering training for all employees
IV. include anti-money laundering training for appropriate personnel
A) I and IV
B) II and IV
C) I and III
D) II and III

Answer 14

A) I and IV

Answer Explanation
FINRA requires that all broker-dealers establish anti-money laundering programs without exception. Training is required for all appropriate personnel, which are those persons who could come into contact or should be knowledgeable about the detection and reporting of possible anti-money laundering activity.

Textbook Reference
Please see textbook section 14.3

Question 15

Under which of the following circumstances is borrowing money from a customer permitted by FINRA rules?
A) Borrowing from a customer is prohibited under all circumstances
B) The firm has written supervisory procedures in place and the representative is borrowing from a family member
C) The customer has provided written authorization to the representative
D) The representative has received prior approval from a principal of the firm

Answer 15

B

Answer Explanation
A representative may be permitted to borrow money from a customer if the firm has written supervisory procedures addressing this practice, and the customer is an immediate family member, financial institution, or individual with whom the representative has a personal or business relationship outside of services performed as a registered representative.

Textbook Reference
Please see textbook section 14.4.9

Question 16

Registered representatives can communicate with clients through a personal e-mail address, provided they receive prior compliance permission and
A) keep a log of the time and dates of all messages sent.
B) the firm appropriately monitors the communications.
C) do not violate their e-mail service’s terms of service.
D) obtain each client’s prior permission.

Answer 16

B

Answer Explanation
The key requirements for using personal e-mail accounts for client contact are: 1) prior compliance permission; and 2) the firm’s ability to monitor all communications.

Textbook Reference
Please see textbook section 14.5.3

Question 17

What is the main purpose of broker-dealer business continuity plans?
A) To ensure that FINRA has access to financial information about broker-dealers in the event of business interruption
B) To provide a succession plan in the event the owners of the firm wish to leave the business
C) To ensure that critical business functions are continually available to customers, suppliers, regulators and other entities regardless of circumstances
D) To provide continuing safekeeping of customer assets in the event of widespread identity theft

Answer 17

C

Answer Explanation
The intent of business continuity plans is ensure that critical business functions are continually available to customers, suppliers, regulators and other entities. Events like the 9/11 terrorist attacks underscored the need for these plans.

Textbook Reference
Please see textbook section 14.6

Question 18

Which of the following practices is permissible under federal securities laws?
A) Trading with a goal towards achieving a specific closing price for a stock
B) Circulating unconfirmed information about a company that will cause an uptick in trading volume
C) Trading among parties to create an appearance of heavy volume
D) Effecting a trade after material information about a company has been released

Answer 18

D

Answer Explanation
It is permissible to trade a stock after material information about the company has been publicly announced. The other activities are prohibited.

Textbook Reference
Please see textbook section 14.2

Question 19

When can a broker-dealer rebate fees charged to a customer who brings business to the firm?
A) When the arrangement is at arm’s-length
B) When the client provides written permission
C) When the rebate is less than $100 per trade
D) Under no circumstances

Answer 19

D

Answer Explanation
Broker-dealers may not rebate or reduce the fees charged to a customer based on new business the client directs to the firm.

Textbook Reference
Please see textbook section 14.4.2

Question 20

A registered representative wants to open an account at another broker dealer, consisting solely of mutual fund investments. The registered representative must receive permission from their employer
A) At no time.
B) Before the initial transaction in the account.
C) Before the account is approved.
D) Promptly after the initial transaction in the account.

Answer 20

A

Answer Explanation
A registered representative must generally obtain prior written consent of the person’s employing firm before opening an account with another firm. However, these rules do not apply to accounts limited to transactions in unit investment trusts, municipal fund securities, Section 529 Plans, variable contracts or mutual funds,

Textbook Reference
Please see textbook section 14.4.1

Question 21

Once retired, may a previously registered representative receive commissions from accounts that were opened while they were working?
A) No, unless written consent has been provided by a principal.
B) No, this arrangement is specifically prohibited by securities industry rules.
C) Yes, if these accounts generated a specified level of commissions while the registered rep was working.
D) Yes, if a written agreement is in place between the two parties.

Answer 21

D

Answer Explanation
This type of conduct is allowed, provided a written contract is in place, describing the full extent of the arrangement. It is formally known as the Continuing Commissions policy.

Textbook Reference
Please see textbook section 14.4.3

Question 22

A brokerage firm prints a brochure and leaves it in the lobby for visiting clients to read. This is its only form of distribution. Is it considered retail communication?
A) Yes, if more than 25 clients visit the lobby within 30 calendar days
B) Yes, if more than 25 clients take the brochure home with them within 30 calendar days
C) No, it is correspondence
D) No, it is for internal use only

Answer 22

A

Answer Explanation
Retail communications are distributed or made available to more than 25 retail investors within 30 calendar days. Putting the brochure in the lobby makes it available to any visitor, whether or not he/she reads it or takes it home.

Textbook Reference
Please see textbook section 14.5.1

Question 23

A registered representative discovers that he is facilitating a transaction with an individual on the OFAC list. The registered rep must now
A) Wait to see if the same thing happens again and then notify a supervisor
B) Notify his supervisor immediately
C) Contact the police
D) Attempt to unwind the transaction

Answer 23

B

Answer Explanation
In this situation, the registered rep must notify an appropriate principal immediately.

Textbook Reference
Please see textbook section 14.3.3

Question 24

Firms are required to file Currency Transaction Reports (CTRs) with FinCEN for cash receipts or disbursements for one customer that exceed
A) $10,000 in a 5 business day period
B) $10,000 in one business day
C) $5,000 in a 5 business day period
D) $5,000 in one business day

Answer 24

B

Answer Explanation
Firms are required to file CTRs with FinCEN for cash receipts or disbursements in excess of $10,000 in one business day. If several smaller transactions for one person are made in one business day and exceed the $10,000 limit, a CTR must also be filed.

Textbook Reference
Please see textbook section 14.3.1

Question 25

The collection, analysis, and dissemination of financial data is carried out by which of these entities to help safeguard the U.S. financial system?
A) FINRA
B) Financial Crimes Enforcement Network
C) SEC
D) Congressional Budget Office

Answer 25

B) Financial Crimes Enforcement Network

Answer Explanation
These are amongst the activities carried out by the Financial Crimes Enforcement Network (FinCEN) to safeguard the U.S. financial system from illegitimate use.

Textbook Reference
Please see textbook section 14.3

Question 26

Which of the following statements is not true about customer complaints?
A) the MSRB’s Investor Brochure describes how to file a complaint with the appropriate regulator
B) Records of customer complaints must be maintained for four years.
C) Both written and verbal complaints must be addressed
D) Customer complaints must be forwarded to a principal at the firm

Answer 26

C

Answer Explanation
MSRB Rule G-10 defines a customer complaint as any written grievance by the client. It does not include verbal complaints. The complaint must be forwarded to a principal at the firm. Each year firms must provide investors with a notification of the availability of an investor brochure which describes the protections available under MSRB rules and how to file complaints with the appropriate regulator. Records of customer complaints must be maintained for six years under MSRB rules; for four years under FINRA rules.

Textbook Reference
Please see textbook section 14.4.10

Question 27

Under FINRA’s Content Standards, the requirement that communications must be in good faith, fair and balanced applies to what types of communications?
A) Retail communications and correspondence only
B) Retail communications
C) Retail and institutional communications only
D) All

Answer 27

D

Answer Explanation
The first type of standard applies to all communications. It requires communications to be in good faith, fair and balanced; to not be false, exaggerated or unwarranted; and to not be footnoted to prevent understanding.

Textbook Reference
Please see textbook section 14.5.4

Question 28

In reviewing whether a representative’s request for outside securities activity is acceptable to the firm, the firm should be MOST concerned with whether the employment activity
A) Creates a conflict of interest with the employee’s current position
B) Raises investor protection concerns
C) Compromises the time the employee commits to his employment with the firm
D) Is an outside business activity that should be supervised by the firm

Answer 28

B

Answer Explanation
Firms should be most concerned with investor protection as they review requests for outside securities activity. Their procedures should call for restriction or prohibition of the activity if it compromises investor protection. If the outside securities activity is not for compensation, the rep must still notify the firm, but permission is not required.

Textbook Reference
Please see textbook section 14.4.4

Question 29

Advertising records must be maintained by a broker-dealer for
A) six years from date of first use.
B) three years from date of last use
C) three years from date of first use
D) six years from date of last use

Answer 29

B

Answer Explanation
Records of broker-dealer advertising must be maintained for three years following the date of last use.

Textbook Reference
Please see textbook section 14.5.4

Question 30

The practice of returning illegal funds to their original source through the legitimate banking system is
A) layering
B) reversal
C) integration
D) placement

Answer 30

C) integration

Answer Explanation
“‘Integration” occurs when illegal funds are now returned to their original source through the banking system. At this point, the funds appear to be coming from legitimate sources.

Textbook Reference
Please see textbook section 14.3

Question 31

Assuming all conditions are met for payment of continuing commissions after a registered representative retires, on which accounts can these commissions be paid?
A) All accounts that receive the customer’s consent
B) All accounts that were active for at least one year before retirement
C) All accounts
D) All accounts that were opened prior to retirement

Answer 31

D

Answer Explanation
FINRA rules allow retired registered representatives to receive commissions from customers’ accounts that were opened prior to the retirement.

Textbook Reference
Please see textbook section 14.4.3

Question 32

FINRA treats instant message communications the same as
A) Print
B) Advertising
C) Social media
D) e-mail

Answer 32

D

Answer Explanation
Regulators treat instant messaging (IM) the same as e-mail. Business-related IM must be retained by the broker-dealer. Since this can be difficult, many securities firms do not allow business-related communication via IM.

Textbook Reference
Please see textbook section 14.5.4

Question 33

A verbal complaint against a registered rep has been received by the firm. This complaint
A) must be documented in firm records and reported to FINRA.
B) need not be reported to FINRA, or noted on the applicable Form U-4.
C) should be converted into a written complaint, which can then be further investigated.
D) requires prompt follow up action as noted in FINRA rules.

Answer 33

B

Answer Explanation
Verbal complaints do not require reporting to FINRA, nor does the Form U-4 need to be updated.

Textbook Reference
Please see textbook section 14.4.10

Question 34

A customer grievance is considered a complaint subject to FINRA complaint filing and reporting requirements if it
A) Involves an unsolicited transaction
B) Is in writing
C) Alleges embezzlement
D) Is directed to the firm’s compliance department

Answer 34

B

Answer Explanation
Under FINRA rules, a complaint is any written statement of a customer, or any person acting on behalf of a customer, alleging a grievance involving the activities of persons under the control of the member in connection with disposition of securities or funds on behalf of the customer. If directed to a representative, a customer complaint must be forwarded to supervisory personnel in accordance with written supervisory procedures

Textbook Reference
Please see textbook section 14.4.10

Question 35

A firm has approved a representative’s participation in a private securities transaction. In this situation, the firm is required to
A) receive monthly updates from the representative of sales activity and compensation the representative receives from the activity.
B) report involvement of the representative in this activity to FINRA within 10 business days of granting approval.
C) pre-approve in writing any transactions that involve the purchase or sale of the securities.
D) review and supervise the transaction as if it were part of the firm’s business.

Answer 35

D

Answer Explanation
When a firm permits a representative to participate in a private securities transaction the transactions must be recorded on the firm’s books and records, and be supervised as if they were part of the firm’s business.

Textbook Reference
Please see textbook section 14.4.5

Question 36

Which TWO of the following statements are TRUE of FINRA requirements for the designation of contact persons for a broker-dealer’s business continuity plan?

I. Firms must designate a single emergency contact person.

II. Firms must designate a minimum of two emergency contacts.

III. Updates of the emergency contacts must be made through WebCRD.

IV. Updates of the emergency contacts must be made within 30 days.
A) I and IV
B) II and IV
C) I and III
D) II and III

Answer 36

B) II and IV

Answer Explanation
Firms must designate two associated persons as emergency contact persons. Emergency contact information must be reported to FINRA through the FINRA Contact System (FCS). Firms must also use FCS to update any change in this information promptly (within 30 days).

Textbook Reference
Please see textbook section 14.6.1

Question 37

A registered representative suspects that a client is engaging in suspicious financial transactions that may violate anti-money laundering regulations. This associated person should

I. File a SAR to report the suspicious activity to FinCEN without notifying his supervisor
II. Report the suspicious activity to his supervisor
III. Report the situation to the local authorities if it involves less than $5,000
A) III only
B) I only
C) II only
D) I, II, and III

Answer 37

C) II only

Answer Explanation
A registered person that suspects a customer of anti-money laundering activity should inform his or her supervisor. The representative does not file a suspicious activity report (SAR); this is done by the broker-dealer. Although a SAR should be filed if the amount of the proposed transaction involves at least $5,000, the firm, not the representative, should report the situation.

Textbook Reference
Please see textbook section 14.3.2

Question 38

MSRB rules permit all of the following gifts EXCEPT
A) Several logo jackets and shirts given in one year by the firm to municipal securities representative that totaled nearly $200 in value
B) Season tickets to attend all home games of the local pro football team
C) A meal at a nice restaurant hosted by a fund representative for 3 municipal securities representatives that cost $600
D) Reimbursement for air travel and lodging of $650 for attendance at a 1-day training event hosted by another firm across the country

Answer 38

B

Answer Explanation
To avoid influencing behavior, municipal securities firms may not give gifts of more than $100 per year in connection with the business of the recipient’s employer. Occasional meals and tickets to shows and sporting events, and reimbursement of reasonable amounts of deductible business expenses do not violate the gift rule. However, season tickets to a sports team would be considered excessive.

Textbook Reference
Please see textbook section 14.4.7

Question 39

A customer makes a stock purchase and two months later the company goes bankrupt and the stock becomes worthless. The registered rep
A) May offer to reimburse the customer for the loss since they have a good relationship.
B) Can offer to provide commission rebates to this customer on their next few trades, in order to retain the client relationship.
C) May not offer to reimburse this customer, as no guarantees may be made against financial loss.
D) May suggest that if the client’s next investment does not go well, the firm will reverse the commission charges for that trade.

Answer 39

C

Answer Explanation
Registered reps may never make guarantees or promises to customers that they will not lose any or all of their funds, or that they will achieve a certain minimum level of return.

Textbook Reference
Please see textbook section 14.4.6

Question 40

Which of the following would be a violation of FINRA rules concerning gifts and gratuities to clients?
A) A registered rep takes a client to a basketball game, sitting in box seats costing $150 each.
B) A registered rep gives a client, who also happens to be a personal friend, a $150 sweater as a birthday gift.
C) A registered rep takes a client out to dinner to celebrate a transaction closing and purchases a $200 bottle of wine.
D) A registered rep gives a client two tickets to a basketball game, costing $90 each.

Answer 40

D

Answer Explanation
FINRA rules prohibit gifts to client in excess of $100 per customer per year. If the rep attends a dinner, for example, this is considered a travel and entertainment expense and is not subject to the limit. Also, gifts to personal friends are exempt from the rule.

Textbook Reference
Please see textbook section 14.4.7

Question 41

Joe is a registered rep currently employed by Windy City Broker-Dealer, a Chicago based firm. Joe recently graduated from college and is working to pay down his student loan debt. In order to get his finances in order in a timely fashion, his parents, who also happen to be clients of the broker-dealer, agree to lend him $50,000. Which of the following is true regarding this action?
A) Joe must receive permission from Windy City to borrow money from his parents.
B) Joe must notify Windy City of his student loan debt.
C) Joe can borrow money from his parents provided that the firm has written supervisory procedures addressing the scenario.
D) Joe can borrow money from his parents without restriction.
Answer Explanation

Answer 41

C

FINRA Rule 3240 permits a registered rep to borrow money from or lend money to a client provided that the firm has written supervisory procedures permitting such an activity. If the client happens to be a bank or family member, the firm may permit the activity without permission.

Textbook Reference
Please see textbook section 14.4.9

Question 42

Your firm has just received a complaint sent via email from a long standing client. This complaint must be forwarded to a principal
A) Within 2 business days
B) Within 5 business days
C) As stipulated in your firm’s supervisory procedures
D) promptly

Answer 42

D

Answer Explanation
MSRB rules require that written customer complaints be forwarded to a principal promptly.

Textbook Reference
Please see textbook section 14.4.10

Question 43

If a representative comes into contact with suspicious activity involving currency transactions, the representative should
A) File an SAR
B) Contact the FBI
C) File a CTR
D) Report the activity to his supervisor

Answer 43

D

Answer Explanation
If representatives come into contact with suspicious activity or transactions involving potential money laundering activity, they are to report the activity to their supervisor. The representative does not file CTRs or SARs. These are filed if necessary by the firm’s Anti-Money Laundering officer on behalf of the firm.

Textbook Reference
Please see textbook section 14.3.2

Question 44

Which of the following practices are in violation of FINRA rules?

I. Assuring a customer that the firm will make the customer whole if the value of the securities falls below the purchase price

II. Loaning money to another of the firm’s registered representatives if permitted by the firm

III. A holiday cash gift of $100 given by the firm to an employee of its clearing firm because of exceptional service
A) III only
B) I and III only
C) I only
D) I, II, and III

Answer 44

C) I only

Answer Explanation
Guaranteeing a customer against loss is a violation of FINRA rules. Loaning money to certain persons is permitted if in accordance with the firm’s written supervisory procedures. The maximum gift that can be made in one year to an employee of another firm is $100.

Textbook Reference
Please see textbook section 14.4.6

Question 45

A municipal financial professional with your firm wishes to support the campaign of a local candidate for mayor who is also employed by your firm. MSRB rules permit which of the following?
A) A contribution of up to $250 for the primary election and a contribution of up to $250 for the general election
B) A contribution of no more than $250 in total between primary and general elections
C) No contributions to this campaign because of the relationship
D) Contributions without restriction because employees running for office are not subject to this MSRB rule

Answer 45

A

Answer Explanation
The $250 limitation is per candidate, per election. Primary contests are considered separate from the general election.

Textbook Reference
Please see textbook section 14.4.13.1

Question 46

May a registered rep borrow money from a client?
A) No, this would be deemed a conflict of interest.
B) Yes, if the loan arrangement is pre-approved by FINRA.
C) Yes, if the client is a bank and the loan is on market terms.
D) No, this conduct is expressly prohibited by FINRA rules.

Answer 46

C

Answer Explanation
Registered reps are permitted to borrow money from a client, if the client is a bank and the loan is made on competitive market terms and not at a discounted rate.

Textbook Reference
Please see textbook section 14.4.9

Question 47

The form that must be filed with FinCEN to report currency transactions in excess of $10,000 in one business day is a(n)
A) BSA
B) OFAC
C) CTR
D) SAR

Answer 47

C) CTR

Answer Explanation
A CTR is used to report currency transactions in excess of $10,000 to FinCEN. It is known as Form 104.

Textbook Reference
Please see textbook section 14.3.1

Question 48

Who must conduct the annual review of a broker-dealer’s business continuity plan?
A) The firm’s Chief Compliance Officer
B) An independent auditor
C) A member of senior management who is a registered principal
D) The firm’s anti-money laundering compliance officer

Answer 48

C

Answer Explanation
Firms must ensure that their business continuity plans are reviewed annually by a member of the firm’s senior management team who is a registered principal.

Textbook Reference
Please see textbook section 14.6.1

Question 49

A registered representative wishes to leave her broker-dealer, join a new securities firm, and continue to receive trailing commissions on a lucrative book of business at the old firm. This is only possible
A) if she agrees to receive payments as an annuity with a period certain of not less than 10 years.
B) if she retires from the securities industry for at least two months, before joining a new firm.
C) in no case.
D) if she agrees contractually not to continue soliciting business from existing customers.

Answer 49

C) in no case

Answer Explanation
One requirement for payment of continuing conditions is permanent retirement from the securities industry. In no case can continuing commissions (including trails) be paid to a representative who joins a new securities firm.

Textbook Reference
Please see textbook section 14.4.3

Question 50

Scott’s broker-dealer was an underwriter in XYZ company’s IPO. One year later, Scott wants to hold shares of XYZ in a discretionary account that he manages for a customer for a fee. Under FINRA Rule 2269, Scott is required to disclose the underwriting relationship
A) to the client, only verbally.
B) to the client, in writing.
C) to the supervisory authority at his broker-dealer.
D) to the SEC, in writing.

Answer 50

B

Answer Explanation
A broker must provide customers written disclosure of an interest in distribution, including any interest that the broker or firm may have (or have had) in a primary or secondary distribution of securities offered, sold or advised for a fee.

Textbook Reference
Please see textbook section 14.4.12

Question 51

Joe is a registered rep currently employed by Windy City Broker-Dealer, a Chicago based firm. Joe has quite the sweettooth. To satisfy his sugary cravings, he decides to open Joe & Josette’s Cupcakery, a small bakery in a hip part of town. Joe’s business partner, Josette, also happens to be a client of the firm and recently borrowed $5,000 from Joe. Which of the following is true regarding this action?
A) Open the Cupcakery does not require permission, but lending money to Josette is prohibited.
B) Opening the Cupcakery requires permission from the firm, since it is an outside business activity.
C) Joe can open the Cupcakery and lend money to Josette provided that the firm is notified of both activities.
D) Lending money to Josette is permitted provided that the firm has written procedures permitting borrowing and lending with clients.

Answer 51

D

Answer Explanation
Any outside business activity requires that the firm be notified of the full details of the activity. FINRA Rule 3240 permits a registered rep to borrow money from or lend money to a client provided that the firm has written supervisory procedures permitting such an activity. If the client happens to be a bank or family member, the firm may permit the activity without permission. If there is an outside personal or business relationship, the registered rep must receive permission from the firm to borrow or lend to a client.

Textbook Reference
Please see textbook section 14.4.9

Question 52

Permissible lending arrangements between broker-dealers, representatives and customers include all of the following EXCEPT
A) A loan from a registered representative to a neighbor to provide short-term assistance for payment of medical expense
B) Loans from registered representatives to immediate family members
C) Margin loans from broker-dealers to customers
D) A short-term loan to a customer in a cash account to enable the customer to meet the terms of settlement

Answer 52

D

Answer Explanation
Broker-dealers or representatives are not permitted to make loans to customers for firm-related business unless an exception applies, such as: loans to immediate family members; if the customer is in the lending business (i.e., it is a bank); if the lending relationship is based on a personal relationship outside of the broker-dealer customer relationship; or if the lending relationship is based on a business relationship outside of the firm.

Textbook Reference
Please see textbook section 14.4.9

Question 53

If a municipal securities dealer receives a written customer complaint a principal must

I. Immediately notify the MSRB
II. Be notified immediately
III. Contact the customer and offer to return the customer’s money
IV. Keep a record of the complaint and maintain a record of all actions taken
A) I and IV
B) II and III
C) I and II
D) II and IV

Answer 53

D) II and IV

Answer Explanation
Upon receipt of a written customer complaint, the complaint must be forwarded to a principal. The written complaint must be kept on file, along with a record of any action taken on the complaint. Regulators are not required to be informed of the complaint.

Textbook Reference
Please see textbook section 14.4.10

Question 54

Which of the following is the best example of misappropriation of inside information?
A) A self-employed tax preparer for a small OTCBB company learns the company has developed an innovative new technology device while meeting with the CFO. He arranges to purchase a large amount of the company’s stock.
B) An administrative assistant at a large law firm learns of a large lawsuit to be filed against a major pharmaceutical company and immediately sells her stock in that company.
C) A corporate treasurer tells his neighbor of a large upcoming product recall his company will announce; after which the neighbor sells his stock in that company.
D) A president of a company buys a large amount of shares of his company’s stock because he is aware of a strong earnings report about to be announced.

Answer 54

B

Answer Explanation
Misappropriation occurs when persons steal information from their employer and trade on that information in any stock, not just their employer’s stock. The misappropriation theory broadens the liability for misuse of inside information and is illegal.

Textbook Reference
Please see textbook section 14.2

Question 55

All of the following are considered prohibited guarantees against loss EXCEPT
A) The representative offers to sell the customer a covered call position that will offset losses of the stock position if a market downturn is experienced.
B) The representative offers to cancel the trade if the securities fall in value before the settlement date.
C) The representative offers to buy the securities from the customer if the market drops by more than 20%.
D) The representative offers to find an outside buyer for the securities who will agree to purchase the securities at today’s price at any point in the next three months at no charge to the customer.

Answer 55

A

Answer Explanation
Any type of price fixing or offer to repurchase securities is a prohibited guarantee against loss. Assisting a customer in establishing a hedge to protect a position is a valuable service.

Textbook Reference
Please see textbook section 14.4.6

Question 56

When valuing event tickets under the gift limit rule, a broker-dealer should use:
A) The higher of face value or cost
B) Face value
C) The lower of face value or cost
D) The broker-dealer’s cost

Answer 56

A

Answer Explanation
The broker-dealer must use the higher of face value or the broker-dealer’s cost if gifting the tickets. On the other hand, if the registered representative is attending with the recipient, ticket value may exceed the gift limit.

Textbook Reference
Please see textbook section 14.4.7

Question 57

Someone holding material non-public information
A) May trade derivatives on the stock but not the stock itself
B) Should refrain from trading the security until the information becomes public knowledge
C) May discuss the information with friends, but only those who appear to be trustworthy
D) May trade the stock as long as they don’t tell others about their trading plans

Answer 57

B

Answer Explanation
Anyone holding material non-public information should not trade the stock or any derivatives on the stock. The information should not be shared with others if there is a possibility they will trade on the information.

Textbook Reference
Please see textbook section 14.2

Question 58

A broker-dealer provides to FINRA the emergency contact information included in its business continuity plan. If there is a change to the contact person, FINRA must be notified
A) in the next filing of the business continuity plan, but not later than end-of-calendar year.
B) within 7 business days.
C) within 30 days.
D) within a reasonable period of time.

Answer 58

C

Answer Explanation
Firms must designate two associated persons as emergency contacts. If these people or their contact information changes, FINRA must be notified promptly (within 30 days).

Textbook Reference
Please see textbook section 14.6.1

Question 59

FINRA rules regarding outside business activities
A) Require that representatives notify their firm of outside business activities and follow other procedures as required by the firm
B) Require that representatives get permission from the firm before accepting outside employment
C) Permit representatives to engage in outside activities without notification unless the activity involves transactions in securities that are not sold through the firm
D) State that employment outside the firm for which compensation is received is prohibited

Answer 59

A

Answer Explanation
FINRA Rules do not prohibit representatives from engaging in outside business activities. They simply require that associated persons provide their firms with written notice that they are involved in an outside business activity. Such involvement requires prompt update to Form U-4. Most firms also have internal policies and procedures relating to outside business activities.

Textbook Reference
Please see textbook section 14.4.4

Question 60

A Registered Representative plans to open a securities account at a firm other than the one at which she works. The representative
A) Must provide prior written notice to FINRA of her intention to open this account
B) Must receive prior written consent from her firm in order to open this account
C) Must receive prior written consent from FINRA in order to open this account
D) Must provide prior written notice to her firm of her intention to open this account

Answer 60

B

Answer Explanation
If a registered representative opens a securities account at a different broker-dealer, they must notify and receive written consent from their employer prior to opening the account.

Textbook Reference
Please see textbook section 14.4.1

Question 61

When violations of the anti-fraud provisions of the Securities Exchange Act of the 1934 have occurred
I. The SEC can bring cases against violators
II. The SEC cannot bring cases against violators
III. Private investors may bring private suits
IV. Private investors may not bring private suits
A) II and IV
B) II and III
C) I and III
D) I and IV

Answer 61

C

Answer Explanation
When provisions of the Securities Exchange Act of 1934 have been violated, the SEC may bring cases against violators and investors may bring private suits.

Textbook Reference
Please see textbook section 14.2.2

Question 62

A municipal securities dealer has a control relationship with an issuer in which of the following circumstances?
A) An employee recently made a $25 campaign contribution to the mayoral campaign
B) The dealer recently handled a negotiated underwriting for the issuer
C) The president of the firm lives within the community
D) The president of the firm is also head of the municipality’s school board

Answer 62

D

Answer Explanation
As defined by MSRB rules, a control relationship exists when an individual associated with a member firm (or the firm itself) is in a position to influence an issuer’s actions regarding the issuance of or payment of interest or principal on an issue of municipal securities. A small campaign contribution, residence within a community, and doing business with the municipality do not create a control relationship.

Textbook Reference
Please see textbook section 14.4.12

Question 63

A customer makes three deposits in one day that total $10,500. Because of this activity, the broker-dealer is required to
A) file a CTR.
B) perform an OFAC check.
C) file a SAR.
D) report the transactions to FINRA.

Answer 63

A

Answer Explanation
Firms must file CTR reports whenever a customer’s deposits exceed $10,000 in one day.

Textbook Reference
Please see textbook section 14.3.1

Question 64

All of the following constitute a guarantee against loss EXCEPT
A) An offer to waive any fees for assets under management if the account loses value
B) An offer to reimburse a customer for losses on a municipal bond that was purchased in error for the customer’s account
C) A promise to reimburse a customer for potential future losses from securities purchased in a principal transaction
D) An offer to buy back a security at a predefined date if it does not meet performance targets

Answer 64

B

Answer Explanation
Customers may be reimbursed for losses sustained due to errors of the firm. Bona fide repurchase agreements are not guarantees against loss; however, an agreement that is based only on the performance of the security is not a bona fide repurchase agreement.

Textbook Reference
Please see textbook section 14.4.6

Question 65

A long standing client of your firm has just purchased $500,000 of Town X new general obligation bonds. In responding to this client’s concerns regarding the potential loss of these funds, you might point that
A) They can enter into a repurchase agreement with the MSRB in the unlikely event of the default of the issuer
B) While you expect the investment to do well, you cannot promise anything
C) Your firm maintains SIPC insurance which will reimburse the client should the investment underperform
D) All investments involve risk, but municipal bonds are generally safer than most other types of bonds so the client shouldn’t worry

Answer 65

B

Answer Explanation
Municipal securities broker-dealers and their associated persons may never guarantee a customer against a loss or tell the client that insurance is available to safeguard investors against investment losses.

Textbook Reference
Please see textbook section 14.4.6

Question 66

John Beam, a securities client of HonestBrokerDealer, deposits $9,000 into his securities account on each of 3 consecutive days, an activity inconsistent with his pattern of usual deposits in the past. Which action would most likely be taken by HonestBrokerDealer?
A) HonestBrokerDealer would file neither a Currency Transaction Report nor a Suspicious Activity Report.
B) HonestBrokerDealer would file a Currency Transaction Report and a Suspicious Activity Report.
C) HonestBrokerDealer would file a Suspicious Activity Report.
D) HonestBrokerDealer would file a Currency Transaction Report.
Answer Explanation

Answer 66

C

A Currency Transaction Report (CTR) is required if in aggregate, a customer deposits $10,000 in cash in an account on any given day. In this scenario, a CTR would not be required, since only $9,000 was deposited on a given day. However, it appears as though John is trying to stay just below the $10,000 threshold (known as laddering), so a Suspicious Activity Report would be filed.

Textbook Reference
Please see textbook section 14.3.2

Question 67

A broker-dealer is acting as a trustee for an issuer, holding ownership information of that issuer’s common stock. The broker-dealer may use this ownership information to solicit additional business for itself
A) If the security owners are notified in writing of this relationship.
B) Under no circumstances
C) If the issuer monitors how the information is used.
D) If the issuer specifically consents to this.

Answer 67

D

Answer Explanation
Issuer consent would be required in this type of situation.

Textbook Reference
Please see textbook section 14.4.11

Question 68

Which of the following is not considered an advertisement according to MSRB rules?
A) Summary of the Official Statement
B) Newsletter
C) Television Commercial
D) Letter to a client

Answer 68

D
Answer Explanation
A letter to a client would be considered a correspondence rather than an advertisement. A correspondence is any written or electronic message distributed to less than 25 persons within a 90 day period. Unlike an advertisement, a correspondence does not require principal approval prior to first use.

Textbook Reference
Please see textbook section 14.5.4

Question 69

An equity trader at a broker dealer overhears a conversation between two M&A bankers discussing an upcoming acquisition. The deal has not yet been made public. While in possession of this non-public information, the trader would be permitted to do which of the following?
A) Accept an unsolicited order from a customer to purchase stock of the target company.
B) Increase the firm’s position in one of the companies that is a party to the merger.
C) Follow-up with an investment banker who covers that sector for additional information.
D) Pass along the information to his colleague in equity research to ensure this news is appropriately reflected in the next report.

Answer 69

A

Answer Explanation
While in possession of non-public information, a registered rep could accept an unsolicited order from a customer to purchase the stock. Unsolicited means the investment idea was initiated by the customer. The rep could also notified compliance to ensure that the stock is placed on the firm’s restricted list. The rep would be prohibiting from sharing the information with other colleagues within the firm. Also, the rep could not trade on the insider information.

Textbook Reference
Please see textbook section 14.2.3.1

Question 70

Jane, a member of the deal team structuring an IPO for a client company, discovers during due diligence that the company does significant business with the Cuban government. After consulting with her manager and the firm’s AML compliance officer, Jane’s broker-dealer decides to file a Suspicious Activity Report. Under federal AML regulations, this report should be filed
A) within 15 days of the firm’s decision that this constitutes suspicious activity
B) within 15 days of Jane’s discovery of the Cuban dealings
C) within 30 days of the firm’s decision that this constitutes suspicious activity
D) within 30 days of Jane’s discovery of the Cuban dealings

Answer 70

D

Answer Explanation
A SAR must be filed with FinCEN within 30 days of the discovery of the suspicious activity, regardless of when the firm actually decides to file the report.

Textbook Reference
Please see textbook section 14.3.2

Question 71

If a registered representative wants to make a passive investment in an outside business,
A) the representative must obtain written consent from the employing broker-dealer.
B) the representative may engage in this activity without providing notification to the employing broker-dealer.
C) FINRA must be notified in advance of this investment.
D) this activity must be disclosed to the employing broker-dealer.

Answer 71

B

Answer Explanation
Outside business activities of registered representatives require prior written notification to the employing firm; an exception to this rule exists in the case of an outside passive investment, in which case the notification requirement is waived.

Textbook Reference
Please see textbook section 14.4.4

Question 72

Unbeknownst to a municipal finance professional, her spouse made a $1,000 contribution to the election of a local official that is campaigning for mayor. This contribution
A) Is not a violation if the MFP is not entitled to vote for the candidate because of his residence location
B) Is a violation if the check was written on the joint account
C) Does not trigger bans on underwriting unless the candidate wins
D) Does not trigger bans if the check was written on the personal account of the spouse

Answer 72

D

Answer Explanation
As long as the contribution was not directed by the municipal finance professional and the MFP did not sign the check, this is not considered a violation, regardless if the check was written on the spouse’s personal account or joint account.

Textbook Reference
Please see textbook section 14.4.13.2

Question 73

Which of the following information must be disclosed in writing to a customer?
A) A control relationship with an issuer of a municipal bond the customer wishes to purchase
B) The fact that the representative owns the same municipal security that the customer is purchasing
C) The receipt of a written complaint against the representative who has opened the customer’s account
D) The yield of a municipal fund security the customer has purchased

Answer 73

A

Answer Explanation
The existence of a control relationship, or other potential conflict of interest, must be disclosed in writing to the customer. The price, but not the yield of a municipal fund security must be disclosed on a confirmation. Neither the receipt of a written complaint nor the fact that the representative owns the same security as the customer is purchasing require written disclosure.

Textbook Reference
Please see textbook section 14.4.12

Question 74

A municipal securities firm’s advertising must be approved prior to first use by
A) A municipal securities sales principal (Series 9/10 qualified)
B) The MSRB
C) A municipal securities principal (Series 53 qualified)
D) The SEC

Answer 74

C

Answer Explanation
A municipal securities principal is responsible for approving advertising and correspondence as well as all new accounts, and transactions. Sales principals can oversee sales activity, but cannot approve advertising material.

Textbook Reference
Please see textbook section 14.5.4

Question 75

The main objective of the Customer Identification Program (CIP) is to
A) confirm that an individual who opens a brokerage account in the US is a legal US citizen.
B) verify the identity of an individual who opens a securities account, to help combat terrorism.
C) confirm that an individual who seeks to open a securities account in the US is not a minor.
D) verify that an account holder at a US financial institution has a valid Tax ID number.

Answer 75

B

Answer Explanation
The Customer Identification Program is a provision of the USA Patriot Act, designed to verify the identity of anyone who opens a securities account with a brokerage firm for the purpose of fighting terrorism.

Textbook Reference
Please see textbook section 14.3.3.2

Question 76

Serving as a director to an outside business while employed as a registered representative at a FINRA member firm
A) is prohibited by FINRA regulations
B) requires prior written consent from the FINRA member firm.
C) is only permitted if there will be no compensation paid to the individual.
D) requires prior written notice to the FINRA member firm.

Answer 76

D

Answer Explanation
An engagement in an outside business activity requires prior written notice to the FINRA member firm who employs the registered representative.

Textbook Reference
Please see textbook section 14.4.4

Question 77

A registered representative has been asked to provide consulting services in the preparation of a valuation textbook. The project is expected to require approximately ten hours of his time over the next month, and the rep will be compensated for this work. The registered representative

I. Must provide written notice to his employer
II. Is not required to provide notice to his employer
III.Must receive permission from the employing member before accepting the position
IV. Is not required to receive permission from the employing member before accepting the position
A) I and IV
B) II and III
C) I and III
D) II and IV

Answer 77

A) I and IV

Answer Explanation
FINRA requires that registered representatives provide prior written notice to their firms before accepting outside employment or positions as officers, directors, or partners. Written permission from the firm is not required.

Textbook Reference
Please see textbook section 14.4.4

Question 78

A communication made available to 20 institutional clients and 20 retail clients is classified as
A) Correspondence.
B) Institutional communication.
C) Retail communication.
D) A blog post

Answer 78

A) Correspondence

Answer Explanation
A communication made available to retail investors cannot be classified as institutional. If the number of retail recipients is up to and including 25 persons, it is classified as correspondence. For larger audiences (more than 25 retail persons), it is considered retail communication.

Textbook Reference
Please see textbook section 14.5.1

Question 79

A registered representative is invited to write a 200-word article that will be posted on a popular blog, where it will be read by hundreds of people. What type of Internet content is this, for regulatory purposes?
A) Static
B) Real-time
C) Interactive
D) Dynamic

Answer 79

A) Static

Answer Explanation
The two types of Internet and social media content defined by FINRA are static and interactive. Static content does not change very often, while interactive content is written (and usually read) in real time. A blog post is static content and is generally treated as retail communication.

Textbook Reference
Please see textbook section 14.5.3

Question 80

Currency transaction reports (CTRs) must be filed

I. When a customer deposits cash of $5,000 or more in one day
II. When a customer deposits cash of $10,000 or more in one day
III. With the SEC
IV. With the IRS
A) I and III
B) II and IV
C) I and IV
D) II and III

Answer 80

b) II and IV

Answer Explanation
Currency Transaction Reports (CTRs) must be filed whenever a financial institution receives cash deposits in excess of $10,000 during the same business day, either from one transaction or a combination of cash transactions. CTRs are filed with the Internal Revenue Service.

Textbook Reference
Please see textbook section 14.3.1

Question 81

A broker dealer learns that one of its employees has been using insider information on a recurring basis. What is the best way that the firm can protect itself from liability?
A) Handle the matter internally without notifying authorities.
B) Review its fidelity bond coverage with its insurer.
C) Sue the employee in civil court.
D) Ensure that the firm had adequate policies in place to prevent insider trading.

Answer 81

D)

Answer Explanation
In order to protect itself from liability for insider trading, broker dealers are required to implement appropriate supervisory procedures, conduct annual compliance reviews, and have information barriers in place to prevent the flow of sensitive information between departments. If the firm can prove that it followed protocol, it would not necessarily be held liable for insider trading by an employee.

Textbook Reference
Please see textbook section 14.2.3

Question 82

The two categories of social media content covered by FINRA’s framework for communication with the public are
A) static content and online content.
B) static content and interactive content.
C) online content and e-mail content.
D) interactive content and e-mail content.

Answer 82

B) static content and interactive content

Answer Explanation
Static content is online content that does not change often, such as blog posts or website copy. It requires prior principal review. Interactive content is content delivered in real-time, such as tweets and responses to comments on a blog post, and it does not require prior principal review, but it is subject to supervision and spot checks

Textbook Reference
Please see textbook section 14.5.3

Question 83

f a registered representative wants to take a second job as a bartender, she must
A) Notify her employer
B) Complete the necessary outside work forms and submit these forms to her HR dept.
C) Keep records of her weekly work hours and submit this information to her compliance dept.
D) Notify and receive consent from her employer

Answer 83

A) Notify her employer

Answer Explanation
Any outside business activities, such as bartending, requires prior written notice to the firm. Approval is not specifically required for this type of activity based on this FINRA rule.

Textbook Reference
Please see textbook section 14.4.4

Question 84

A registered representative has been asked to serve on the Board of Directors of a local corporation. The registered representative

I. must provide written notice to his employer
II. is not required to give notice if the position is unrelated to securities or finance
III. must receive written permission from his broker-dealer before accepting the position
IV. is not required to receive written permission from his broker-dealer before accepting the position
A) II and IV
B) I and IV
C) II and III
D) I and III

Answer 84

b) I and IV

Answer Explanation
FINRA requires that registered representatives provide prior written notice to their firms before accepting outside employment or positions as officers, directors, or partners. Written permission from the firm is not required.

Textbook Reference
Please see textbook section 14.4.4