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93 multiple-choice questions and 78 flashcards on Understanding Trading, Customer Accounts and Prohibited Activities, about 29% of the FINRA SIE bank. Every one carries a written rationale.
Understanding Trading, Customer Accounts and Prohibited Activities is one of 4 chapters in CoStudy's FINRA SIE bank, and it holds 93 of the bank's 320 multiple-choice questions — roughly 29% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
10 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
Painting the tape and matched orders are forms of:
Answer: A — Market manipulation, prohibited under Section 9(a) of the Exchange Act and FINRA Rule 5210
A) Correct: these are manipulative acts to create misleading trading activity. B/C/D) Not permitted exceptions.
Suitability for a senior investor includes a heightened consideration of:
Answer: D — Cognitive ability, life expectancy, liquidity needs, tax sensitivity, and possible diminished capacity, with documented basis under FINRA Rule 2111 and Rule 2165 (Senior Exploitation)
D) Correct: heightened scrutiny for seniors. A/C) Not regulatory criteria. B) Suitability requires more than stated objectives.
A 'sell stop' order is entered:
Answer: C — Below the current market price and triggers if price declines to or through the stop
C) Correct: sell stops are placed BELOW the market and trigger on a decline. B) Describes a buy stop. C/D) Not how stops work.
A customer's long margin account has securities with a current market value of $20,000 and a debit balance of $14,000. Under FINRA's 25% maintenance requirement, is the account in a maintenance call, and if so for how much?
Answer: C — No call — equity of $6,000 exceeds the $5,000 requirement (25% × $20,000)
C) Correct: equity = market value − debit = $20,000 − $14,000 = $6,000, which exceeds the $5,000 (25% × $20,000) FINRA maintenance requirement, so there is no call. B) Miscalculates equity, understating it below the correct $6,000 figure. A) Ignores the actual maintenance formula entirely; compliance is judged by equity relative to market value. D) Wildly overstates the potential call by confusing the entire debit balance with a maintenance deficiency.
A registered rep gives a customer a 'guaranteed' return promise. This conduct violates:
Answer: B — FINRA Rule 2010 (just and equitable principles) and Rule 2330; prohibits guaranteeing customers against loss; broker-dealers may not guarantee performance
B) Correct: rep cannot guarantee against loss. A) Rule 2150 covers commingling/use of funds. C/D) Wrong frame.
An UTMA account is opened for a 10-year-old minor with the father as custodian. Three years later, the father wants to transfer some assets to himself. This is:
Answer: C — Prohibited — UTMA gifts are irrevocable; assets belong to the minor
C) Correct: UTMA gifts are IRREVOCABLE — assets are owned by the minor. B) Minors can't legally consent to property transfers. A) Tax reporting doesn't override the irrevocable nature. D) Annual exclusion governs gifts IN to the account, not withdrawals.
In a trust account, who has legal authority to direct securities transactions on behalf of the account?
Answer: D — The trustee, acting within the powers and limitations specified in the trust document
D) Correct: the trustee holds fiduciary authority to direct trust transactions, bounded by the trust agreement's terms and applicable fiduciary duty law. A) Beneficiaries generally receive the economic benefit but do not control day-to-day decisions unless the trust specifically grants that authority. B) The broker-dealer executes trades and supervises but does not independently decide transactions. C) Informal verbal instructions from a non-trustee family member carry no legal authority.
A registered rep wants to gift a $250 bottle of wine to a fund wholesaler. Under FINRA Rule 3220:
Answer: B — The gift exceeds the $100 per-person per-year limit and is prohibited absent applicable exceptions
B) Correct: Rule 3220 caps non-cash gifts at $100/person/year. A) Off-by-amount — firm can't waive the regulatory cap. C) The limit is on VALUE, not type of gift. D) Direction reversal — Rule 3220 covers BOTH giving and receiving.
A customer wants to purchase $30,000 of a fully marginable stock in a new margin account. Under Regulation T's standard 50% initial margin requirement, the MINIMUM cash/equity the customer must deposit is:
Answer: C — $15,000
C) Correct: Reg T initial margin = 50% × $30,000 purchase = $15,000 minimum deposit, with the broker-dealer financing the remainder. A) Assumes no margin financing at all (100% cash), defeating the purpose of a margin purchase. B) Uses 25%, the FINRA maintenance margin percentage, not the Reg T initial requirement — a common rule mix-up. D) An arbitrary figure that doesn't correspond to the correctly applied 50% rate.
Long position:
Answer: A — Buy and own — profit from price increase
A) Standard. B/C/D) Each is incorrect.
4 cards from the 78 in this chapter.
What is the difference between a day order and a good-til-canceled (GTC) order?
A day order expires automatically at the end of the trading session if not executed. A GTC order remains open across multiple sessions until it is executed or the customer cancels it (subject to periodic firm confirmation requirements).
What is sharing in customer gains/losses?
FINRA prohibits reps from sharing profits/losses with customers unless: the rep contributes proportionally and has written firm approval.
What is a Traditional IRA?
Contributions may be tax-deductible. Earnings grow tax-deferred. Withdrawals taxed as ordinary income. RMDs begin at age 73.
What is pump and dump?
Inflating a stock's price through false/misleading statements, then selling at the inflated price. A form of fraud.
These are a sample. The full Understanding Trading, Customer Accounts and Prohibited Activities chapter runs 171 items with per-chapter progress tracking, on the web and in the iOS app.