General Securities Sales Supervisor (Series10) Practice Exam

In the context of a broker-dealer's operations, which of the following statements is accurate?

1. All broker-dealers must register with the SEC regardless of their activities

2. Broker-dealers are allowed to operate without internal compliance checks

3. Broker-dealers can delegate their supervisory responsibilities entirely

4. Broker-dealers must implement policies to prevent insider trading

The correct answer is: Broker-dealers must implement policies to prevent insider trading

The statement regarding broker-dealers needing to implement policies to prevent insider trading is accurate as it aligns with regulatory requirements set by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Broker-dealers are responsible for ensuring that their employees understand and comply with regulations regarding insider trading, which involves trading based on material non-public information. To fulfill this responsibility, broker-dealers are required to establish and maintain robust compliance procedures that include training programs, monitoring of trading activity, and reporting mechanisms to detect and prevent insider trading violations. This not only helps protect the integrity of the markets but also fosters a culture of compliance essential for maintaining investor trust. In contrast, the other options present incorrect implications about broker-dealer operations. For instance, not all broker-dealers must register with the SEC in the same manner; those who solely engage in certain exempt activities may not be required to do so. Additionally, broker-dealers cannot operate without internal compliance checks, as doing so would expose them to significant regulatory risks. It is also untrue that they can delegate their supervisory responsibilities entirely; while they may delegate certain tasks, the ultimate accountability for compliance remains with the firm itself.