General Securities Sales Supervisor (Series10) Practice Exam

What is the requirement regarding commissions for transactions not involving a prospectus under the FINRA 5% Mark-Up Policy?

1. Does not apply to over-the-counter transactions

2. Only applies to exchange transactions

3. Must be disclosed at the time of trade

4. Only related to new issue offerings

The correct answer is: Does not apply to over-the-counter transactions

The correct understanding of the 5% Mark-Up Policy under FINRA regulations is that this policy applies specifically to certain types of transactions, particularly those involving established securities in over-the-counter (OTC) markets. The main point of the 5% Mark-Up Policy is to ensure fairness in the pricing of transactions involving customer orders, to prevent excessive mark-ups or mark-downs from dealers and brokers. While the policy is designed to create a standard for how commissions can be assessed, it does not apply in situations where securities transactions do not require a prospectus – such as in certain OTC trades. Therefore, if a transaction involves established securities that do not require a prospectus, the 5% Mark-Up Policy does not govern the commission structure for those particular trades. This understanding supports a broader interpretation of how commission structures differ between prospectus-affiliated transactions and others that occur in different contexts, especially within the OTC realm. In contrast, the other options suggest various limitations on the applicability of the policy, such as only applying to exchange transactions or new issues, which does not accurately capture the overall framework of the 5% Mark-Up Policy, primarily focusing on the OTC transactions aspect for securities that do not require a prospectus. Additionally,