General Securities Sales Supervisor (Series10) Practice Exam

Which of the following transactions does NOT fall under the 5% Policy?

1. A Over-the-counter agency transactions

2. B Proceeds transactions

3. C Third market transactions

4. D Municipal bond transactions

The correct answer is: D Municipal bond transactions

The 5% Policy is a guideline established by the Financial Industry Regulatory Authority (FINRA) that aims to provide fair trading practices in the over-the-counter (OTC) market. It specifically applies to certain transactions to ensure that commissions and markups are reasonable and transparent. Municipal bond transactions do not fall under the 5% Policy because these transactions are typically governed by their own set of regulations and considerations. Municipal bonds are issued by local government entities, and their pricing is often influenced by various factors such as credit quality, interest rates, and market conditions. Instead of the 5% Policy, the trading of municipal bonds is subject to different standards set forth by both the Municipal Securities Rulemaking Board (MSRB) and the specific state regulations that govern the issuance and trading of municipal securities. The other types of transactions listed—over-the-counter agency transactions, proceeds transactions, and third market transactions—are all subject to the 5% Policy because they fall within the OTC market scope where the guidelines are designed to ensure transparency and fairness in pricing, particularly concerning commissions and markups.