General Securities Sales Supervisor (Series10) Practice Exam

Which transaction does the FINRA 5% Policy apply to?

1. The sale of common stock under SEC Rule 144

2. The sale of mutual fund shares by registered broker-dealers

3. The registered secondary distribution of common stock through a syndicate

4. The sale of direct participation program interests by registered broker-dealers

The correct answer is: The sale of direct participation program interests by registered broker-dealers

The correct understanding of the FINRA 5% Policy is that it applies primarily to transactions executed by broker-dealers in the secondary markets. This policy sets guidelines for the maximum amount of markup or markdown that a broker-dealer may apply to a transaction involving the sale of securities. In this context, the sale of direct participation program interests by registered broker-dealers falls under the purview of the FINRA 5% Policy because these transactions are typically conducted in the secondary market and involve the broker-dealer acting as an intermediary. Direct participation programs, such as limited partnerships, are sold through broker-dealers, and the markup on such sales must adhere to the guidelines established by FINRA to ensure fair and transparent pricing. Other options, such as sales of common stock under SEC Rule 144, mutual fund shares, and registered secondary distributions through syndicates, have different regulatory frameworks that govern their price markups and commissions, making them not subject to the 5% Policy in the same manner as direct participation program interests.