Series 24 Test Breakdown

The Series 24 exam is the General Securities Principal Qualification exam designed by the Financial Industry Regulatory Authority (FINRA) to test the general knowledge of managers as it relates to rules and regulations within a broker dealer environment. There are five sections on the Series 24 test, with a total of 150 multiple-choice questions. Ten pretest questions are distributed throughout the exam to monitor the performance of new questions on the exam. Test takers are given three hours and forty-five minutes to complete the exam, with a 70% score necessary to pass the exam. The Series 24 is computer based with immediate performance results on each section provided.

There are many ways to prepare for the exam, for example, by studying sample test questions using study guides or attending a formal testing center. Although test questions are modified periodically to keep pace with industry trends, it is the test taker's responsibility to keep current with changing rules and regulations in the industry.

The Supervision of Investment Banking, Underwriting Activities, and Research section has thirty-three questions on the topics such as issuer requirements, public offerings, transactions exempt from the registration requirements of the Securities Act of 1933, shelf distributions, mergers and acquisitions, securities distribution, underwriting, distributions, tender offers, FINRA/National Association of Securities Dealers (NASD) rules, research, regulatory filings, communications, and antitrust regulations. The second part of the exam is about supervision of trading and market making activities, which covers topics on NASDAQ sand over-the-counter (OTC) securities, market requirements, marketplace rules and transaction reporting, requirements for NASDAQ market makers, and quotation and execution requirements. A test taker should be knowledgeable with New York Stock Exchange (NYSE) trading regulations and trading protocols. The third part of the Series 24 exam is about supervision of brokerage office operations, which deals with client accounts, documentation, custodial accounts, and accounts as they relate to deceased and incompetent persons. The third section of this test has questions on nonqualified retirement plans, regulations, and margin requirements. Clearing procedures and FINRA/NASD practices are required. The fourth section of the test is the sales supervision and general supervision of employees section, which has topics on general securities definitions, prohibitions, regulations on deceptive devices, registration and regulations of brokers and dealers, distributions and redemptions, the Sarbanes Oxley Act, sales literature, and insider trading.

The last section of the Series 24 is on compliance and financial responsibility rules. There are fourteen questions on registration and regulations of broker dealers, accounts and records, Securities Investor Protection Corporation (SIPC) rules, FINRA/NASD conduct rules, and NASD Rule 3140.

The Series 24 exam is comprehensive and tests very specific areas of supervision. It is a closed-book test, and severe penalties are imposed on candidates who are found cheating on the exam.

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Series 24 Study Guide

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Practice Questions

1. An underwriter that assumes full responsibility and financial liability for an issue is involved in what type of underwriting commitment?

a. Fill or Kill
b. Firm commitment
c. Best efforts commitment
d. Stand by commitment

2. Which of the following persons would be restricted from the purchase of Company A's IPO?

I. Bob, the brother in law of Company A's CFO
II. Tina, an attorney that works with Company A on legal matters
III. Rosa, Company A's tax accountant
IV. Frank, an associated person of the firm underwriting the IPO
a. IV only
b. I, III, and IV only
c. II, III, and IV only
d. I, II, III, and IV

3. Which of the following is true regarding ERISA requirements?

I. Plan assets must be kept separate from other company assets
II. Plan participates must be notified in writing of any important plan changes such as changes in vesting schedule or plan benefits
III. ERISA laws apply to both corporate and governmental plans
IV. An employee that works at least 1,000 hours, has at least one year of service, and is 21 years or older must be covered in a plan if the company offers one
a. I and II only
b. I, II, and IV only
c. I, II, and III only
d. I, II, III, and IV

4. All of the following are true regarding the Uniform Gifts to Minors Act except:

a. All securities in the UGMA account must be registered in the custodian's name
b. Only a parent or legal guardian may establish an UGMA account for their child, though anyone may contribute to it
c. The custodian of the UGMA account is entitled to reimbursement of expenses associated with managing the account
d. Minors are not allowed to trade in the account

5. The PATRIOT Act, at a minimum, requires firms and financial institutions to do which of the following?

I. Verify and obtain customer information
II. Establish, in writing, anti-money laundering procedures
III. Provide employee training in anti-money laundering procedures
IV. Report any suspicious activity to appropriate authorities within 30 days of observation
a. I only
b. I, II, and IV only
c. I, II, and III only
d. I, II, III, and IV

Answers and Explanations

1. B: An underwriter may participate in an issue by agreeing to a variety of different commitments. A Firm Commitment means the underwriter assumes the role of principal, purchases all of the securities, and is then responsible for selling such securities to the public. The financial liability of such a commitment lies with the underwriter. Best effort implies that the underwriter will try, though not guarantee, to fill all orders but is not liable for any that are unfilled. A stand by commitment means the underwriter is ready to purchase any remaining shares if the offer is undersubscribed. Fill or Kill is a type of brokerage order.

2. D: FINRA restricts insiders from involvement in a company's IPO, the initial public offering of company stock. An insider can generally be defined as anyone that has special, non public information about the company. This includes officers and employees of the company, as well as family members and other associated persons. In the case of Company A, all persons would be considered to have inside information about the company, and would be restricted by FINRA from purchasing shares of the company's IPO.

3. B: ERISA applies to corporate plans only. It does not apply to Federal or State government plans or employees. ERISA was established to protect plan participants and their assets. It also sets non discrimination standards and requires clear and necessary communication and disclosure to plan participants.

4. B: Any adult may establish and contribute to a minor's UGMA account, not just the parent or legal guardian. It is correct that all securities in the UGMA account must be registered in the custodian's name, the custodian of the UGMA account is entitled to reimbursement of expenses associated with managing the account, and that minors are not allowed to trade in the account. UGMA laws will vary from state to state.

5. D: The PATRIOT Act was created after September 11th as an effort for firms and financial institutions to help intercept and prevent terrorist activities. The Act requires that firms establish, in writing, procedures for anti-money laundering practices and train employees in such procedures. Any suspicious activity must be reported within 30 days of observation. The Act also requires institutions to obtain and verify proper identification from its customers.


Last Updated: 07/05/2018

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