Module 1: Seeking Business for the Broker-Dealer

• Topic 01

  Communications with the Public

  244 questions
• Topic 02

  New Securities Offerings and Solicitation

  194 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. Under FINRA's communication rules, which entity is responsible for approving retail communications before use?

   • A
     FINRA's Advertising Regulation Department
   • B
     A registered principal of the member firm
     Correct answer
   • C
     The SEC's Division of Corporation Finance
   • D
     A FINRA-designated examiner assigned to the firm
   Explanation

   Under FINRA Rule 2210(b), retail communications must be approved by a registered principal of the member firm before first use. The responsibility for approval lies with the firm's own registered principal, not with FINRA or the SEC. FINRA's Advertising Regulation Department reviews filings after the fact (or before first use for new member firms) but does not serve as the approving authority for each individual communication.

2. What FINRA Regulatory Notice provides guidance on social media and digital communications?

   • A
     FINRA Regulatory Notice 20-18
   • B
     FINRA Regulatory Notice 15-30
   • C
     FINRA Regulatory Notice 17-18
     Correct answer
   • D
     FINRA Regulatory Notice 11-39
   Explanation

   FINRA Regulatory Notice 17-18 is the primary guidance document on social media and digital communications, providing detailed guidance on the classification, supervision, and recordkeeping of electronic communications including social media platforms. It updated and replaced earlier guidance from Regulatory Notices 10-06 and 11-39.

3. What minimum percentage of taxable income must a REIT distribute annually to qualify for pass-through tax treatment and avoid corporate-level income tax?

   • A
     At least 80% of taxable income
   • B
     At least 95% of taxable income
   • C
     At least 75% of taxable income
   • D
     At least 90% of taxable income
     Correct answer
   Explanation

   To qualify as a REIT and avoid corporate-level taxation on distributed income, the REIT must distribute at least 90% of its taxable income to shareholders annually. This mandatory distribution requirement is what allows REITs to pass income directly to investors (similar to the pass-through feature of DPPs). The REIT can retain up to 10% of taxable income (subject to corporate tax on retained amounts).