The General Securities Principal Exam is more commonly known as the Series 24 Exam. This test is designed to measure the competency of an entry-level general securities principal candidate. It will test your knowledge of critical management functions including the rules and statutes applicable to the supervision of a general securities broker-dealer. The test is administered by FINRA. Start you exam prep right now with our free Series 24 practice exam.
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Question 1 |
FINRA rules requires that each member firm make and maintain a customer complaint file which must be retained for a minimum of:
3 years | |
4 years | |
6 years | |
10 years |
Question 1 Explanation:
The FINRA customer complaint file is a 4 year retention file. Bear in mind that MSRB rules require complaints involving Municipal Securities are to be retained for 6 years.
Question 2 |
Absent DNR instructions, which of the following customer orders for a NYSE listed stock will be adjusted when the stock goes ex?
market at the close | |
not held order | |
open sell stop-limit order | |
day buy limit order |
Question 2 Explanation:
Market orders and orders good for today only (day orders) do not get reduced on the ex date. Open (meaning GTC) sell stop orders, and open buy limit orders are reduced on the ex date, unless the client had issued DNR (do not reduce) instructions. For the purposes of this rule, sell stop-limit orders are treated the same as sell stop orders without a limit.
Question 3 |
Sub-penny quotes are permitted to be given by market makers under what conditions?
the stock is trading below $1.00 | |
the stock is trading below $5.00 | |
the stock is trading below $175.00 | |
under no circumstances – the minimum unit of quotation is the penny |
Question 3 Explanation:
When a stock is trading below one dollar, the bid – ask quote can be in denominations below a penny, such as $0.9550 bid - $0.9950 ask. This is a stock bid at 95 and ½ cents, and the ask price is 99 and ½ cents. That is what ‘sub-penny’ quoting is. Once a stock is trading at a dollar or more, quotes can’t be in fractions of a penny.
Question 4 |
As the BOM (Branch Office Manager) of a sizeable branch operation, one of your duties is the recruiting of candidates to become registered representatives. Prior to your signing the Form U-4 and submitting it for regulatory approval, which of the following are verification requirements of FINRA?
you must verify residences dating back 10 years | |
you must verify employment dating back 10 years | |
you must verify employment dating back no less than 5 years | |
you must verify residences dating back no less than 5 years |
Question 4 Explanation:
FINRA rules require residences shown on Form U-4 to be verified dating back no less than 5 years. Employment verification is a minimum of 3 years. Form U-4 shows 10 years worth of information but verification need not be done for all 10 years.
Question 5 |
A sale of NASDAQ stock remains unsettled 3 business days after the trade. A buy-in will occur if the transaction remains unsettled:
2 additional business days | |
5 additional business days | |
7 additional calendar days | |
10 additional business days |
Question 5 Explanation:
SEC Rule 15c3-3 states that sale transactions that remain unsettled 10 settlement dates (bus. days) past T+3 regular way settlement date, in other words a total of T+13, will be bought in at the seller’s expense on the morning of the 14th business day after the trade.
Question 6 |
Required customer signatures, at the time of opening a customer margin account, include each of these documents except:
loan consent agreement | |
credit agreement | |
margin agreement | |
none of these is an exception |
Question 6 Explanation:
The loan consent agreement does not need to be signed in order for a customer to open and maintain a margin account. This agreement is optional, and permits the B/D to lend out customer excess margin securities. One such securities loan would be to other investors for the purpose of delivering on a short sale.
Question 7 |
A margin account shows long 200 shares XYZ at $140/share with a debit balance of $15,000. Compute the maximum amount which may be rehypothecated by the broker-dealer.
$15,000 | |
$21,000 | |
$28,000 | |
50% of current market value, marked to the market daily |
Question 7 Explanation:
SEC Rule 15c2-1 sets the maximum at 140% of the debit balance. In this case, $21,000 worth of XYZ stock may be rehypothecated in order to finance the $15,000 loan to this margin customer.
Question 8 |
Market maker D wishes to begin entering quotes on the stock of Beta Tech, Inc., a NASDAQ listed issuer.
Looking at the quotes entered by Market makers A, B and C in this stock, which of the following quotes entered by firm D would not be compliant?
Market Maker A 32.25 – 32.55
Market Maker B 32.26 – 32.56
Market Maker C 32.22 – 32.53
32.50 – 32. 65 | |
32.15 – 32.50 | |
32.30 – 32.54 | |
32.15 – 32.25 |
Question 8 Explanation:
As long as the new market maker puts in a bid and ask price which does not lock or cross the market, it is a compliant quote. The problem with answer D is that the asking price of 32.25 is cheaper than the best inside bid price at this moment in time, which is 32.26 bid of Market Maker B. NASDAQ rules won’t allow this new market maker to put in an ask price which is less than the best bid, which is referred to as a ‘crossed’ quote.
Question 9 |
With respect to OSJ inspections,
they may be conducted by FINRA as frequently as the SRO deems necessary | |
they may be conducted by the member on an annual or bi-annual basis based upon the member’s business and size. | |
they must be conducted by the member firm at least annually. | |
answers A. and C. are correct |
Question 9 Explanation:
Members are required by FINRA rules to conduct an annual inspection of each Office of Supervisory Jurisdiction with the firm.
Question 10 |
Under existing SEC regulations, a tender offer must remain open for a period no less than:
2 weeks | |
10 business days | |
20 business days | |
the time periods set forth in the Hart Scott Rodino Act |
Question 10 Explanation:
When a corporation makes a tender offer in accordance with SEC regulations, the offer remains open for no less than 20 business days. It can remain open longer, in particular if the offer is amended during the initial 20 day period.
Question 11 |
Dealer to dealer delivery of a 680 share transaction in the common stock of Wall Freight, Inc., a non-NASDAQ issuer, would meet the requirements of the Uniform Practice Code in all of the following cases except:
a single certificate for 680 shares | |
two certificates for 340 shares each | |
four certificates for 150 shares each and a certificate for 80 shares | |
all of the above |
Question 11 Explanation:
All of these are exceptions: none of these deliveries satisfy the good delivery requirements of the UPC. Each of these deliveries involves at least one certificate which is an ‘odd lot round lot’ combination. They all add up to 680, however they must be delivered in 100 share units or whole multiples of 100. A deliver of a single certificate for 600 shares, plus a separate cert. for 80 shares, would have been good delivery. Or six certificates for 100 shares each, and a cert. for 80, would also have been good.
Question 12 |
In which of the following situations may a member firm place a registered representative into an inactive status?
the rep has decided to go back to school full time to obtain an MBA degree and intends to return to the firm upon completion of the program. | |
the rep has been advised by a physician that for health reasons, a leave of absence should be taken without delay. | |
the rep has received military orders requiring the rep to report for active duty assignment. | |
any of the above quality for inactive status. |
Question 12 Explanation:
The rules are clear: FINRA permits inactive status for reps going on active duty, or reps who cannot or do not pass their regulatory CE exam during the required 120-day window. Leaves of absence or pursuit of higher education do not comply with the FINRA rules allowing for an inactive status designation.
Question 13 |
As branch manager, you are seeking qualified candidates to join the firm. As a general securities broker/dealer, you are very concerned with the relevance of FINRA registrations which those you are interviewing may already possess. Your firm markets a substantial number of REITs and closed-end companies.
Which of the below registrations would be acceptable for the sale of these products?
I. Series 24
II. Series 62
III. Series 11
IV. Series 6
I and II | |
I, II and IV | |
III and IV | |
I, II, III and IV |
Question 13 Explanation:
Series 24 has prerequisites, Series 7 or Series 62, both of which permit the sale of REITs and Closed-end companies. Series 62 permits the sale of these products. Series 11 is not a sales license. Series 6 allows mutual funds and variable products of an insurance company, such as variable annuities.
Question 14 |
Rule 105 of Regulation M pertains to which of the following?
short selling of outstanding shares of companies currently in registration for a follow-on offering. | |
stabilization of new issues. | |
trade shredding | |
passive market making |
Question 14 Explanation:
Rule 105 of Regulation M states that an investor engaging in a short sale of outstanding shares during the 5 business days leading up to the pricing of the shares of a follow-on offering (effective date in most cases), where the short sale remains uncovered at the time of the offering, precludes the short seller from buying new shares on the offering. Reg. M does cover passive market making and stabilization, but those are Rule 103 and 104 respectively, not 105.
Question 15 |
Compute the proceeds mark up given the following trade detail: sale of 100 shares of XYZ at 50 net including ½ point mark-down, with proceeds applied to the purchase of 200 shares of ABC at 25 net when the selling firm’s quote in ABC is 24.50 – 24.80, and the inside quote in ABC is 24.50 – 24.75.
3.03 % | |
2.52 % | |
2.83 % | |
1.01 % |
Question 15 Explanation:
The math works as follows: take the ½ point mark-down from the sale (50 cents per share), and add it to the mark-up on the retail purchase (25 minus 24.75), which is ¼ point, or 25 cents a share. It’s important to note that you must use the best or inside asking price of 24.75…you ignore the member firm’s 24.80 price because it is not the best ask price in the market at the time of the trade. You then take the total mark-down and mark-up (50 cents plus 25 cents = 75 cents) and divide it by the best wholesale inside ask price (24.75). And 75 cents divided by 24.75 = 3.03%, which is the ‘proceeds mark-up.’
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Series 24 Study Material
Series 24 Exam
The Series 24 Exam consists of 160 multiple choice questions, but only 150 of the questions are scored. You have 3 hours and 45 minutes to complete this test, and the passing score is 70%. These are the major content areas with the number of Series 24 exam questions for each topic:
- Supervision of Investment Banking, Underwriting, and Research (33 Questions)
- Supervision of Trading and Market Making Activities (31 Questions)
- Supervision of Brokerage Office Operations (29 Questions)
- Sales Supervision and General Supervision of Employees (43 Questions)
- Compliance with Financial Responsibility Rules (14 Questions)
The best way to get started with your Series 24 exam prep is with a good study guide and lots of practice questions. Work through our free Series 24 sample questions to get an idea about what sort of questions to expect. This is a challenging test so be sure to dedicate plenty of time to your test prep and review. Good luck with your exam!