Free FINRA SIE Practice Exam with Questions & Answers | Set: 2

A broker-dealer must disclose business continuity plan information to customers at account opening. The disclosure must explain how the firm intends to respond to events that could significantly disrupt business operations, such as natural disasters, technology failures, loss of facilities, or other emergencies. The purpose is not to give customers every operational detail, but to provide meaningful information about how the firm plans to continue or resume critical business functions. Choice A is correct because account opening is the required timing. Choice B is incorrect because waiting until a disruption occurs would defeat the purpose of advance disclosure. Choice C is incorrect because the rule does not set a 60-day post-opening disclosure deadline. Choice D is incomplete because a firm must provide the disclosure at account opening and also make it available in other required ways, such as upon request. The SIE outline includes business continuity plans under books and records and privacy requirements, and lists FINRA Rule 4370, Business Continuity Plans and Emergency Contact Information. Reference: Section 3.2.4 Books and Records and Privacy Requirements; FINRA Rule 4370.

A market maker system is best described as multiple market makers competing by displaying bids and offers, which makes choice B correct. Market makers are firms (or participants) that stand ready to buy and sell a security on a regular and continuous basis by quoting two-sided markets—bid (what they will pay) and ask/offer (what they will sell for). In many market structures, multiple market makers post competing quotes, and the best displayed prices help form the national best bid and offer (NBBO) and promote liquidity and price discovery.

Choice A is closer to the concept of a single designated liquidity provider (like a specialist model historically), but even where “designated market makers” exist, modern systems typically still involve competition and additional liquidity providers. Choice C is incorrect because negotiation between individual participants through a designated market maker is not the defining mechanism of a market maker system; market makers post continuous quotes rather than serving as a negotiation channel for each trade. Choice D is also incorrect because orders are not generally sent to one market maker “for review” before being displayed; orders can be routed to various venues, displayed in order books, or executed against quotes depending on market structure.

For the SIE, the key takeaway is that market makers support liquidity by committing capital and quoting markets, and that competition among multiple market makers improves execution quality through tighter spreads and more robust depth. Understanding how bids/asks are displayed and how market participants interact with liquidity providers is central to market structure and trading knowledge.

Each option contract represents 100 shares. A covered call involves selling a call option while holding an equivalent number of shares to deliver if the option is exercised.

The customer owns 1,000 shares.

Since 1 contract = 100 shares, the maximum number of contracts the customer can sell is:1,000 shares ÷ 100 shares/contract = 10 contracts.

B is correct because selling 10 contracts corresponds to 1,000 shares, fully covering the position.

A stock’s price is generally adjusted downward by the amount of the declared cash dividend on the ex-dividend date, so B is correct. The ex-dividend date is the first day the stock trades without the right to receive the upcoming dividend. Investors who purchase on or after the ex-dividend date are not entitled to that declared dividend; the seller retains the right to receive it. Because new buyers are no longer receiving that cash distribution, the market typically reflects this by reducing the stock’s price by approximately the dividend amount (all else equal). This is a standard SIE-tested dividend timing concept.

The record date (choice C) is the date on which the company reviews its shareholder records to determine who is entitled to receive the dividend. It is a corporate bookkeeping cutoff and is not the date the market typically adjusts the price. The payment date (choice D) is when the company actually pays the dividend to shareholders of record; again, this is not when the stock generally drops by the dividend amount. Choice A is incorrect because “redemption date” applies to instruments like bonds, CDs, or redeemable fund shares—not common stock dividends.

This topic sits under corporate actions and dividend mechanics, and the SIE expects you to connect the sequence: declaration date (announced), ex-dividend date (price adjustment / eligibility cutoff for buyers), record date (company records), and payable/payment date (cash distributed). Understanding the ex-dividend date is crucial for customer communication, trade timing, and explaining why price may appear to “drop” even without negative news.

The primary purpose of delivering a privacy policy is to provide customers with clear disclosure about how a financial institution may collect, use, share, and safeguard nonpublic personal information (NPI) and what choices customers may have regarding sharing. That makes B correct. Under privacy requirements such as Regulation S-P (commonly tested on the SIE), firms must inform customers about their privacy practices and provide required notices so customers understand how their personal information is handled.

Choice A is incorrect because privacy policies are not primarily about “public information”; the regulatory focus is on nonpublic personal information, such as account numbers, balances, transaction history, social security numbers, and other sensitive data. Choice C is incorrect because the purpose is not to gather more information for marketing or solicitation; it’s to disclose practices and protect customer information. Choice D is incorrect because privacy policies do not automatically override state laws; privacy regulation involves both federal requirements and, in some cases, state provisions, and firms must comply with applicable laws rather than “removing” them.

On the SIE, you should connect privacy policy delivery to three ideas: (1) disclosure of information-sharing practices, (2) customer rights (such as opt-out where applicable), and (3) safeguards—the firm’s obligation to protect confidential customer information. This aligns with broader customer protection standards and the regulatory framework governing broker-dealer handling of client data.

The correct answer is C, Front running. Front running is a serious violation of FINRA rules and ethical standards. It occurs when a registered representative or broker trades a security in their own account ahead of a large customer order, with the expectation that the customer’s trade will impact the market price.

In this scenario, the RR knows that a large sell order is about to be executed, which will likely drive the price of the security down. By selling shares in his own account before executing the customer’s order, the RR is attempting to avoid losses or profit from the anticipated price movement. This is considered misuse of material, non-public information and is strictly prohibited.

Choice A, Churning, refers to excessive trading in a customer’s account to generate commissions. Choice B, Short selling, is simply the act of selling borrowed securities and is not inherently unethical. Choice D, Short-term trading is not prohibited by itself unless it violates suitability or other rules.

Front running undermines market integrity and violates the duty of fair dealing owed to customers. Therefore, it is both unethical and illegal, making choice C the correct answer.

Class A mutual fund shares typically include a front-end sales charge, also called a front-end load. The investor pays this charge at the time of purchase, and it is included in the public offering price. The public offering price equals the net asset value plus the applicable sales charge. Choice B is correct. A back-end load or contingent deferred sales charge is more commonly associated with Class B shares or certain other share classes, not the defining cost element of Class A shares. Choice C is incorrect because mutual funds use forward pricing; orders are priced at the next calculated net asset value after the order is received, not the prior day’s NAV. Choice D is also incorrect because the relevant price is the next calculated NAV after receipt of the order, not necessarily the following day’s close. The SIE outline includes open-end funds, share classes, net asset value, loads, sales charges, and costs and fees. This question tests both mutual fund share-class structure and the distinction between front-end and deferred sales charges. Reference: Section 2.1.4 Packaged Products.

When a firm acts in a principal capacity, it trades securities for its own account, buying or selling directly to or from its inventory. The firm’s role differs from an agency capacity, where it acts as an intermediary.

A is correct because principal capacity involves selling directly from the firm ' s inventory.

B, C, and D are incorrect because these scenarios describe agency transactions, where the firm facilitates trades between two parties.

Communications with the public must be fair, balanced, and not misleading. A registered representative may not make exaggerated, unwarranted, promissory, or predictive statements that imply certainty about future market performance. Choice D is prohibited because it states that the stock “will hit $50 per share” by a specific month. That is a definitive price prediction and creates an improper guarantee-like impression about future performance. Choice A is a factual historical statement if accurate. Choice B references a firm research rating and may be permissible if the research report is properly approved and included with appropriate disclosures. Choice C provides factual information about management experience and is not inherently prohibited if accurate and not misleading. The SIE outline includes communications with the public, general requirements, prohibited manipulative or deceptive devices, and suitability/best interest communications. It also lists FINRA Rule 2210, Communications with the Public, and SEC antifraud provisions as relevant rules. The central rule is that sales communications may discuss opinions and facts, but they cannot promise or guarantee a specific future price. Reference: Section 3.2.5 Communications with the Public; FINRA Rule 2210; Section 3.3 Prohibited Activities.

An index ETF is designed to track a specific index—which may represent an asset class, market segment, style, sector, or country—so D is correct. Index ETFs are typically passively managed to replicate the performance of a chosen benchmark (e.g., a broad equity index, a sector index, or an international index). This product design feature is fundamental and widely tested on the SIE.

Choice C is incorrect because ETFs are not priced once daily like open-end mutual funds. ETFs trade on an exchange throughout the day and have intraday market prices. Choice B is incorrect because typical retail investors do not redeem ETF shares for cash directly with the issuer. The creation/redemption process is primarily for authorized participants, who transact in large blocks (creation units), usually exchanging baskets of securities. Retail investors buy and sell ETF shares in the secondary market through brokerage transactions. Choice A is incorrect because while ETFs have an indicative intraday value (often called intraday NAV or iNAV), the ETF’s market price can trade at small premiums or discounts based on supply/demand. It does not necessarily trade exactly at “intraday intrinsic value” at every moment, even though the arbitrage mechanism usually keeps deviations relatively small.

For SIE purposes, remember the core ETF distinctions: intraday trading, typically lower expense than many active mutual funds, an index-tracking objective for index ETFs, and a creation/redemption mechanism that supports price alignment with underlying value.