Free FINRA SIE Practice Exam with Questions & Answers | Set: 3

Federal Reserve Regulation T mandates that customers must pay for purchases in a cash account within two business days of settlement (T+4). If payment is not made, the brokerage firm must liquidate the securities and place the account on a 90-day restriction.

C is correct because the customer’s account is frozen for 90 days, during which all trades must be paid for in advance.

A is incorrect as closing transactions are still permitted but require prepayment.

B is incorrect because the restriction lasts for 90 days, not 30.

D is incorrect as only the delinquent account, not related accounts, is frozen.

A 1-for-3 reverse stock split means that shareholders will receive one new share for every three shares currently owned. Reverse splits reduce the number of shares outstanding while proportionally increasing the market price per share, leaving the investor’s overall market value (ignoring market reactions and rounding) essentially unchanged at the moment of the split. In this question, the investor owns 300 shares at $9.00 each. Dividing the share count by 3 results in 100 shares after the reverse split (300 ÷ 3 = 100). Because the split is reverse, the price is multiplied by 3 to keep the position value constant: $9.00 × 3 = $27.00 per share. Therefore, the investor will have 100 shares at $27.00, which is answer choice A.

You can also verify by checking the total value before and after the split. Before: 300 × $9.00 = $2,700. After: 100 × $27.00 = $2,700. This illustrates the central split principle tested on the SIE: stock splits and reverse splits change share count and per-share price, but do not inherently create gains or losses; instead, they adjust the number of shares and the price per share proportionally. Cost basis per share is adjusted accordingly (the total cost basis remains the same, but it is allocated across fewer shares at a higher per-share basis).

Reverse splits are often used by issuers seeking to raise the trading price per share (for example, to meet listing requirements), and the SIE commonly tests the mechanical impact on share quantity, market price, and cost basis.

A preliminary prospectus (often called a “red herring”) is used in a registered public offering—such as an IPO—before the final offering price and certain final terms are set. It typically contains extensive information about the issuer, including its business description, risk factors, intended use of proceeds, management, capitalization, and importantly, details about ownership and shareholdings (e.g., principal shareholders, insiders, and how ownership may change post-offering). That makes A (Ownership structure) the correct answer.

Choice B is incorrect because “anticipated trading volume” is not a standard required disclosure item in a preliminary prospectus. While a prospectus may discuss market and listing information, projected trading volume is speculative and generally not presented as a typical disclosure item. Choice C is incorrect because the SEC does not approve the merits of an offering; securities regulation is rooted in disclosure, not merit review. The SEC’s role is to require that material information is disclosed so investors can make informed decisions—not to judge whether the investment is “good.” Choice D is incorrect because FINRA does not “determine” a preliminary prospectus is accurate in that way; FINRA’s corporate financing review is focused on underwriting terms and arrangements for fairness/reasonableness under applicable rules, not certifying accuracy of issuer disclosures.

This question targets core SIE offering concepts: what a prospectus contains, what “red herring” means, and the principle that regulators require full and fair disclosure rather than guaranteeing investment quality.

The cooling-off period begins after the registration statement is filed with the SEC and lasts for at least 20 days. During this time, the issuer and underwriters can market the securities but cannot finalize sales.

D is correct because marketing (e.g., roadshows) is permitted during the cooling-off period.

A is incorrect because the final prospectus is distributed after the offering is effective.

B and C are incorrect because sales and deliveries are prohibited until the registration becomes effective.

Step by Step Explanation:

Secondary Offering: Involves the sale of shares by an existing shareholder, such as an insider, rather than the company itself issuing new shares.

Incorrect Options:

A: Rights offerings involve giving existing shareholders the opportunity to buy additional shares.

B: Private offerings are not registered with the SEC and involve limited investors.

C: An exempt offering refers to securities exempt from SEC registration, such as Regulation D offerings.

SEC Guide on Secondary Offerings: SEC Secondary Offerings.

" Regular way " settlement refers to the standard settlement cycle for securities transactions, which is T+2 for most stocks and bonds. This timeline is set by regulators to ensure orderly processing of trades.

D is correct because regular way settlement follows the preset T+2 cycle.

A is incorrect because cash settlement occurs the same day as the trade.

B is not a recognized term for settlement types.

C is incorrect because next-day settlement applies only to specific securities (e.g., Treasury securities).

The RR’s actions are impermissible because an RR may not sign a document on behalf of a customer to satisfy documentation requirements, regardless of whether the signature is “digital” or on paper. Signing for a customer is essentially a falsification or “signature of convenience,” which is a serious compliance violation. Firms require customer signatures on certain disclosures to evidence that the customer received and acknowledged the risks and terms; if the customer is unavailable, the correct approach is to delay the transaction, obtain the proper signature, or follow firm-approved alternative procedures—not to sign for the customer. Therefore, C is correct.

Choice A is incorrect because the customer’s unavailability does not justify falsifying documentation. Choice B is incorrect because suitability and oral authorization do not permit the RR to execute a customer signature requirement; suitability does not waive documentation rules. Choice D is incorrect because the prohibition is not about the medium; signing on the customer’s behalf is improper whether digital or hard copy.

On the SIE, this ties to books and records integrity and prohibited practices: firms and associated persons must maintain accurate records and cannot create misleading documentation. Regulators treat record falsification as a major violation because it undermines supervision, customer protection, and regulatory examinations.