General Securities Sales Supervisor (Series10) Practice Exam

What does the FINRA 5% Mark-Up Policy apply to?

1. Commissions charged on over-the-counter transactions

2. Commissions charged on transactions on stock exchanges

3. Underwriting spreads on new issue offerings

4. All of the above

The correct answer is: Commissions charged on transactions on stock exchanges

The FINRA 5% Mark-Up Policy is specifically designed to govern the compensation that broker-dealers can charge when executing transactions in over-the-counter (OTC) securities, which includes both the mark-ups on sales and the commissions charged on transactions. Although it may seem intuitive that it would apply to transactions on stock exchanges, it is crucial to understand that the policy is focused on OTC transactions rather than those conducted on formal exchanges. The 5% policy is aimed at ensuring fair pricing and preventing excessive mark-ups on customer transactions. It applies to transactions involving equity securities traded as OTC, thus providing a guideline for broker-dealers to ensure that they are not overcharging customers. Since the policy specifically addresses these criteria, it establishes a standard for how brokers should determine and justify charges in an OTC context. Given this, option B suggests that the policy is only applicable to transactions on stock exchanges which is not accurate. The right scope for the FINRA 5% Mark-Up Policy would encompass those OTC transactions in a different light compared to exchange transactions, which follow different regulations and competitive pricing dynamics. Thus, the appropriate answer would identify the specific setting in which the policy applies and would correctly interpret the broader context of how pricing policies are enforced among different types of