Series 79 practice questionmediumFINRA Rules Applicable to Investment Banking
A managing underwriter is structuring compensation for a public offering. Under FINRA Rule 5110, which of the following items of value received by the underwriter would most likely be considered underwriting compensation subject to the rule's limitations?
- AReimbursement for actual out-of-pocket accountable expenses incurred during due diligence
- BPayment of standard FINRA filing fees associated with the offering
- CWarrants to purchase shares of the issuer at a discount received in connection with the offering✓ Correct answer
- DInterest earned on funds held in the firm's general operating account
Explanation
Why C — Warrants to purchase shares of the issuer at a discount received in connection with the offering
FINRA Rule 5110 broadly defines underwriting compensation to include any item of value received by participating members in connection with an offering, including warrants, options, and other securities-based compensation. Warrants received at a discount are a classic form of non-cash compensation that must be disclosed and counted against the compensation cap. Accountable expense reimbursements and standard regulatory fees are generally excluded from the compensation calculation.
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