Series 79 practice questioneasyFINRA Rules Applicable to Investment Banking
Under FINRA rules, which of the following best describes the obligation of a member firm participating in a public offering?
- AThe firm must guarantee that investors will receive a minimum return on the offering
- BThe firm must conduct reasonable due diligence on the issuer and the securities being offered✓ Correct answer
- CThe firm is only required to verify the issuer's stock price history over the prior five years
- DThe firm may rely entirely on the issuer's representations without independent verification
Explanation
Why B — The firm must conduct reasonable due diligence on the issuer and the securities being offered
A participating underwriter conducts a reasonable investigation of the issuer and offering. This supports the Securities Act Section 11 due-diligence defense and compliance with federal antifraud obligations. FINRA Rule 5110 principally governs underwriting terms, arrangements and compensation; it is not the source of the Section 11 due-diligence standard.
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