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
FINRA Rule 5110 (Corporate Financing Rule) and general suitability requirements obligate member firms to perform reasonable due diligence regarding the issuer and the offering. This includes investigating the issuer's business, financial condition, management, and the terms of the offering. Relying solely on issuer representations without independent inquiry would be inconsistent with a firm's obligations under FINRA rules and federal securities law.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 477+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Section 4 questions
- A managing underwriter is structuring compensation for a public offering. Under FINRA Rule 5110, which of the following…
- An investment bank is expanding its operations to include municipal advisory services. In addition to its existing…
- What is the primary purpose of information barriers (Chinese walls) within an investment bank?
- Under the Securities Exchange Act of 1934, which of the following entities is required to register as a broker-dealer…