SIE practice questionmediumExcessive Markups
A broker-dealer acting as principal charges a customer a 12% markup on a stock trade. Under FINRA's markup policy, this is most likely:
- APermitted if the customer agreed to it in advance
- BAcceptable because the firm was acting as principal
- CA violation because the markup is excessive and not fair or reasonable✓ Correct answer
- DAcceptable because there is no maximum markup limit
Explanation
Why C — A violation because the markup is excessive and not fair or reasonable
FINRA's 5% markup policy is a guideline (not a rule) that markups, markdowns, and commissions should generally not exceed 5%. A 12% markup would be presumed excessive and unfair. Factors considered include: the type of security, price, dollar amount of the transaction, and the nature of the firm's business. While there is no absolute cap, significantly exceeding 5% requires strong justification. Customer consent does not make an excessive markup permissible.
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