SIE practice questionhardPersonal Trading
A compliance officer discovers that a registered representative purchased shares of a company one day before the firm published a 'buy' recommendation on that stock to customers. This activity most likely constitutes:
- AAcceptable personal trading, since no customer orders were affected
- BA permissible trade as long as the representative disclosed their position
- COnly a violation if the recommendation was based on inside information
- DFront-running the firm's research recommendation, which is prohibited✓ Correct answer
Explanation
Why D — Front-running the firm's research recommendation, which is prohibited
Trading ahead of a firm's research recommendation is a form of front-running and is prohibited. FINRA rules and firm policies require that associated persons not trade in their personal accounts based on advance knowledge of the firm's upcoming research publications, recommendations, or customer orders. Even if no customer order was directly disadvantaged, the representative had material non-public information about the firm's upcoming recommendation and traded to profit from it. This violates the firm's duty of fair dealing and can result in disciplinary action.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Regulatory Framework questions
- What does the term SRO stand for within the securities industry?
- Which of the following best describes a firm's obligation regarding the personal trading activities of its associated…
- What is the primary purpose of an SRO?
- A dispute arises between two FINRA member firms regarding a trade settlement. Under FINRA rules, how must this dispute…