Series 24 Domain 2: Supervision of General Broker-Dealer Activities Welcome to your Series 24 Domain 2: Supervision of General Broker-Dealer Activities 1. Series 24: Supervision of General Broker-Dealer Activities What is the minimum frequency at which a principal must conduct a review of all transactions relating to variable annuities? Quarterly Semi-annually Annually Monthly None 2. Series 24: Supervision of General Broker-Dealer Activities A principal is responsible for reviewing electronic correspondence. Which of the following is NOT required as part of this review process? Establishing guidelines for flagging specific types of messages for review Reviewing every electronic message sent and received Documenting the review process and findings Ensuring the system's capacity to archive and retrieve messages None 3. Series 24: Supervision of General Broker-Dealer Activities Which action is required when a customer account shows signs of excessive trading? Notify FINRA immediately Increase the commission charges Obtain written consent from the customer to continue trading Review the account for suitability and ensure appropriate supervisory procedures are in place None 4. Series 24: Supervision of General Broker-Dealer Activities In the case of a potential conflict of interest between a broker-dealer and a client, what must the supervisor ensure? The client is aware of all alternative products All trades are executed on a national exchange The conflict is disclosed in writing to all parties before proceeding The broker-dealer profits are maximized None 5. Series 24: Supervision of General Broker-Dealer Activities Which of the following is NOT a responsibility of a supervising principal regarding the retention of business communications? Ensuring communications are retained for a minimum of three years Confirming that all retained communications are easily accessible Monitoring the deletion of communications after one year Reviewing communications regularly for compliance with firm and regulatory guidelines None 6. Series 24: Supervision of General Broker-Dealer Activities What is a principal's first step when noticing irregularities in a registered representative's trading patterns? Terminate the representative immediately Conduct an internal investigation Report the representative to FINRA Ignore the irregularities as market-driven anomalies None 7. Series 24: Supervision of General Broker-Dealer Activities What must be established when a new brokerage firm is set up to ensure compliance with FINRA's supervision rules? A central office in each state of operation Written supervisory procedures Only senior managers with over 10 years of experience No need for ongoing compliance training programs None 8. Series 24: Supervision of General Broker-Dealer Activities Which of the following is a requirement for the annual review of a firm's compliance and supervisory procedures? It must be conducted by an external auditor It must be approved by all registered representatives It must include recommendations for changes if issues are found It must focus only on high-risk areas None 9. Series 24: Supervision of General Broker-Dealer Activities What is required when supervising the sales practices of registered representatives dealing with complex products? Ensuring they only sell products from the firm's pre-approved list Guaranteeing that they pass a separate exam for each type of product Providing training and ensuring understanding of the risks and features of the products Limiting sales to only the most experienced representatives None 10. Series 24: Supervision of General Broker-Dealer Activities When reviewing trade blotters, what must a principal specifically look for regarding non-exempt securities? Consistency in markups and markdowns Increase in dividend payouts Use of leverage in transactions Geographic distribution of securities None 11. Series 24: Supervision of General Broker-Dealer Activities What specific action is required from a supervising principal if a conflict of interest potentially impacts the objectivity of research reports? Disclose the conflict in the firm's annual report Ignore the conflict if the research is favorable Ensure the conflict is prominently disclosed in the research report Only disclose the conflict to the board of directors None 12. Series 24: Supervision of General Broker-Dealer Activities What is the minimum net capital requirement for a broker-dealer to qualify for carrying and clearing status? $100,000 $250,000 $500,000 $1,000,000 None 13. Series 24: Supervision of General Broker-Dealer Activities In the event of detecting fraudulent activities, what is the FIRST action a supervising principal should take? Inform all clients of the firm Conduct a thorough internal review Immediately report to the SEC Temporarily suspend trading activities None 14. Series 24: Supervision of General Broker-Dealer Activities When a customer complaint involves a complex investment product, what must the supervising principal ensure in the handling of the complaint? The complaint is resolved within 24 hours The response includes an offer of financial compensation The complaint handler has specific knowledge of the product All communications are handled via email only None 15. Series 24: Supervision of General Broker-Dealer Activities What is the supervisory requirement regarding the approval of new advertising materials? Approval by the marketing department Approval by a registered principal Approval by all partners of the firm No approval is necessary if reused from previous campaigns None 16. Series 24: Supervision of General Broker-Dealer Activities Which of the following is a requirement for the supervision of discretionary accounts? Daily review of all discretionary decisions Annual performance reviews of discretionary accounts Prior written authorization from the customer A new discretionary order form for each transaction None 17. Series 24: Supervision of General Broker-Dealer Activities In supervising the handling of IPO shares, what must a principal ensure regarding allocations? IPO shares are only allocated to institutional investors Allocations are made based on a first-come, first-served basis Allocations do not favor insiders or related parties All clients receive an equal share None 18. Series 24: Supervision of General Broker-Dealer Activities What should be the supervisory approach when monitoring trades that could potentially manipulate market prices? Focus solely on trades by high-profile clients Report all trades directly to the SEC without review Monitor for patterns that deviate from normal trading activities Ignore unless direct complaints are received None 19. Series 24: Supervision of General Broker-Dealer Activities What compliance issue must be considered when a broker-dealer is expanding its operations internationally? Adherence to U.S. tax laws only Ignoring foreign regulatory requirements Ensuring compliance with both U.S. and foreign regulations Implementing the lowest standard of regulatory requirements None 20. Series 24: Supervision of General Broker-Dealer Activities How should a principal handle the supervision of sales literature regarding newly offered mutual funds? Approve literature that highlights potential returns only Ensure the literature is balanced, presenting both risks and rewards Distribute literature without a review if it is produced by the fund Only use literature that has been used in previous successful launches None 21. Series 24: Supervision of General Broker-Dealer Activities Regarding the supervision of brokers' external business activities, what is required? Only report activities that generate over $10,000 Review and approve all external business activities Supervision is only required for activities related to finance External activities do not need to be reported None 22. Series 24: Supervision of General Broker-Dealer Activities What should a supervising principal focus on when evaluating the effectiveness of the firm's Anti-Money Laundering (AML) program? Frequency of transactions Size and scale of the firm Employee training and compliance audits Number of transactions flagged as suspicious None 23. Series 24: Supervision of General Broker-Dealer Activities When overseeing a high-risk client's account, what is an essential supervisory action? Increasing the trading limits Conducting more frequent account reviews Consulting with the client on each trade Removing restrictions on complex instruments None 24. Series 24: Supervision of General Broker-Dealer Activities What is required of a principal when a new regulation affecting trading practices is announced? Wait for industry feedback before taking action Update training programs and supervisory procedures promptly Make minimal changes to existing procedures Focus only on high-volume traders None 25. Series 24: Supervision of General Broker-Dealer Activities What is a principal's duty regarding the surveillance of trading that might influence the market closing price? It is primarily the responsibility of the exchange Monitor end-of-day trading activities for patterns of manipulation Surveillance should be outsourced to avoid conflicts of interest No specific surveillance is required for end-of-day trading None 26. Series 24: Supervision of General Broker-Dealer Activities In the context of supervising derivative transactions, what specific aspect must a principal be vigilant about? Ensuring all derivative transactions are margin based Verifying the physical delivery of underlying assets Understanding and assessing the risk associated with each transaction Confirming all derivatives are listed on major exchanges None 27. Series 24: Supervision of General Broker-Dealer Activities What supervisory practice is essential when a broker-dealer introduces algorithmic trading strategies? Reducing the frequency of trade supervision Ensuring algorithms are tested for compliance with market conduct rules Allowing algorithms to self-correct without manual oversight Focusing only on profitability metrics None 28. Series 24: Supervision of General Broker-Dealer Activities When supervising the sale of leveraged ETFs, what specific information must be provided to clients? The potential for unlimited losses The historical performance of similar ETFs Detailed explanations of leverage risks and costs Assurance of higher returns due to leverage None 29. Series 24: Supervision of General Broker-Dealer Activities What role does a principal play in managing conflicts of interest in a broker-dealer environment? They should prioritize firm profits over resolving conflicts They should ensure conflicts are disclosed and managed according to regulatory requirements They are only required to manage conflicts that result in customer complaints Conflicts of interest should be handled by the legal department alone None 30. Series 24: Supervision of General Broker-Dealer Activities How must a principal supervise the activities of a broker-dealer operating across multiple branches? By frequently visiting each branch By assigning different rules based on the branch size By implementing uniform supervisory practices across all branches Supervision is only required for the main branch None 31. Series 24: Supervision of General Broker-Dealer Activities Regarding the retention of email communications, what is the minimum requirement under FINRA rules? Retain all emails for at least 3 years Retain emails for 1 year Only retain emails related to transactions Emails need not be retained if documented elsewhere None 32. Series 24: Supervision of General Broker-Dealer Activities What supervisory procedure should be implemented when a broker-dealer offers margin trading to clients? Clients should be allowed unlimited margin Supervise and assess the suitability of margin for each client Only offer margin trading to institutional clients Margin trading does not require supervision None 33. Series 24: Supervision of General Broker-Dealer Activities In the event of a regulatory audit, what is the expected role of a supervising principal? To provide minimal information to regulators To ensure all requested documentation is available and compliant To direct regulators to speak only with legal counsel To delay the audit until the firm can ensure compliance None 34. Series 24: Supervision of General Broker-Dealer Activities What is a critical supervisory consideration when a broker-dealer uses sub-custodians for holding client assets? Ensuring sub-custodians are based in the same country Regular auditing of sub-custodian compliance and security measures Allowing sub-custodians to set their own regulatory standards Using sub-custodians that offer the lowest fees None 35. Series 24: Supervision of General Broker-Dealer Activities When supervising the handling of sensitive client information, what measure is crucial? Sharing information only within the firm Limiting access to those who need it for their role Storing all information in a single, central database Periodic deletion of all outdated client information None 36. Series 24: Supervision of General Broker-Dealer Activities What supervisory actions should be taken regarding the personal trading activities of employees to prevent conflicts of interest? Allow employees to freely engage in personal trading Regularly review and pre-approve personal trading activities Only review trading activities of senior employees Prohibit personal trading entirely None 37. Series 24: Supervision of General Broker-Dealer Activities When adjusting supervisory practices due to changes in market conditions, what is a principal's primary concern? Maximizing firm profitability regardless of market conditions Ensuring practices remain compliant and appropriate for current market conditions Reducing the frequency of compliance checks during stable market periods Ignoring minor compliance issues during volatile market periods None 38. Series 24: Supervision of General Broker-Dealer Activities What is required of a supervising principal when an external whistleblower reports a potential violation within the broker-dealer? Dismiss the report if it comes from outside the firm Investigate the claim thoroughly and document the findings Report the whistleblower to regulatory authorities Only act if the whistleblower is an employee None 39. Series 24: Supervision of General Broker-Dealer Activities When a principal discovers that a broker under their supervision has made unauthorized speculative trades in a client's conservative account, what is the appropriate supervisory response? Transfer the client to another broker Immediately suspend the broker and investigate the trades Cover any financial losses and ignore the trades Reward the broker if the trades are profitable None 40. Series 24: Supervision of General Broker-Dealer Activities What action should a supervising principal take when they notice an increase in errors in trade execution reports at one of the firm's branches? Ignore the errors as long as they are not client complaints Implement additional training and monitoring at the branch Close the branch Decrease the volume of trades allowed for that branch None 1 out of 40 Time is Up! Time's up
