Map conduct to process
Notice, disclose, escalate.
Registration begins with disclosure.
Form U4 is used to seek registration and disclose required information. Material changes belong in the required amendment process rather than an informal explanation.
Termination has its own record.
Form U5 reports the end of relevant registrations and the stated reason. The filing is consequential and should not be confused with the application form.
Suspicion travels through the firm.
A representative observing possible money laundering escalates through the firm’s AML procedures and avoids tipping off the customer.
Outside activity is not automatically private.
Compensated outside business activities generally require prior written notice so the member firm can evaluate the activity and its risks.
Manipulation harms market integrity.
Front-running uses anticipated customer-order impact for personal or firm advantage. Recognize the sequence: customer information first, improper trade ahead of it.
Five original questions
Choose the required process.
1. Which activity is a prohibited manipulative practice?
- Dollar-cost averaging
- Front-running a customer order
- Rebalancing a portfolio
- Entering a good-til-canceled order
Answer: B. Front-running means trading ahead of a customer order to benefit from its anticipated market effect.
2. A representative learns that a customer is structuring cash deposits to avoid reporting. The representative should:
- Warn the customer privately
- Notify the firm’s appropriate AML personnel
- Close the account immediately without notice
- Ignore it unless the amount exceeds $10,000
Answer: B. Suspicious activity should be escalated through the firm’s AML procedures, without tipping off the customer.
3. What is the primary purpose of Form U4?
- Apply for securities-industry registration and disclose required information
- Terminate an individual’s registration
- Register a new public offering
- Open a customer margin account
Answer: A. Form U4 is used to seek registration and provide required personal and disciplinary disclosures.
4. Which form is generally filed to report the termination of an associated person’s securities registrations?
- Form ADV
- Form CRS
- Form U5
- Form 10-K
Answer: C — Form U5. Form U5 is the uniform termination notice; Form U4 is used for registration and required amendments.
5. Before engaging in a compensated outside business activity, a registered person generally must:
- Ask the customer for permission
- Provide prior written notice to the employing member firm
- Register the activity as a mutual fund
- File a prospectus with the SEC
Answer: B. Prior written notice lets the firm evaluate the proposed activity under its supervisory responsibilities.
Common confusion
Do not solve a process problem by improvising.
- U4 seeks or amends registration; U5 reports termination.
- Possible suspicious activity is escalated through AML personnel; the customer is not tipped off.
- Outside activity notice goes to the member firm, not to customers.
- Registration is not regulatory approval or endorsement.
- A small exam weight is not permission to skip the topic.
Sources and limits
Mapped to Section 4 and related conduct rules.
- FINRA SIE Content Outline — Sections 4.1 and 4.2.
- FINRA: Form U4 and U5 filing guidance.
- FINRA Rule 3270: Outside Business Activities.
This is exam education, not firm-specific compliance, legal, licensing, or investment advice. Follow the procedures of the relevant firm and current authority.