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SIE prohibited activities practice questions

Free SIE exam questions on prohibited activities: market manipulation, insider trading, churning, unauthorized trading, misuse of customer funds and sales practice abuses, with rationales.

Tap an answer to check it, or open "Show the answer and rationale" under each question. Customers in the questions are fictional. Exam practice only, not investment advice.

Question 1 of 20

A rep tells customers a stock 'is about to be taken over' with no basis, to drive up the price of shares he owns. Which rule does this most directly violate?

  1. FINRA Rule 2020, manipulation
  2. FINRA Rule 3230, telemarketing
  3. FINRA Rule 4513, complaint records
  4. SEC Rule 17a-4, record retention
Show the answer and rationale

Answer: A

Spreading false rumors to move a price is a manipulative, fraudulent device under Rule 2020 (and Rule 10b-5). The other rules govern complaint records, retention periods and telemarketing calls.

📚 Learn it: Fake Volume, Fake Prices

Question 2 of 20

Under the insider trading penalty provisions, what can a controlling person, such as an employing firm, be ordered to pay?

  1. Only the profit the employee made
  2. A flat $100,000 per violation
  3. The greater of $1 million or 3x the gain
  4. Nothing, since only the trader is liable
Show the answer and rationale

Answer: C

A controlling person can face a civil penalty of the greater of $1 million or three times the profit gained or loss avoided, if it knew or recklessly disregarded the risk or failed to keep required policies. ($1 million is the statutory figure; the SEC adjusts it for inflation, to $2,626,135 as of January 2025.) The other choices understate or deny that liability.

📚 Learn it: Inside Information, Outside Penalties

Question 3 of 20

A rep recommends a highly speculative penny stock to a customer whose stated objective is capital preservation. What is the main problem?

  1. The trade must be marked unsolicited
  2. Penny stocks cannot be recommended at all
  3. The rep needed discretionary authority
  4. It does not fit her profile
Show the answer and rationale

Answer: D

Recommendations must fit the customer's investment profile, under Reg BI for retail customers and Rule 2111 suitability otherwise. Speculative stock for a preservation objective fails that test. Marking it unsolicited would be falsifying records.

📚 Learn it: Churning, Discretion and Permission

Question 4 of 20

A firm keeps customers' fully paid securities mixed with its own securities and pledges them all for a firm loan. What is this practice called?

  1. Rehypothecation by consent
  2. Commingling
  3. Segregation
  4. Hypothecation agreement
Show the answer and rationale

Answer: B

Mixing customer securities with the firm's own, and pledging them for firm borrowing, is commingling and is prohibited. Fully paid customer securities must be segregated and kept in the firm's possession or control.

📚 Learn it: Hands Off the Customer's Money

Question 5 of 20

Effective October 25, 2027, which new FINRA rule replaces Rules 3270 and 3280 on outside activities and private securities transactions?

  1. Rule 3110
  2. Rule 3290
  3. Rule 4512
  4. Rule 3310
Show the answer and rationale

Answer: B

Rule 3290 consolidates the outside business activity and private securities transaction rules, effective October 25, 2027. Rule 3310 is AML, 4512 is customer account information and 3110 is supervision.

📚 Learn it: Selling Away, Breakpoints and Hot Issues

Question 6 of 20

A rep forges a customer's signature on an account form to save time, with the customer's verbal okay. Which rule is most clearly violated?

  1. FINRA Rule 2010, standards of commercial honor
  2. FINRA Rule 2342, breakpoints
  3. FINRA Rule 3230, telemarketing
  4. FINRA Rule 5220, firm quotes
Show the answer and rationale

Answer: A

Signing for a customer, even with permission, falsifies records and violates the commercial honor standard of Rule 2010. The other rules cover phone calls, quotes and fund sales charges.

📚 Learn it: The Rules Behind the Rules

Question 7 of 20

Which activity is NOT a form of market manipulation?

  1. Buying a stock after reading its public annual report
  2. A wash trade
  3. Marking the close
  4. Painting the tape
Show the answer and rationale

Answer: A

Trading on public information after your own research is ordinary investing. Wash trades, marking the close and painting the tape all create false impressions of price or activity.

📚 Learn it: Fake Volume, Fake Prices

Question 8 of 20

Under Exchange Act Section 20A, who may sue an insider trader for damages?

  1. Any investor who owns any security of any issuer
  2. Only the issuer whose securities were traded
  3. Contemporaneous traders on the other side
  4. Only the SEC
Show the answer and rationale

Answer: C

Section 20A gives contemporaneous traders, those who traded the same security on the opposite side around the same time, a private right of action. The SEC sues separately for penalties; liability does not extend to every investor in every security.

📚 Learn it: Inside Information, Outside Penalties

Question 9 of 20

Which FINRA rule bans transactions in a discretionary account that are excessive in size or frequency given the account's resources?

  1. Rule 5130
  2. Rule 2210
  3. Rule 4530
  4. Rule 3260
Show the answer and rationale

Answer: D

Rule 3260 governs discretionary accounts, including the ban on excessive transactions, written authorization and supervision. Rule 2210 covers communications, 4530 reporting and 5130 new issues.

📚 Learn it: Churning, Discretion and Permission

Question 10 of 20

A customer gives a rep a check made payable to the rep personally 'to invest for me.' What should the rep do?

  1. Cash it and deliver the money to the firm
  2. Decline; funds go to the firm
  3. Hold it in his desk until the customer calls
  4. Deposit it in his own account and buy the stock
Show the answer and rationale

Answer: B

Customer funds should go to the firm (or as its procedures direct), never into a rep's personal hands or account. Accepting a personally payable check invites conversion and commingling.

📚 Learn it: Hands Off the Customer's Money

Practice 10 more prohibited activities questions free →

A timed or tutor-mode set in the app, scored by SIE section, with every miss saved for review. Free, no sign-up needed.

Question 11 of 20

An account is beneficially owned 8% by restricted persons and 92% by unrestricted investors. Under Rule 5130, may it buy new issues?

  1. Only with SEC approval
  2. Yes, under the 10% de minimis exemption
  3. No, any restricted interest bars it
  4. Only if the restricted owners sell first
Show the answer and rationale

Answer: B

Rule 5130 does not apply to an account in which restricted persons' beneficial interests total 10% or less. At 8%, the account may buy. There is no zero-tolerance rule or SEC approval step.

📚 Learn it: Selling Away, Breakpoints and Hot Issues

Question 12 of 20

Which act does SEC Rule 10b-5 prohibit in connection with buying or selling a security?

  1. Recommending a stock that later falls
  2. Selling a stock at a loss for taxes
  3. Omitting a material fact
  4. Charging a commission on a trade
Show the answer and rationale

Answer: C

Rule 10b-5 bans schemes to defraud, untrue statements of material fact and omissions that make statements misleading. Commissions, honest recommendations that turn out badly and tax-loss sales are lawful.

📚 Learn it: The Rules Behind the Rules

Question 13 of 20

Which feature defines a wash trade?

  1. A trade placed after 4 p.m. Eastern time
  2. A trade larger than 10,000 shares
  3. No real change in beneficial ownership
  4. A trade in a municipal security
Show the answer and rationale

Answer: C

A wash trade is a purchase and sale that does not change who really owns the security, creating fake volume. Time of day, trade size and the type of security do not make a trade a wash trade.

📚 Learn it: Fake Volume, Fake Prices

Question 14 of 20

When can an employing broker-dealer be held liable as a controlling person for an employee's insider trading?

  1. Whenever any employee trades
  2. Only if the firm profited from the trade
  3. If reckless or lacking required policies
  4. Only if the trade was in the firm's own account
Show the answer and rationale

Answer: C

Controlling-person liability requires that the firm knew or recklessly disregarded the likelihood of the violation and failed to act, or knowingly or recklessly failed to maintain required policies. It is not automatic, and it does not depend on the firm profiting.

📚 Learn it: Inside Information, Outside Penalties

Question 15 of 20

How must a firm supervise orders entered under discretionary authority?

  1. Orders need no review if the customer signed the form
  2. Prompt written approval and frequent review
  3. The customer must approve each order afterward
  4. Orders are reviewed once a year by an auditor
Show the answer and rationale

Answer: B

Rule 3260 requires prompt written approval of each discretionary order by a designated supervisor and frequent review of the account to detect excessive trading. Annual reviews or no review fall short.

📚 Learn it: Churning, Discretion and Permission

Question 16 of 20

How long must a firm keep the written pre-approvals it gives for a rep's loan arrangement with a customer under Rule 3240?

  1. Until the loan is repaid in full
  2. No record is required
  3. One year from the date the loan was made
  4. At least 3 years after it ends
Show the answer and rationale

Answer: D

Rule 3240 requires the firm to keep written pre-approvals for at least three years after the loan arrangement ends or the rep's association with the firm ends. Shorter periods do not meet the rule.

📚 Learn it: Hands Off the Customer's Money

Question 17 of 20

Which FINRA rule requires a firm to honor its published firm quotes, making 'backing away' a violation?

  1. Rule 5130
  2. Rule 5220
  3. Rule 2342
  4. Rule 3280
Show the answer and rationale

Answer: B

Rule 5220 prohibits offering to buy or sell at a stated price unless the firm is prepared to trade at that price. Rule 5130 covers IPOs, 2342 breakpoints and 3280 private securities transactions.

📚 Learn it: Selling Away, Breakpoints and Hot Issues

Question 18 of 20

What does FINRA Rule 2020 prohibit?

  1. Fraudulent or manipulative devices
  2. Calling customers after 9 p.m.
  3. Opening accounts without a privacy notice
  4. Keeping records for fewer than six years
Show the answer and rationale

Answer: A

Rule 2020 bans using any manipulative, deceptive or other fraudulent device to effect or induce securities transactions. Privacy notices, call hours and retention periods are covered by other rules.

📚 Learn it: The Rules Behind the Rules

Question 19 of 20

A firm holds a customer's limit order to buy at $25.00 and then buys for its own account at $25.00 without filling the customer's order. What has the firm done?

  1. Spoofing
  2. A permitted riskless principal trade
  3. Trading ahead of a customer order
  4. Marking the close
Show the answer and rationale

Answer: C

Trading for its own account at a price that would have satisfied a customer's held order, without filling the customer first, is trading ahead (FINRA Rule 5320). Riskless principal trades fill the customer; spoofing and marking the close are price schemes.

📚 Learn it: Fake Volume, Fake Prices

Question 20 of 20

A firm places a stock on its restricted list. What does this usually mean?

  1. Customers may no longer sell the stock
  2. The stock can only be bought on margin
  3. The stock has been delisted by the exchange
  4. Limits on firm trading and recommendations
Show the answer and rationale

Answer: D

A restricted list limits trading and recommendations, often because the firm may hold MNPI, for example from an investment banking deal. It is an internal control and does not delist the stock or bar customers from selling.

📚 Learn it: Inside Information, Outside Penalties

Practice 10 more prohibited activities questions free →

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