Series 24 Simulation – Rule Violations

🧾 Series 24 Simulation – Rule Violations
📘 Test Your Knowledge of Supervision, Ethics, and Regulatory Responsibilities

The Series 24 exam (General Securities Principal Exam) qualifies individuals to supervise and manage investment banking, trading, and brokerage operations. One of the most heavily tested areas is the identification and management of rule violations. Below is a mini simulation with 6 exam-style questions designed to test your ability to recognize violations and apply supervisory rules under FINRA and SEC regulations.

✅ Instructions:

• Treat this like a timed drill: aim for 10 minutes total.
• Focus on identifying which rules are broken and what the correct supervisory action would be.

🔢 Series 24 Rule Violation Simulation (6 Questions)

1. A registered rep tells a client, “This IPO will double your money in six months—it’s a sure thing.” What’s the principal’s required response?

A) Document the statement and file a report with FINRA
B) Fire the rep immediately
C) Investigate and take appropriate supervisory action, including possible disciplinary measures
D) Ignore the comment if the client is accredited

✅ Correct Answer: C

Explanation:
This is a clear violation—misleading and promissory language is prohibited. The principal must investigate, document findings, and apply appropriate firm-level discipline.

2. A branch manager discovers that a rep has been texting clients about investments using their personal cell phone. What is the most appropriate next step?

A) Review the rep’s text messages and approve them retroactively
B) Instruct the rep to stop immediately and educate on firm communication policy
C) Take no action unless a client complains
D) Approve the use of texting if the rep saves all messages

✅ Correct Answer: B

Explanation:
Electronic communications related to business must be supervised and retained. Personal messaging apps are generally not compliant unless archived by the firm.

3. A firm fails to file Form U5 for a terminated rep within the required 30-day window. What’s the consequence?

A) The firm must pay the rep a bonus
B) FINRA will automatically suspend the firm’s license
C) The firm may be subject to regulatory fines and disciplinary action
D) The U5 is optional if the rep was not registered long

✅ Correct Answer: C

Explanation:
Form U5 must be filed within 30 days of termination. Failing to do so is a reporting violation and can result in disciplinary action or fines.

4. A rep sells private placements outside the firm without prior approval. What is this called?

A) Insider trading
B) Front-running
C) Selling away
D) Shadow pricing

✅ Correct Answer: C – Selling Away

Explanation:
Selling away is when a rep sells securities outside the firm’s supervision. It must be disclosed and approved, or it violates FINRA rules and could result in suspension or termination.

5. A rep regularly marks trades as “unsolicited” to avoid suitability concerns, even when they initiate the recommendations. What violation is occurring?

A) Parking
B) Falsification of records
C) Free-riding
D) Yield burning

✅ Correct Answer: B – Falsification of Records

Explanation:
Mislabeling trades to bypass compliance is fraudulent recordkeeping. It misleads the firm and regulators and is a serious supervisory red flag.

6. A supervisor ignores red flags that a rep is excessively trading a senior client’s account. What term best describes this lapse?

A) Reasonable ignorance
B) Inadvertent omission
C) Failure to supervise
D) Unauthorized practice

✅ Correct Answer: C – Failure to Supervise

Explanation:
Supervisors must investigate and act on red flags. Ignoring signs of churning or exploitation of vulnerable clients violates the supervisory responsibility under FINRA Rule 3110.

📊 Your Score

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