General Securities Sales Supervisor (Series10) Practice Exam

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If a broker-dealer is wholly owned by a publicly traded company, what must it disclose when recommending that company’s stock?

  1. No disclosure is required

  2. Only the profit made must be disclosed

  3. The relationship with the parent company must be communicated

  4. This relationship is prohibited from being disclosed

The correct answer is: The relationship with the parent company must be communicated

When a broker-dealer is wholly owned by a publicly traded company, it is essential for transparency and to ensure that investors are aware of potential conflicts of interest that may arise from the recommendation of that company’s stock. The relationship with the parent company must be communicated to the investors. This is crucial because it informs them that the broker-dealer has a vested interest in the performance of the company's stock, which could influence their investment advice. This disclosure is in line with regulatory requirements aimed at protecting investors and maintaining integrity in the financial markets. By revealing this relationship, the broker-dealer allows investors to make informed decisions considering potential biases or motivations behind the recommendation.

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