General Securities Sales Supervisor (Series10) Practice Exam

When a firm makes a recommendation of a security, which of the following statements must be disclosed?

1. A The firm must disclose expected commissions or mark-ups

2. B The firm must disclose if its officers own the recommended security

3. C The firm must disclose the amounts held in inventory

4. D The firm must disclose if it has acted as a selling group member

The correct answer is: B The firm must disclose if its officers own the recommended security

When a firm makes a recommendation of a security, it is important to ensure transparency and maintain the trust of investors. Disclosing whether the firm’s officers own the recommended security falls under this category of necessary transparency. Ownership by officers can create a potential conflict of interest, as their personal financial interests may influence the recommendations made to clients. By disclosing this information, it allows investors to understand the potential biases in the recommendations and make informed decisions based on a fuller context of the situation. In contrast, while expectations regarding commissions or mark-ups, amounts held in inventory, and participation as a selling group member are relevant factors in certain contexts regarding trading practices and compliance, they are not specifically required disclosures when a recommendation is made. The focus of the required disclosure is primarily on any conflicts of interest that may exist, which is why the ownership of the recommended security by firm officers is critical to disclose.