General Securities Sales Supervisor (Series10) Practice Exam

Which statement about FINRA's Communications Rule is FALSE?

1. All retail communications must be approved in writing by a principal

2. All retail communications must be filed with FINRA in advance of first use after the broker-dealer's first year

3. Recommendations of securities must be dated and show the security's price at that date

4. Advertisements seeking to hire new employees are exempt from the filing rule

The correct answer is: All retail communications must be filed with FINRA in advance of first use after the broker-dealer's first year

The statement regarding the requirement for all retail communications to be filed with FINRA is not accurate. According to FINRA's Communications Rule, retail communications are indeed subject to pre-approval by a principal, but the critical aspect lies in the timing of the filing with FINRA. For a broker-dealer that has been operating for less than a year, all retail communications must be filed with FINRA at least 10 days before their first use. However, once the broker-dealer has been in business for a year, they are no longer required to file all retail communications in advance; they can instead maintain a record of these communications without needing to file each one before use. The other statements accurately reflect the rules laid out by FINRA. Retail communications must indeed be approved in writing by a principal, recommendations must be properly dated and include the security's price for transparency, and advertisements meant for recruiting purposes are classified differently, exempting them from the filing requirement. Thus, the misunderstanding in that choice stems from the specific timing and conditions surrounding the filing requirement, particularly related to the broker-dealer's operational duration.