Try 10 focused Series 14 questions on General Supervision, with explanations, then continue with the full Securities Prep practice test.
Series 14 General Supervision questions help you isolate one part of the FINRA outline before returning to a mixed practice test. The questions below are original Securities Prep practice items aligned to this topic and are not copied from any exam sponsor.
| Item | Detail |
|---|---|
| Exam | FINRA Series 14 |
| Official topic | Function 5 — General Supervision |
| Blueprint weighting | 18% |
| Questions on this page | 10 |
You are reviewing a commission-sharing arrangement (CSA) payment request for soft-dollar eligibility.
Exhibit: Soft-dollar exception tracker (row)
Request ID: 24-017
Vendor: Alpha Research LLC
Pay method: CSA commissions
Invoice total: $25,000
Line items:
1) Semiconductor quarterly reports + analyst hotline access $20,000
2) Alpha Summit: conference pass + hotel $5,000
Support attached: sample report; summit agenda
Based on the exhibit, which interpretation is best supported when determining what may be paid with commissions?
Best answer: C
Explanation: Substantive research reports and analyst access are eligible research benefits, while conference fees and lodging are non-research goods/services.
Soft-dollar/CSA spend may be used for eligible research benefits, such as substantive research content and analyst access that supports investment decision-making. Non-eligible goods and services—like travel, lodging, and conference-related costs—must be paid with hard dollars or carved out. The exhibit shows a clearly mixed-use invoice with both types of items.
In a commission-spend arrangement, the compliance decision is to distinguish eligible research from non-eligible goods and services and ensure any mixed-use invoice is reasonably allocated. The exhibit includes two separable line items: (1) written industry reports and analyst hotline access, and (2) a conference pass plus hotel. Substantive research content and analyst access are classic eligible research benefits, while conference fees and lodging are non-eligible items (they are not themselves research, even if the event has an agenda). A defensible control outcome is to approve payment of the research portion with commissions and require the non-eligible portion to be paid with hard dollars (or excluded from the CSA payment). The key is that vendor label and “research” packaging do not make non-research items eligible.
A mid-size broker-dealer is launching retail options trading (including complex options) to representatives in 12 non-OSJ branches and through a centralized digital channel. A separate trading desk in headquarters will handle order routing and trade reporting, and Compliance will perform independent testing, but the firm’s written supervisory procedures (WSPs) do not currently specify who owns: (1) options account approval and suitability reviews at the branch level, (2) trading/marketplace controls at headquarters, and (3) escalation and documentation for exceptions.
The business wants to go live in 30 days. As the compliance official, what is the single BEST action to satisfy the supervisory architecture requirement and minimize regulatory risk?
Best answer: A
Explanation: It creates clear, written accountability across branches, the trading desk, and Compliance with defined escalation and documentation before the activity begins.
A compliant supervisory architecture requires clearly assigned, written responsibility across business lines and locations, not assumptions based on where activity is processed. Before launching a new options program, the firm should document who supervises branch-level customer approvals/suitability, who supervises trading desk controls, and how exceptions are escalated and evidenced.
When a firm introduces a new product or channel, supervision must be designed so responsibilities are explicit, appropriately delegated to qualified supervisors, and captured in WSPs in a way regulators can test. Here, risk spans multiple control functions: branch-level account approval and suitability for options, headquarters trading desk controls (order handling, reporting, and related surveillance), and Compliance’s independent testing role. The best approach is to implement a written supervisory “ownership” structure (often a RACI-style matrix) that names responsible principals for each key control, sets escalation triggers and recipients, and specifies what documentation evidences review and closure. Doing this before go-live aligns accountability, reduces gaps between branches and headquarters, and creates defensible supervisory records if exceptions occur.
The key takeaway is that central processing does not replace the need to assign and document supervision where the risk originates and where controls operate.
An internal supervisory review report dated August 1, 2025 found that documentation of supervisory approvals for account-opening exceptions was missing in 28 of 350 new retail accounts.
Per the firm’s remediation standard for exam findings, a corrective action plan (CAP) must include: (1) a single accountable owner, (2) a due date no later than 45 calendar days after the report date, and (3) validation criteria that tests at least 25% of the affected accounts (round up) with evidence retained.
Which proposed CAP best satisfies the firm’s standard?
Best answer: A
Explanation: It assigns one owner, is due within 45 days of August 1, and tests at least 25% of 28 affected accounts ( 7).
A defensible CAP translates the finding into accountable execution and measurable closure criteria. Here, the CAP must be owned by one person, be due within 45 days of August 1, 2025, and include validation covering at least 25% of the 28 impacted accounts (rounded up). The option with a September 10 due date and validation of 7 affected accounts best meets those requirements.
A strong CAP is specific enough that a reviewer can confirm both completion and effectiveness. In this scenario, the compliance official should check each proposal against three required elements: a single accountable owner, a compliant due date, and validation criteria sized to the impact population.
Key checks using the report data:
A plan that misses either the timing window or the minimum validation size fails the firm’s remediation standard even if other elements look reasonable.
A broker-dealer’s automated market-integrity surveillance (mapped in the firm’s WSPs to FINRA Rule 6140 “other trading practices”) generates an alert on a proprietary trader.
Exhibit: Surveillance alert (excerpt)
Date: July 9, 2025 Symbol: ABC
Pattern: Large displayed offers (10,000–25,000 sh) placed 3–6 ticks away,
then canceled within 0.2–1.0 sec; immediately followed by small buys (200–600 sh)
that execute as the NBBO moves up.
Prior alerts: 3 similar in last 30 days; disposition field blank.
As the compliance official, what is the BEST next step in the supervisory workflow?
Best answer: C
Explanation: The next step is a documented triage/investigation with data preservation and escalation to the responsible supervisor before any conclusions or action.
Rule 6140-oriented oversight is executed through a defensible surveillance lifecycle: triage, evidence capture, investigation, escalation, and documented disposition. Here, the alert shows potentially deceptive order activity and a repeat pattern with no prior documented dispositions, so the workflow should move into a formal, documented review rather than a premature close, sanction, or external filing.
At a high level, oversight controls for potentially problematic trading practices should ensure alerts are (1) reviewed by qualified personnel, (2) supported by preserved underlying records, (3) escalated to the correct supervisory owner, and (4) resolved with a documented disposition and any remediation. Because the alert suggests a potentially manipulative pattern and prior similar alerts were not properly dispositioned, the compliance official’s next step is to open a case and direct a trade reconstruction using the underlying order/quote/trade data (and, as applicable, relevant communications) with escalation to the designated trading supervisor. Only after that review should the firm determine whether the activity is a false positive, requires heightened supervision/restrictions, internal discipline, WSP/control enhancements, or external reporting.
The key control point is evidencing a complete surveillance-to-resolution workflow, not making conclusions from the alert alone.
Which statement about compensating unregistered persons for business development activities at a broker-dealer is most accurate?
Best answer: A
Explanation: Compensation to an unregistered person that is contingent on, or tied to, securities transactions (such as a success fee) is an impermissible transaction-based payment.
Broker-dealers must not pay transaction-based compensation to unregistered persons for activities that amount to soliciting or effecting securities transactions. A contingent “success fee” for bringing in investors is a classic example of prohibited compensation because it rewards securities transaction outcomes. Permissible payments to unregistered persons are generally limited to non-transaction-based compensation for non-securities functions.
The core control principle is to prevent unregistered persons from being financially incentivized to solicit or participate in securities transactions. Payments that vary with transaction results—such as a percentage of commissions, fees per account opened, or success fees for capital raised—are strong indicators of impermissible transaction-based compensation to an unregistered person.
A compliance program should require that business-development and marketing compensation for unregistered persons be structured as salary or fixed/objective bonuses that are not directly or indirectly tied to securities transactions, specific customer accounts, or the amount of capital raised. It should also restrict unregistered persons from negotiating terms or otherwise participating in the sales process in ways that would suggest “effecting” transactions.
Disclosure or principal supervision does not cure an otherwise prohibited transaction-based payment arrangement.
A broker-dealer’s equity proprietary desk generates frequent same-day buy/sell “round trips” in thinly traded Nasdaq securities. The firm’s surveillance tool flags potential wash trades, but the Trading Supervisor has been bulk-closing all related alerts for the last 3 months without documenting review because the desk is “low risk” and no customers are involved.
If FINRA reviews the desk’s activity and alert dispositioning, what is the most likely outcome for the firm under high-level oversight expectations tied to Rule 6140?
Best answer: B
Explanation: Bulk-closing manipulation-related alerts without documented review is weak oversight and creates regulatory exposure under Rule 6140-type trading-practice expectations.
Wash-trade risk is a trading-practice integrity issue, and closing surveillance alerts without documented review undermines the firm’s ability to detect, investigate, and remediate potentially manipulative activity. Even for proprietary trading, FINRA expects a defensible supervisory process and evidence of escalation, disposition, and follow-up. The likely consequence is a supervisory finding and required control enhancements, potentially alongside enforcement exposure if misconduct occurred.
At a high level, Rule 6140-type trading-practice oversight focuses on preventing, detecting, and addressing potentially manipulative or deceptive trading activity. When a firm’s surveillance generates alerts for behaviors consistent with wash trades, the supervisory system should include (1) reasonable review and investigation steps, (2) documented alert disposition with a rationale, and (3) escalation and remediation when patterns persist.
Bulk-closing alerts for months without documented review is typically viewed as a control failure because it defeats the purpose of surveillance and leaves the firm unable to show it assessed the conduct, addressed root causes, or imposed corrective action. The fact that trades are proprietary and that no customers complained does not eliminate the obligation to supervise market conduct and maintain evidence of that supervision.
Under Section 28(e) (the “soft dollar” safe harbor), which of the following generally qualifies as an eligible research service that an adviser may obtain with client commissions (assuming the adviser otherwise meets the safe harbor conditions)?
Best answer: D
Explanation: Issuer/industry analyses and reports are core examples of eligible “research” under Section 28(e).
Section 28(e) generally treats research as substantive content that provides advice, analyses, or reports concerning securities, issuers, industries, or market conditions. A research report that analyzes issuers and industries fits squarely within that concept. Marketing, travel/entertainment, and overhead are typically considered non-research, non-brokerage expenses.
Section 28(e) provides a “soft dollar” safe harbor when client commissions are used to pay for eligible brokerage and research services and the adviser makes a good-faith determination that commissions are reasonable in relation to the value received. “Research” generally means substantive information or analysis that helps the investment decision-making process—such as advice, analyses, and reports about securities, issuers, industries, or market conditions. In contrast, items that primarily benefit the adviser’s business (marketing, entertainment, travel, rent, and other overhead) are generally outside the definition of eligible research and are not protected by the safe harbor. The key distinction is whether the product/service provides investment-related analytical content versus paying for the adviser’s ordinary business expenses.
A broker-dealer’s equity desk uses soft dollars (commission-sharing arrangements) to obtain third-party research, market data, and analytics. Usage has increased, and invoices are currently approved ad hoc by traders with only an “R” expense code; there is no budget, no documented determination that services are eligible research, and senior management receives no periodic reporting.
As the compliance official, which action best aligns with durable governance standards for soft-dollar approvals, budget controls, and periodic management review?
Best answer: B
Explanation: This establishes accountable pre-approval, budget discipline, documented supportability, and periodic senior oversight with an exception trail.
Soft-dollar governance should prevent conflicts and unsupported spending by requiring accountable pre-approval, budget controls, and documented support for what is being purchased. It should also provide periodic, senior-level visibility into usage, trends, and exceptions. A formal committee process with tracking, documentation, and recurring reporting best meets these standards.
Soft-dollar arrangements create inherent conflicts because trading commissions fund products and services used by the firm. A durable control framework therefore centers on (1) clear ownership and documented decisions, (2) spending discipline, and (3) periodic management oversight.
A strong program typically includes:
Annual after-the-fact certifications or year-end spend reviews do not provide timely control, and delegating eligibility determinations to brokers undermines supervisory accountability and evidencing of the firm’s rationale. The key takeaway is to make soft-dollar use demonstrably supportable, budgeted, and regularly overseen.
A broker-dealer is expanding its public finance business. It has hired two municipal finance professionals (MFPs) and plans to use a third-party consultant to help solicit municipal securities business from issuers.
Which proposed supervisory control is INCORRECT for managing municipal-business-related risks involving political contributions and solicitation?
Best answer: B
Explanation: Supervisory controls should address indirect contributions risks, not treat them as automatically out of scope.
Pay-to-play and solicitation risks in municipal business require controls that capture both direct and indirect political contributions and that oversee solicitation activities. A firm cannot reasonably manage the risk by excluding contributions made indirectly (for example through spouses or other conduits) from monitoring and escalation. Effective supervision emphasizes pre-clearance, recordkeeping, and oversight of solicitors.
Municipal securities business presents heightened pay-to-play and solicitation risk, so a compliance program should be designed to detect, prevent, and escalate political contribution issues and improper solicitation arrangements. That means implementing pre-clearance and recordkeeping for covered employees, periodic attestations, and exception reporting that links contribution activity to municipal engagements. It also means supervising solicitation activities through due diligence, written agreements, and ongoing monitoring of any third-party solicitation relationship.
A key control principle is that risk is not limited to contributions made “directly” by an MFP; indirect contributions or contributions made through other channels can still create regulatory and reputational exposure and should be captured in the firm’s monitoring and escalation process. The strongest programs combine pre-trade/business checks with ongoing surveillance and documented follow-up.
Two broker-dealers prepare the annual Rule 3130 compliance certification.
Which approach best matches implementing Rule 3130 certifications with defensible evidence?
Best answer: D
Explanation: A retained, written support package documenting the compliance processes and material exceptions provides defensible evidence for the CEO’s Rule 3130 certification.
Rule 3130 expects the CEO’s annual certification to be supported by documentation showing the firm has processes to maintain and test compliance policies and WSPs and to address exceptions. A written, retained report/package that the CEO relied on creates defensible evidence. A purely verbal process without retained support is difficult to evidence during an exam or inquiry.
The core supervisory-control point under Rule 3130 is not just obtaining a CEO signature—it is being able to demonstrate what the CEO reasonably relied on to make the certification. A defensible program typically includes a written, dated record (often prepared by Compliance) that is provided to the CEO and retained, describing the firm’s processes to establish, maintain, review, test, and modify compliance policies and WSPs, along with a summary of material exceptions identified during the year and the status of remediation. Verbal briefings can be part of governance, but without retained documentation (report, package, or minutes capturing scope and outcomes), the firm will struggle to evidence the basis for the certification.
Key takeaway: build and retain the written support for the certification, not just the certification itself.
Use the Series 14 Practice Test page for the full Securities Prep route, mixed-topic practice, timed mock exams, explanations, and web/mobile app access.
Use the Series 14 Cheat Sheet on SecuritiesMastery.com when you want a compact review before returning to the FINRA Series 14 Practice Test page.