Try 10 focused Series 22 questions on Purchase Processing, with explanations, then continue with the full Securities Prep practice test.
Series 22 Purchase Processing 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 22 |
| Official topic | Function 4 — Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions |
| Blueprint weighting | 4% |
| Questions on this page | 10 |
Which statement is most accurate regarding customer complaints involving a direct participation program (DPP)?
Best answer: C
Explanation: Written dissatisfaction about the firm’s securities business (including email) triggers complaint capture, supervisory escalation, and retention.
A written customer complaint is broadly any written statement that shows customer dissatisfaction with the firm’s securities business or an associated person’s handling of it, and it includes electronic communications such as email. Firms must capture these complaints, route them through supervisory/compliance channels under firm procedures, and preserve them under books-and-records requirements.
For complaint handling, the key is recognizing that “written” includes electronic formats and that the substance is customer dissatisfaction about the firm’s securities business (products sold, recommendations, transaction handling, disclosures, fees, service, or an associated person’s conduct). Once a written complaint is received, a firm is expected to follow its supervisory procedures to record it, review it, and escalate it to the appropriate supervisory/compliance personnel, and to retain the complaint as required by recordkeeping rules. The fact that a representative believes the issue is minor or can be quickly “fixed” does not remove the firm’s obligation to capture and supervise the complaint process.
A broker-dealer is selling units of a nontraded REIT in a best-efforts offering. The PPM states: “Investor funds will be held in escrow and no units will be issued unless the offering reaches a minimum of $20 million in subscriptions by May 31, 2026. If the minimum is not reached by that date, the offering will be terminated.”
If the issuer fails to reach the $20 million minimum by May 31, 2026, what is the most likely outcome for investors who already submitted funds with completed subscription agreements?
Best answer: A
Explanation: When the stated minimum condition is not satisfied by the deadline, escrow protects investors by requiring funds be returned rather than released for issuance.
Escrow is used to protect investors by preventing their money from being used until key offering conditions are met, such as a stated minimum subscription amount. If the minimum is not met by the offering’s deadline, the closing condition fails. The expected result is termination of the offering and return of investor funds from escrow with no issuance.
In a contingent offering, investor money is typically placed with an independent escrow agent and is not available to the issuer until the conditions in the PPM are satisfied (for example, reaching a minimum offering amount and acceptance of subscriptions). This structure protects investors because it limits the risk that their funds are used for the program before a valid closing can occur.
Here, the PPM makes the minimum $20 million by a stated date a condition to issuing units. If that condition is not met, the offering is terminated and the escrow agent returns the subscribed funds to investors (and no ownership interests are issued). The key takeaway is that escrow prevents premature release of funds when offering conditions are unmet.
A customer electronically signs a subscription agreement for a non-listed real estate DPP and wires funds the same day. The customer asks when they should expect to receive confirmation of the purchase.
Exhibit: Subscription agreement clause (excerpt)
Acceptance/Closing. Subscriptions are subject to acceptance by the Issuer.
Investor funds will be held in escrow until accepted. If a subscription is
rejected, funds will be returned promptly without interest. Upon acceptance
and issuance of Units, the Broker-Dealer will send the investor a
transaction confirmation.
Which interpretation is supported by the exhibit and aligns with typical confirmation expectations for a DPP purchase?
Best answer: A
Explanation: The clause states the purchase is subject to issuer acceptance and that a confirmation is sent upon acceptance and issuance of units.
The exhibit makes the purchase contingent on issuer acceptance and states that investor funds are held in escrow until accepted. It also states that the broker-dealer sends the transaction confirmation upon acceptance and issuance of units. Therefore, the customer should expect confirmation only after acceptance/issuance, not at signing or mere receipt of funds.
In DPP offerings sold by subscription, a customer’s signed subscription and payment typically represent an offer to purchase that is not final until the issuer accepts it and units are issued. The exhibit explicitly ties the transaction confirmation to that acceptance/issuance event and explains what happens to funds in the meantime (held in escrow, returned if rejected). This is the key disclosure a customer would reasonably expect: when the purchase becomes effective and when written confirmation of the completed transaction will be delivered. The practical takeaway is that wiring funds or signing paperwork can occur before the transaction is completed; confirmation follows completion (acceptance and issuance), consistent with the clause’s stated conditions.
A DPP representative is taking a subscription for a non-traded REIT that is sold on a best-efforts basis at $10.00 per share. The customer wants to invest $150,000 for long-term income and understands the investment is illiquid, but asks the representative to “cut the commission in half” so she receives more shares and can submit the wire today.
Exhibit: Prospectus excerpt (pricing/fees)
What is the representative’s BEST action?
Best answer: C
Explanation: Only discounts disclosed in the prospectus can be applied immediately, and any additional concession can change underwriting compensation/expense limits and requires compliance review and issuer approval.
The representative may apply only the discount schedule that is disclosed in the prospectus (here, the $100,000+ reduced selling commission). Any additional discount or rebate can alter underwriting compensation and interact with offering expense limits, so it cannot be promised or implemented without firm compliance review and the dealer manager/issuer’s approval.
DPP pricing and discounts must follow the offering documents because changes affect the economics of the distribution (selling commissions, dealer manager fees, and other underwriting compensation) and may also impact stated caps on underwriting compensation and offering expenses. In this scenario, the prospectus already provides a breakpoint discount for $100,000+ orders, so applying that disclosed discount is appropriate. However, “cutting the commission in half” (whether by rebating compensation or changing price) is a concession outside the disclosed terms and can create an offering-document and compensation-compliance problem. The proper approach is to use the published discount and escalate any additional request for supervisory/compliance review and dealer manager/issuer approval before making commitments.
A customer subscribes to a private real estate DPP offered through a dealer manager on a best-efforts basis. The registered representative has delivered the PPM in advance, collected a completed subscription agreement and investor questionnaire, and received a check payable to the escrow agent. After supervisory review, the issuer notifies the broker-dealer that the subscription has been accepted and escrow conditions have been met.
What is the best next step in the processing sequence?
Best answer: A
Explanation: Once the subscription is accepted (the sale is effected), the customer should receive a confirmation with the material transaction details and disclosures.
After the issuer accepts the subscription and escrow conditions are satisfied, the transaction is considered effected and the customer should receive a transaction confirmation. At a high level, customers expect the confirmation to summarize what they bought and what they paid, including the security/program name, quantity/amount, price, and material compensation or sales charges.
In a DPP subscription, the customer’s order is not final until the issuer accepts the subscription (and any escrow conditions are met). After acceptance, the broker-dealer’s next operational step is to provide the customer a written transaction confirmation that discloses the key details a customer reasonably expects to see about the purchase, such as the program/security identification, purchase amount and units (or interests) purchased, the date the transaction is effected, and material sales charges/compensation and other required disclosures. Actions that bypass escrow handling, delay confirmation until later events, or substitute marketing projections for required transaction details do not satisfy confirmation/disclosure expectations tied to completing the transaction.
For broker-dealer recordkeeping purposes, which communication meets the definition of a written customer complaint that must be recorded, escalated per firm procedures, and retained?
Best answer: B
Explanation: A written (including electronic) allegation of a grievance involving the member or its personnel triggers complaint recording, supervisory review/escalation, and retention.
A “written customer complaint” is a written (including electronic) statement from a customer (or someone acting for the customer) that alleges a grievance involving the broker-dealer or its associated persons in connection with securities activities. These communications are not just ordinary service requests or general commentary; they require firm logging, supervisory review/escalation, and retention under firm and regulatory recordkeeping requirements.
The core concept is that complaint handling is triggered by both the form and the content of the communication. If a customer puts a grievance in writing (including email or other electronic messages) and it relates to the member firm or its associated persons’ securities-related activities—such as solicitation, recommendations, order handling/execution, or the disposition/safeguarding of funds or securities—the firm must treat it as a written customer complaint. At a high level, firms are expected to capture it in their complaint records, route it promptly to the appropriate supervisory/principal review channel per written supervisory procedures, and retain it in required files. Routine correspondence (requests for documents) or complaints unrelated to the broker-dealer’s activity generally do not meet the definition.
A customer signs a subscription agreement to purchase $50,000 of a limited partnership DPP in a best-efforts offering. The PPM states that investor funds will be held in escrow until the minimum offering amount is met and the issuer accepts subscriptions.
Which statement about transaction confirmations and related disclosures is INCORRECT?
Best answer: D
Explanation: Confirmations are sent at the time of the sale (after acceptance), not delayed until distributions occur.
Customers generally should receive a written confirmation of the DPP purchase when the transaction is effected (typically after the issuer accepts the subscription). The confirmation and accompanying disclosures are expected to summarize key trade terms and transaction-related charges/compensation and to reflect any material settlement features such as escrow pending a minimum raise.
At a high level, a DPP purchase should generate a written confirmation when the transaction is effected—commonly when the issuer accepts the subscription and the sale is completed. Customers expect the confirmation to reflect key transaction details (what was purchased, the amount/price, and the date) and to include or be accompanied by disclosure of transaction-related charges and dealer compensation. If the offering uses escrow pending a minimum offering amount, that settlement condition is a key feature the customer should understand as part of the purchase process. A confirmation should not be delayed until a later program event such as the first distribution.
A customer bought $50,000 of a DPP. The PPM discloses a 7% selling commission on gross proceeds. The trade confirmation shows “selling compensation: $4,000.”
The customer emails the representative: “You told me the fee was 7%. You charged me $4,000. I want this corrected.”
Based on the disclosure, what amount is the customer alleging was overcharged (round to the nearest dollar), and how must the firm handle the email?
Best answer: B
Explanation: The email is a written complaint alleging a $500 fee overcharge ($4,000 − 7% of $50,000) and must be recorded, escalated, and retained.
A written customer complaint is any written communication alleging a grievance about a securities-related matter (including fees) and must be captured in the firm’s complaint records and escalated per supervisory procedures. Here, 7% of $50,000 is $3,500, so the customer is alleging a $500 overcharge compared with the $4,000 shown on the confirmation.
The key issue is recognizing and processing a written customer complaint. An email alleging an improper charge connected to a securities transaction is a written complaint even if the customer may be mistaken.
Compute the alleged overcharge from the customer’s perspective:
Firm handling at a high level: the email must be preserved, recorded in the firm’s complaint records, and promptly routed/escalated to the appropriate supervisory/principal or compliance channel for review and resolution, then retained per recordkeeping requirements.
A customer invested in two private DPP offerings and later alleges material misstatements.
Which choice correctly matches each dispute to the most typical formal dispute-resolution method?
Best answer: B
Explanation: A dispute with a FINRA member/associated person is typically arbitrated, while a dispute solely with a nonmember issuer (with no arbitration clause) is typically litigated in court.
Customer disputes involving a FINRA-member broker-dealer (or its associated persons) are typically handled through FINRA arbitration, especially when the customer has signed a predispute arbitration agreement. When the dispute is only with a nonmember issuer and there is no arbitration clause, the typical formal pathway is civil litigation in court. Mediation can occur, but it is generally voluntary and nonbinding.
The key differentiator is whether the dispute is between the customer and a FINRA member firm/associated person, which generally points to FINRA arbitration as the primary formal forum (and is reinforced when the customer has a predispute arbitration clause in the brokerage account agreement). By contrast, when the customer purchased directly from a nonmember issuer and the subscription agreement does not require arbitration, there is no typical FINRA forum available, so the usual formal method is litigation in court.
Mediation is a separate process that parties may choose to try, but it is typically voluntary and nonbinding and therefore is not the default “formal” endpoint compared with arbitration or litigation. The decisive fact pattern here is the presence (or absence) of the FINRA member relationship and an arbitration agreement.
A customer emails a DPP representative stating that her subscription documents for a real estate limited partnership appear to have been altered after she signed them and that the distribution bank instructions on the final copy are not hers. The email asks the firm to “stop the investment and investigate.”
Under the broker-dealer’s written supervisory procedures, any written customer complaint or allegation of document falsification must be sent to Compliance immediately upon receipt.
Which action by the representative best aligns with these standards and the goal of reducing regulatory and customer harm?
Best answer: D
Explanation: Immediate escalation preserves evidence and allows the firm to promptly investigate, remediate, and meet complaint/event reporting expectations.
A written allegation of altered documents is a customer complaint and a potential serious event that requires prompt supervisory and Compliance escalation under firm procedures. Timely reporting helps prevent additional harm (e.g., improper funding or misdirected distributions) and preserves evidence for an effective investigation. It also supports the firm’s obligation to track, investigate, and report matters as required.
The durable standard is to escalate complaints and red-flag events quickly, using the firm’s supervisory channels, rather than trying to “fix” the issue at the rep level. Here, the customer’s email is a written complaint and includes an allegation of document falsification, which triggers immediate Compliance handling under the WSPs. Rapid escalation helps the firm: (1) stop or pause processing before funds move, (2) preserve original documents and audit trails, (3) investigate who changed what and when, and (4) make any required internal/external notifications and remediation. Delays can increase customer losses, compromise evidence, and create additional regulatory exposure.
Key takeaway: treat written complaints and potential fraud/forgery as urgent escalation items, not service issues to be handled informally.
Use the Series 22 Practice Test page for the full Securities Prep route, mixed-topic practice, timed mock exams, explanations, and web/mobile app access.
Use the Series 22 Cheat Sheet on SecuritiesMastery.com when you want a compact review before returning to the FINRA Series 22 Practice Test page.