Series 63 Practice Test

Series 63 Ethical Practices & Obligations Practice Questions

Ethical Practices & Obligations makes up 15 of every 60 questions on a Tigertest Series 63 practice test. Here are 10 of the 48 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on NASAA's Series 63 test specifications. Original questions; 60 per test in the real exam's proportions, 43 of 60 to pass. Not affiliated with NASAA or FINRA.

1. 1. A firm charges a 4.8% markup on a large trade in a heavily traded stock. Under FINRA Rule 2121, the markup:

   • A.Needs only customer consent
   • B.Could still be excessive
   • C.Is fair because it is under 5%
   • D.Is fine since 5% is a cap

   Answer: B. The 5% policy is a guide, not a safe harbor. For a large trade in an actively traded stock, a markup below 5% can still be unfair given the price, availability and size of the trade.

2. 2. Which factor can justify a higher markup under FINRA Rule 2121?

   • A.The agent's sales quota
   • B.The firm's high office rent and costs
   • C.The customer's large net worth
   • D.A thinly traded, low-priced stock

   Answer: D. Rule 2121 weighs the type of security, its availability, price, amount and the services provided. A firm's own overhead or a rep's targets never justify a higher markup.

3. 3. A customer sells one stock and buys another with the proceeds on the same day. Under Rule 2121, the firm's charge is judged on:

   • A.Both trades as one transaction
   • B.The purchase only
   • C.Each trade separately
   • D.The sale only

   Answer: A. In a proceeds transaction the total markup or commission on the sale and the purchase is judged as if it were a single transaction.

4. 4. Under NASAA's ethics policy, a broker-dealer that charges an unreasonable commission:

   • A.Is fine for wealthy customers
   • B.Is fine for small trades
   • C.Acts unethically even if disclosed
   • D.Is fine once it has been disclosed

   Answer: C. NASAA's statement of policy lists charging unreasonable and inequitable fees as unethical. Disclosure does not make an unreasonable charge reasonable.

5. 5. A firm sells a customer stock from its own inventory without disclosing that it acted as principal. This is:

   • A.Required by Regulation T
   • B.Allowed for listed stock
   • C.An unethical practice
   • D.Standard industry practice

   Answer: C. A firm must disclose on the confirmation whether it acted as agent or principal. Hiding its capacity and its profit misleads the customer.

6. 6. An agent splits a customer's $60,000 fund purchase across two fund families so that neither order reaches a breakpoint. This is:

   • A.An unethical practice
   • B.A rights of accumulation sale
   • C.Required by Reg BI
   • D.Proper diversification

   Answer: A. NASAA's investment company policy treats arranging sales to avoid breakpoints, and the lower sales charges they bring, as unethical unless the customer's interest truly requires it.

7. 7. An agent moves a customer from one fund family to another, triggering a new sales charge, without explaining the cost. This is:

   • A.Dollar cost averaging
   • B.Rights of accumulation
   • C.Proper rebalancing
   • D.Unethical switching

   Answer: D. Recommending switches between fund families without disclosing the extra sales charges is unethical. Switching within a family is usually far cheaper.

8. 8. An agent steers a long-term investor into B shares mainly for higher pay when A shares would cost less. This most directly violates:

   • A.Regulation S-P
   • B.Regulation Best Interest
   • C.Regulation T
   • D.SEC Rule 17a-4

   Answer: B. Reg BI's care obligation requires a recommendation in the retail customer's best interest without placing the firm's or agent's interest ahead. Share class choice driven by pay fails that test.

9. 9. Under Section 28(e) of the Exchange Act, soft dollars may pay for:

   • A.Marketing brochures
   • B.Research for investing
   • C.The manager's office rent
   • D.Employee salaries

   Answer: B. The Section 28(e) safe harbor covers brokerage and research services that help the manager make investment decisions. Overhead such as rent, salaries and marketing is outside it.

10. 10. Section 28(e) protects a money manager who pays higher commissions for research if:

    • A.The broker is an affiliate
    • B.The research is resold
    • C.Clients earn a profit that same year
    • D.Commissions are fair for the services

    Answer: D. The manager must determine in good faith that the commission is reasonable in relation to the value of the brokerage and research services received.