General Securities Sales Supervisor (Series10) Practice Exam

According to the FINRA 5% Policy, in an inactive competitive market, the prevailing market price for markdown purposes is based on which of the following?

1. Last sale

2. Contemporaneous purchases from other dealers

3. Contemporaneous sales to other dealers

4. Highest bid price

The correct answer is: Contemporaneous purchases from other dealers

In the context of the FINRA 5% Policy, the correct approach for determining the prevailing market price in an inactive competitive market relies on contemporaneous purchases from other dealers. This is because the policy aims to establish fair pricing based on recent trading activity and observable transactions in the market. When evaluating market prices, especially in a less active environment, relying on contemporaneous purchases provides a more accurate reflection of what similar securities are being bought for by other dealers. This ensures that the pricing is aligned with current market conditions and transactions that have actually occurred, maintaining fairness and transparency for both buyers and sellers. Using the last sale price might not represent the current market value due to fluctuations that can occur quickly in inactive markets. Similarly, contemporaneous sales to other dealers or the highest bid price may not adequately reflect the actual transactions being made, as they do not provide the necessary context of purchase behavior that the market demands. In summary, when determining the prevailing market price under the FINRA 5% Policy, focusing on contemporaneous purchases from other dealers ensures that the price reflects current market dynamics effectively.