General Securities Sales Supervisor (Series10) Practice Exam

What actions are permissible for a FINRA member handling a firm commitment underwriting of subordinated debentures prior to the effective date?

1. Recommending purchase of common stock only

2. Soliciting orders for common stock only

3. Accepting unsolicited orders for common stock only

4. All of the above actions

The correct answer is: All of the above actions

In the context of a firm commitment underwriting, especially for subordinated debentures, a FINRA member has specific regulations they must adhere to, but also certain allowances prior to the effective date of the underwriting. When a firm commitment underwriting is in place, the underwriter agrees to purchase a specified amount of a security from the issuer and then resell those securities to the public. However, before the effective date of the securities, the underwriter can engage in specific activities related to other securities of the same issuer, such as common stock. Permissible actions can include recommending purchase, soliciting orders, and accepting unsolicited orders for common stock. This flexibility allows the underwriter to engage with potential investors, as long as they comply with regulatory guidelines which often aim to prevent conflicts of interest or coercion before the securities are officially available. The ability to engage in these actions is critical for maintaining market interest and activity around the issuer's overall financial offerings and is a standard practice in the industry, ensuring that while awaiting the effective date, the underwriter can still interact with the market for related securities. Thus, the option that encompasses all of these actions is the correct representation of what can be done in this context.