Step by Step Explanation:

Front Running Definition: Occurs when a broker executes a personal trade ahead of a customer’s order to profit from the anticipated market movement.

Thinly Traded Security: Front running is particularly impactful in low-liquidity securities.

Other Options:

Selling Away: Involves unapproved securities transactions outside the employing firm.

Insider Trading: Involves trading on material non-public information.

Market Manipulation: Encompasses activities like wash trading or spoofing, not specific to this scenario.

FINRA Rule 5270 (Front Running of Block Transactions): FINRA Rule 5270.

The Securities Investor Protection Corporation (SIPC) protects customers if a broker-dealer fails due to insolvency. Coverage applies to cash and securities in customer accounts, up to $500,000 total, including $250,000 for cash.

A is correct because SIPC’s purpose is to protect against losses arising from a broker-dealer’s insolvency.

B is incorrect because SIPC does not guarantee investment performance.

C is incorrect because SIPC does not cover market losses.

D is incorrect because futures contracts are not covered under SIPC.

529 savings plans are state-sponsored education savings accounts that offer tax-advantaged growth. Key features include:

Contributions are not federally tax deductible (some states offer state-level deductions).

No income limitations for contributions.

The account owner, not the beneficiary, controls the plan.

Assets can be transferred tax-free to another family member’s 529 plan.

D is correct because tax-free rollovers are allowed for family members of the current beneficiary.

A is incorrect as contributions are not universally tax deductible.

B is incorrect as there are no income limitations for contributing.

C is incorrect because the account owner, not the beneficiary, controls the assets.

Open-end mutual funds are redeemable securities, meaning investors can sell their shares back to the fund at the NAV.

D is correct because mutual funds allow redemption at NAV.

A, B, and C are not redeemable securities.

Passive ETFs track an index and require minimal management, leading to lower expenses compared to actively managed ETFs.

D is correct because passive ETFs are cost-efficient and have lower fees.

A is incorrect because index ETFs have low turnover since they replicate an index.

B is incorrect because ETFs are priced continuously throughout the trading day.

C is incorrect as ETFs aim to match, not outperform, the index.

A call option is considered covered when the seller (writer) owns the underlying security in sufficient quantity to meet the delivery obligation if the option is exercised. In listed equity options, one options contract typically represents 100 shares of the underlying stock. Here, the investor owns 200 shares of ABC stock. That means the investor can cover two call contracts (2 × 100 shares = 200 shares). Since the investor sold four calls, only two of them are covered; the remaining two calls are uncovered (naked). Therefore, the correct answer is C.

This question tests a fundamental options concept that is heavily emphasized on the SIE: understanding contract size, delivery obligations, and the risk difference between covered and uncovered strategies. If the covered calls are assigned, the investor can deliver the shares they already own, limiting the risk profile on those contracts. For the uncovered calls, if assigned, the investor would need to purchase shares in the market to deliver (or otherwise acquire them), which exposes the investor to potentially unlimited loss if the stock rises substantially above the strike price.

The mechanics are straightforward:

Shares owned: 200

Shares required per call contract: 100

Covered contracts = 200 ÷ 100 = 2

This is also a subtle suitability/risk topic: selling uncovered calls is generally far riskier than selling covered calls, and firms often require higher options approval levels for uncovered writing. Understanding what makes an option “covered” is essential for evaluating both strategy intent and risk exposure.

FINRA’s gifts rule (commonly tested as the $100 per person per year limit) restricts the value of gifts that a member or associated person may give to any one person where the gift is in relation to the recipient’s business. The key test concept is: gifts tied to business cannot exceed $100 annually per recipient (with certain distinctions for bona fide personal gifts and “ordinary and usual business entertainment”). In this question, the gifts are explicitly “as a thank you for recent transactions,” so the business-related gift limit applies. A $125 store gift card exceeds $100, making choice D the violation.

Choices A ($75), B ($90), and C ($100) are at or below the typical annual limit, so they would not violate the $100 threshold (assuming they are gifts—not entertainment—and there are no other gifts to that recipient in the year). The $100 sports event ticket is right at the limit and is generally permissible as a gift under the cap, again assuming no other gifts and treating it as a gift rather than business entertainment.

A common SIE nuance: business entertainment (like taking a client to a game where the RR is present) is often treated differently from a “gift” because it is not simply handing something over—however, a ticket given without the RR attending can be treated as a gift. This question is testing the straightforward dollar cap, not the entertainment distinction. Because the only option that clearly breaches the cap is $125, that is the correct answer.

The broader compliance theme is managing conflicts and improper influence: the gifts rule helps prevent business decisions from being swayed by excessive personal benefit.