Identify Outside Business Activities - Securities Industry Essentials SIE

1. What is the firm's supervisory obligation if it approves a compensated PST by an associated person?

   Treat as firm business: recordkeeping and supervision required. Rule 3280 requires firms to supervise approved compensated PSTs as if they were conducted through the firm.

2. Which activity is a securities transaction for PST purposes: selling fixed annuities away from the firm?

   No; fixed annuities are insurance, not securities (not a PST). Fixed annuities are regulated as insurance products, exempting them from securities classification and PST requirements.

3. Which activity is a securities transaction for PST purposes: arranging promissory notes for investors?

   Yes; promissory notes are securities, so it is a PST if outside the firm. Promissory notes are considered securities when sold as investments, making external arrangements subject to PST rules.

4. What must the firm do if it approves a compensated private securities transaction (PST)?

   Record it on the books and supervise it as if firm business. Approval of compensated PSTs under Rule 3280 obligates the firm to integrate and oversee them as internal business.

5. What is the required action before participating in a private securities transaction (PST)?

   Provide prior written notice describing the transaction and role. Rule 3280 mandates detailed written notification to the firm prior to involvement in any PST for proper evaluation.

6. What additional requirement applies to a PST when the registered person will receive compensation?

   Must obtain the firm's prior written approval. For compensated PSTs, Rule 3280 requires firm approval to mitigate risks and enable supervision as needed.

7. What may a firm do after receiving notice of an uncompensated private securities transaction (PST)?

   Acknowledge notice and set conditions or prohibit participation. For uncompensated PSTs, the firm reviews the notice and may restrict or ban participation to avoid conflicts.

8. Which scenario is most likely a reportable OBA: driving for a ride-share company on weekends?

   Reportable OBA (outside employment). Part-time external employment, even non-securities related, must be reported as OBA to assess for potential conflicts.

9. Under FINRA Rule 3280, what is "compensation" in a private securities transaction?

   Any direct or indirect economic benefit (cash or non-cash). Rule 3280 broadly interprets compensation to capture all potential economic incentives in private transactions.

10. What must a member firm do after receiving notice of a registered person's OBA?

    Evaluate and decide whether to limit or prohibit the activity. Upon notice, the firm must review the OBA for potential risks and may impose restrictions or disallow it to ensure compliance.

11. Identify whether this is compensation in a PST: receiving a "referral fee" for introductions to investors.

    Yes; a referral fee is compensation. Referral fees are direct economic benefits, classifying the activity as compensated PST under Rule 3280.

12. Which FINRA rule primarily governs private securities transactions (selling away)?

    FINRA Rule 3280. This rule addresses 'selling away' to ensure firm oversight of all securities transactions by associated persons.

13. Which scenario is most likely a reportable OBA: serving as an unpaid officer of a charity?

    Reportable OBA (business activity outside the firm, even unpaid). Unpaid positions in external organizations qualify as OBAs under Rule 3270 if they involve business elements requiring disclosure.

14. What is a private securities transaction (PST) under FINRA rules?

    Any securities transaction outside the regular course of employment. Rule 3280 identifies PST as securities dealings not conducted through the associated person's employing firm.

15. Identify whether this is compensation in a PST: receiving an equity stake for helping place shares.

    Yes; an equity stake is indirect compensation. Under Rule 3280, indirect benefits like equity qualify as compensation, necessitating PST disclosure and approval.

16. Which action is required before a registered person begins an outside business activity (OBA)?

    Provide prior written notice to the member firm. Rule 3270 requires registered persons to notify their firm in writing before engaging in any OBA to allow for conflict assessment.

17. Identify the term commonly used for an undisclosed private securities transaction by a representative.

    Selling away. This term describes unauthorized securities sales outside the firm, which violate disclosure requirements under Rule 3280.

18. What is the key difference between an OBA and a PST for reporting purposes?

    OBA is any outside business; PST is an outside securities transaction. OBAs cover general external business, whereas PSTs are limited to securities-specific transactions under FINRA rules.

19. Identify whether this is a PST: a representative helps a friend buy stock privately and gets no pay.

    Yes, it is a PST (transaction outside firm; compensation not required). Rule 3280 applies to all external securities transactions, with notice required irrespective of compensation involvement.

20. Which is required for a compensated PST: firm notice or firm approval before participating?

    Prior written approval (in addition to written notice). Rule 3280 mandates approval beyond notice for compensated PSTs to ensure firm oversight and compliance.

21. Which FINRA rule primarily governs outside business activities of registered persons?

    FINRA Rule 3270. This rule mandates disclosure of OBAs to prevent conflicts of interest and protect investors from undisclosed activities.

22. Which activity is a securities transaction for PST purposes: selling variable annuities away from the firm?

    Yes; variable annuities are securities (PST if outside the firm). Variable annuities involve investment risk, classifying them as securities and triggering PST rules if sold externally.

23. What is an outside business activity (OBA) for a registered person under FINRA rules?

    Any business activity outside the member firm, paid or unpaid. FINRA Rule 3270 defines OBA as any business pursuit outside the scope of employment with the member firm, regardless of compensation status.

24. Identify whether this is a PST: a representative sells interests in a startup to clients for a fee.

    Yes, compensated PST requiring prior written approval. Selling securities for compensation outside the firm constitutes a PST needing approval under Rule 3280.

25. Which is required for OBA reporting: firm approval or firm notice before starting the activity?

    Prior written notice (approval is not always required by the rule). Rule 3270 requires only prior notice for OBAs, with firm discretion to approve or restrict without mandatory approval.

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