Securities Trader Representative (Series 57) Practice Exam

What is NOT included in the requirements for penny stock transactions?

1. Disclosure of compensation received by the broker-dealer

2. Current quotation information

3. Written report from a financial advisor

4. Risk disclosure document

The correct answer is: Written report from a financial advisor

The correct response highlights that a written report from a financial advisor is not a mandated requirement for penny stock transactions. When engaging in penny stock trades, regulatory frameworks, such as those set forth by the SEC and FINRA, establish specific requirements aimed at safeguarding investors and ensuring transparency. Key requirements for penny stock transactions include the disclosure of compensation received by the broker-dealer, which informs investors about any potential conflicts of interest related to the transaction. Furthermore, providing current quotation information is essential so that investors can see the market price for the penny stock at the time of the transaction. Additionally, a risk disclosure document is necessary to educate investors about the heightened risks associated with trading in penny stocks, given their volatility and lack of liquidity. While a financial advisor's written report may be beneficial for providing personalized guidance or analysis, it does not fit within the regulatory requirements specifically outlined for penny stock transactions. Thus, the absence of this requirement distinguishes it from the other items listed, which are critical to ensuring that investors are adequately informed about their investments.