Question

"A dealer buys 10,000 shares of ABC common at $15 for its inventory. One week later the stock is quoted at $18 - $19, and a customer buys 100 shares from the dealer at a net price of $20. Under the FINRA 5% Policy, a fair and reasonable mark-up is based upon which price?"

Answer 1

Answer: c. $19

Explanation:

Under the FINRA 5% Policy, a fair and reasonable mark-up or commission is based upon the current market price of the stock not how much the dealer bought it for or rather their cost. As such, when the customer buys, which was the case in this scenario, the mark-up is charged on the inside ask price which in this case is $19.

Were the customer to be selling, any mark-downs will be charged on the inside bid price which in this case is $18.