General Securities Sales Supervisor (Series10) Practice Exam

Under MSRB rules, how must control relationships be disclosed to customers?

1. Verbally before a transaction

2. In writing before a transaction

3. Verbally and in writing prior to confirmation

4. Only in writing after confirmation

The correct answer is: Verbally and in writing prior to confirmation

Control relationships must be disclosed to customers both verbally and in writing prior to confirmation of a transaction. This requirement ensures that customers are fully informed about potential conflicts of interest that could arise due to a control relationship, which is a significant aspect of fair dealing and transparency in the securities industry. The dual mode of disclosure—both verbal and written—allows for comprehensive communication. The verbal disclosure gives immediate awareness to the customer, while the written documentation serves as a formal record that the customer can refer back to. This approach helps ensure that customers understand the nature of the relationship before they make their investment decisions, contributing to informed consent and enhanced trust in the transaction process. Proper disclosure practices help mitigate risks associated with conflicts of interest and are vital for maintaining regulatory compliance and fostering a culture of transparency and integrity in the markets.