SIE (Securities Industry Essentials) Practice Exam

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When is a market maker permitted to receive compensation from an issuer?

If the compensation is connected to an investment banking transaction.
For promoting the issuer's securities.
For posting favorable comments about the issuer.
As part of a regular dividend payment.

The correct answer is: If the compensation is connected to an investment banking transaction.

A market maker is an intermediary in financial markets who buys and sells securities on behalf of investors. According to SEC regulations, a market maker is permitted to receive compensation from an issuer only if it is connected to an investment banking transaction. This means that the market maker is involved in underwriting the issuer's securities or providing other financial services related to the issuer. Options B and C are incorrect because they involve promoting the issuer's securities or providing favorable comments, which may create conflicts of interest and compromise the market maker's role as an unbiased intermediary. Option D is incorrect because regular dividend payments are typically given to shareholders, not market makers, and are not related to the market maker's role in the market. Therefore, the correct answer is A, as it is the only option that aligns with the regulations and responsibilities of a market maker.