FINRA Series 7 — All Questions

An employee receives a $50,000 eligible rollover distribution from her 401(k) paid to her instead of directly to an IRA. How much is withheld, and what must she do to roll over the whole amount?

• a.$5,000 is withheld, and she must add $5,000 of other money within 60 days
• b.Nothing is withheld if she rolls over within 60 days, so she deposits the $50,000 she received
• c.$10,000 is withheld, and the plan returns it to her when she rolls over $40,000
• d.$10,000 is withheld, and she must add $10,000 of other money within 60 days✓

A taxable eligible rollover distribution paid to the participant carries mandatory 20% withholding, here $10,000, so she receives $40,000. To defer tax on the full $50,000 she must deposit it within 60 days, replacing the withheld $10,000 from other funds. A direct rollover avoids withholding; the plan does not refund the withholding, and 10% is not the rate.IRS Topic 413

Which information must a broker-dealer's customer identification program collect about an individual before opening an account?

• a.Name, signature, citizenship and a reference from another firm
• b.Name, address, employer and the source of the opening deposit
• c.Name, date of birth, address and an identification number✓
• d.Name, occupation, annual income, net worth and investment goals

The minimum identifying information for an individual is name, date of birth, address and an identification number, such as a taxpayer identification number for a U.S. person. Income, net worth, occupation and similar details may be collected for suitability, but they are not CIP minimums.31 CFR 1023.220

A firm opens an account for a limited liability company. Whom must it identify and verify as beneficial owners under the customer due diligence rule?

• a.Each individual owning 10% or more, with no control person required
• b.Every individual owning any interest, however small, with no control person required
• c.Only the individual who signs the account application, whatever the ownership level
• d.Each individual owning 25% or more, plus one individual who controls the company✓

The CDD rule requires identification and verification of each individual who owns 25% or more of a legal entity customer and one individual with significant control. Ownership is not tested at 10% or at any interest, and the signer is not the test.31 CFR 1010.230

A customer gives a representative time-and-price discretion on Monday without any written statement about duration. Absent a specific, signed and dated written indication to the contrary, how long does the authority last?

• a.Until the end of the week in which the customer granted it to the representative
• b.Until the end of the business day on which it was granted✓
• c.Until the customer revokes it in writing, however long that takes
• d.For 30 days from the date the customer granted it to the representative

Under Rule 3260, time-and-price discretion lasts only until the end of the business day on which the customer granted it, unless the customer signs and dates a written statement saying otherwise. It does not run until revoked, for 30 days, or through the week.FINRA Rule 3260

Before a representative may exercise discretion in a customer's account, what must be in place?

• a.The supervisor's verbal approval, with the customer's authorization to follow
• b.The customer's prior written authorization to a named individual, and the firm's written acceptance✓
• c.The firm's written acceptance of the account, with the customer's authorization due within 30 days
• d.The customer's oral authorization, noted on an order ticket by the representative

Rule 3260 requires prior written authorization from the customer to a stated individual and written acceptance of the account by the firm, in accordance with Rule 3110. Each discretionary order must then be approved promptly in writing. Oral authorization, later authorization and supervisor-only approval do not satisfy the rule.FINRA Rule 3260

Before accepting a customer's short sale order, a broker-dealer must generally:

• a.Have reasonable grounds to believe it can be borrowed for delivery, and document that✓
• b.Confirm that the security's last trade was at a higher price than the one before
• c.Receive written confirmation from the customer that the customer owns the security in another account
• d.Hold the shares in the firm's vault before the order is entered

Rule 203(b) requires a locate: reasonable grounds to believe the security can be borrowed so that it can be delivered when due, documented before the short sale order is accepted. An uptick test, a customer ownership letter, or pre-borrowed shares in the vault are not what the rule requires.Regulation SHO Rule 203(b)

What defines a threshold security under Regulation SHO?

• a.A security whose short interest exceeds 10% of the public float on two consecutive reporting dates
• b.Fails of at least 100,000 shares and 5% of shares outstanding for ten consecutive settlement days
• c.Fails of at least 10,000 shares and 0.5% of shares outstanding for five consecutive settlement days✓
• d.A decline of at least 10% from the prior close, which triggers the short sale price test

A threshold security has aggregate fails of at least 10,000 shares that equal at least 0.5% of the issue's shares outstanding, persisting for five consecutive settlement days, and appears on an exchange-published list. A 10% price decline concerns Rule 201, and the other two measures are not part of the definition.Regulation SHO Rule 203(c)

A clearing firm's fail to deliver in a threshold security has persisted for 13 consecutive settlement days. What must the firm do?

• a.Wait until the fail has persisted for 35 consecutive settlement days before closing it out
• b.Close out the fail immediately by purchasing securities of like kind and quantity✓
• c.Keep the fail open, provided it pre-borrows the security before accepting every new short sale order
• d.Close out the fail only if it still exceeds 0.5% of the issuer's total shares outstanding

Rule 203(b)(3) of Regulation SHO requires a participant with a fail to deliver in a threshold security that has lasted thirteen consecutive settlement days to close it out immediately thereafter by purchasing securities of like kind and quantity. Until it does, neither the participant nor a broker-dealer it clears for may accept short sale orders in that security, or short it for its own account, without borrowing the security or arranging a bona fide borrow. That pre-borrow restriction is a consequence of the fail, not a substitute for the close-out. The 35 day period applies only to narrow cases such as shares sold under Rule 144 and certain grandfathered fails. The 0.5% figure belongs to the test that makes a security a threshold security, not to the close-out duty.Regulation SHO Rule 203(b)(3)

A stock closed yesterday at $50. Today it trades at $44.90. How are short sales affected?

• a.Short sales may be executed only above the national best bid for the next 30 minutes of trading
• b.Short sales are allowed only above the national best bid, for the rest of today and tomorrow✓
• c.Short sales may be executed only on a plus tick for the next 30 minutes of trading
• d.Short sales are prohibited entirely for the rest of today only, then resume at the next open

Rule 201 is triggered when a stock falls at least 10% from the prior close, here to $45 or less. The alternative uptick rule then restricts short sales to prices above the national best bid for the rest of that day and the following day. It does not ban short selling, and it is not a 30-minute restriction.Regulation SHO Rule 201

At 2:00 p.m. Eastern the S&P 500 is down 13.5% from the prior close. What happens?

• a.Trading halts market-wide for 30 minutes, then resumes
• b.Trading halts market-wide for 15 minutes✓
• c.Trading halts market-wide for the remainder of the day
• d.Trading continues, since a halt requires a decline of at least 20%

A 13% decline is the Level 2 trigger. Before 3:25 p.m. Eastern, a Level 2 decline halts trading for 15 minutes. A halt for the rest of the day follows only at Level 3, a 20% decline, and the halts are not 30 minutes long.Market-wide circuit breakers

At 3:40 p.m. Eastern the S&P 500 is down 8% from the prior close. What happens?

• a.Trading continues; a Level 1 decline after 3:25 p.m. does not halt trading✓
• b.Trading halts market-wide for the remainder of the trading day, as at Level 3
• c.Trading halts for five minutes, the usual period for declines after 3:25 p.m.
• d.Trading halts market-wide for 15 minutes, as it would for any Level 1 decline

An 8% decline is past the 7% Level 1 trigger, but Level 1 and Level 2 declines occurring at or after 3:25 p.m. Eastern do not halt trading. Only a 20% decline, the Level 3 trigger, halts trading at that time of day. There is no five-minute halt.Market-wide circuit breakers

A firm holds a customer's limit order to buy 5,000 shares at $20. The firm then buys 5,000 shares for its own account at $20 without filling the customer's order. This is:

• a.Permitted, if the firm discloses its own trade to the customer on the next account statement sent
• b.Permitted, because the firm bought at the customer's limit price and did not trade through it, so the order was not harmed
• c.Permitted, because a firm may always trade first for its own account when the customer's order is a limit order
• d.Trading ahead, prohibited unless the firm immediately fills the customer's order at the same or a better price✓

Rule 5320 bars a firm from trading for its own account at a price that would satisfy a customer's held limit order unless it immediately fills the customer's order at the same or a better price. Trading at the limit price satisfies the order, so it counts; later disclosure does not cure the violation, and limit orders receive the rule's protection.FINRA Rule 5320

Two traders agree to buy and sell the same stock back and forth at prearranged prices to make trading volume look high. This is:

• a.A liquidity-providing strategy that is permitted if every trade is reported to the tape
• b.A permitted practice if the traders make no net profit from the trades they make
• c.Matched orders that create a false appearance of trading activity, which is prohibited conduct✓
• d.A permitted practice, since the trades take place on a registered national exchange

Prearranged trades with no change in beneficial ownership create a false or misleading appearance of active trading and are manipulative. FINRA Rule 5210 bars publishing transactions that are not bona fide, and the Exchange Act's manipulation provisions bar the scheme. Reporting the trades, earning no profit, or using an exchange does not make them legitimate.FINRA Rule 5210

An investor owns XYZ at $48 and enters a GTC sell stop-limit order with a stop of 45 and a limit of 44.50. XYZ opens the next day at $44. What happens?

• a.The order is cancelled because the opening price of $44 is through the $44.50 limit price
• b.The stop is elected and the order becomes a limit order at 44.50, so it waits for a trade at 44.50 or better✓
• c.The stop is elected and the order becomes a market order that fills at about $44 right away
• d.The stop is elected and the order fills at exactly the $45 stop price that the customer set

A trade at or through the stop price elects a stop-limit order, which becomes a limit order at the limit price: here a sell at 44.50 or better. With the stock at 44, it will not fill until the price rises to 44.50. It does not become a market order, it is not cancelled, and a fill at 45 is not guaranteed because the order is no longer a stop.Order types

An investor is short 500 XYZ at 60 and enters a buy stop at 66. XYZ prints at 66.05. The order now:

• a.Is executed at exactly 66, the stop price, as the customer specified
• b.Becomes a limit order to buy at exactly 66, so it fills only at that price
• c.Remains pending until XYZ falls back below 66, then executes at that lower price
• d.Becomes a market order to buy and fills at the next available price, which is not guaranteed✓

A buy stop is elected when the stock trades at or above the stop price, and it then becomes a market order. The fill may be above or below 66. It does not become a limit order, the stop price is not guaranteed, and a decline is not required for execution.Order types

A customer buys 300 shares of XYZ on Monday and, on Tuesday morning before the shares are delivered, enters an order to sell all 300. How must the firm mark the sell order?

• a.Short, because the customer has not yet received the shares into the account
• b.Long, but only once the purchase has settled and the shares sit in the account
• c.Short exempt, because the sale will settle one business day after the purchase
• d.Long, since a binding purchase contract is ownership and delivery is expected by settlement✓

Under Regulation SHO a person who has entered a binding contract to buy a security is deemed to own it, and a sale may be marked long when the shares are reasonably expected to be in the firm's control by settlement of the sale. The shares are due before the sale settles, so the order is long. Marking it short misreads ownership, short exempt applies only to sales that meet the Rule 201 exceptions, and the rule does not make the customer wait for settlement of the purchase.Reg SHO Rule 200(g)

XYZ declares a cash dividend with a record date of Tuesday, June 10, which is a business day. Under T+1 settlement, what is the last day to buy and receive the dividend?

• a.Friday, June 6, two business days before the record date
• b.Wednesday, June 11, the business day after the record date
• c.Monday, June 9, the business day before the record date✓
• d.Tuesday, June 10, the record date, since a buyer then is on the books

With T+1 settlement the ex-dividend date is the same business day as the record date: Tuesday, June 10. A purchase must be made before the ex-date, on Monday, June 9, to settle on the record date and be a holder of record. A buyer on June 10 or later misses the dividend, and Friday is earlier than needed.FINRA Rule 11140

A customer buys 100 shares of a listed stock on the Wednesday before Thanksgiving, when markets are closed on Thursday. Under regular-way T+1 settlement, the trade settles on:

• a.Monday
• b.Tuesday
• c.Thursday
• d.Friday✓

Regular-way settlement for stocks is one business day after the trade date, and Thursday is not a business day. The next business day after Wednesday is therefore Friday. Thursday is the holiday, and Monday or Tuesday would reflect a longer settlement cycle than T+1.Rule 15c6-1

An investor buys $10,000 par of a 5% corporate bond on Thursday, March 13, 2025, for regular-way settlement. Interest is paid January 1 and July 1, using a 30-day month and 360-day year. What is the accrued interest?

• a.$101.39, counting 73 days from January 1 to settlement on March 14✓
• b.$100.00, counting 72 days to the trade date instead of the settlement date
• c.$83.33, counting only the two full months elapsed
• d.$98.63, counting 72 actual days over a 365-day year instead of 30/360

Accrued interest runs from the last coupon date up to but not including the settlement date. Regular-way settlement is one business day after the trade, so settlement is Friday, March 14, and the count is 30 + 30 + 13 = 73 days on a 30/360 basis: $10,000 x 5% x 73/360 = $101.39. Counting to the trade date, using actual/365, or counting only whole months gives the other figures.Bond calculations

Which is a factor in deciding whether a firm used reasonable diligence to obtain best execution?

• a.The representative's familiarity with each venue's trading system
• b.The customer's federal income tax bracket for the year
• c.The compensation the firm earns from each trading venue it uses
• d.The size and type of the transaction and the character of the market✓

Rule 5310 lists the character of the market, the size and type of transaction, the number of markets checked, the accessibility of the quotation and the terms and conditions of the order. Venue compensation, tax bracket and familiarity are not factors; they could in fact conflict with the customer's interest.FINRA Rule 5310

A firm that internalizes or routes customer orders on an automated basis must conduct regular and rigorous reviews of execution quality. At a minimum, how often?

• a.Monthly, on a customer-by-customer basis for each customer account
• b.Every two years, on an exchange-by-exchange basis for each venue used
• c.Annually, on a firm-wide basis across all of the securities it handles
• d.Quarterly, on a security-by-security and type-of-order basis, or more often✓

Supplementary Material .09 requires reviews at least quarterly, organized security by security and by type of order, with more frequent reviews if the firm's business warrants. Annual, monthly customer-based and biennial reviews do not match the standard.FINRA Rule 5310.09

Regulation NMS Rule 611, the order protection rule, is designed to prevent:

• a.Fails to deliver in a threshold security persisting beyond the allowed number of days
• b.Quoting in increments smaller than the minimum permitted increment for the stock
• c.Executions at prices worse than the protected quotations displayed at other trading centers✓
• d.Short sales at prices at or below the national best bid after a sharp price decline

Rule 611 requires trading centers to have policies to prevent trade-throughs of protected quotations, meaning executions at inferior prices when better protected quotes are available elsewhere. The short sale price test is Rule 201, sub-minimum increments are addressed by Rule 612, and fails to deliver are covered by Regulation SHO's close-out rules.Regulation NMS Rule 611

An alternative trading system operating under Regulation ATS is best described as:

• a.A self-regulatory organization that writes and enforces rules for all of its member firms
• b.A clearing agency that guarantees settlement of trades executed on other venues
• c.A national securities exchange registered under Section 6 with its own listing standards
• d.A broker-dealer-operated venue that matches orders and is not registered as an exchange✓

An ATS is a trading system that brings together buyers and sellers but is operated by a broker-dealer and, under Regulation ATS, is not registered as a national exchange. It does not list securities, it is not a self-regulatory organization, and it does not clear or guarantee trades.Regulation ATS

The third Friday of a month falls on Good Friday, when U.S. markets are closed. Standard monthly equity options for that month expire on:

• a.The following Monday
• b.The preceding Wednesday
• c.The preceding Thursday✓
• d.The following Saturday

Standard monthly equity options expire on the third Friday of the month. When that day is a market holiday, expiration moves to the preceding business day, Thursday. The following Monday is after the scheduled date, Wednesday is two days early, and options no longer expire on Saturday.Listed options

Trader A buys 10 contracts to open from Trader B, who sells them to open. Later, Trader C buys 10 contracts to close from Trader D, who sells them to close. After both trades, open interest and total volume are:

• a.Open interest up by 10 contracts, with total volume of 20 contracts in the two trades
• b.Open interest up by 20 contracts, with total volume of 20 contracts in the two trades
• c.Open interest down by 10 contracts, with total volume of 10 contracts in the two trades
• d.Open interest back at its starting level, with total volume of 20 contracts across the two trades✓

The first trade creates 10 new contracts (open interest +10). The second extinguishes 10 contracts (open interest -10), so open interest ends where it began. Each trade adds 10 to volume, so total volume is 20. Counting both parties of each trade, or counting only the first trade, gives the other figures.Listed options

An investor exercises a European-style S&P 500 index call with a 4,000 strike when the index is at 4,050. The multiplier is 100. How does the exercise settle?

• a.In cash, for $405,000, the index level times the multiplier of 100
• b.By delivery of the stocks in the index in the proportions of their index weights
• c.In cash, for $50, the 50-point gain with no multiplier applied
• d.In cash, for $5,000, the 50-point gain times the multiplier✓

Index options settle in cash because delivering the underlying basket is impractical. The amount is the in-the-money amount times the multiplier: 50 x 100 = $5,000. Physical delivery of the component stocks does not occur, the multiplier cannot be dropped, and the index level times the multiplier is the contract's notional value, not its settlement amount.Index options

In an IPO of a company not previously subject to Exchange Act reporting, a broker-dealer must deliver a preliminary prospectus to a purchaser at least how long before sending the confirmation?

• a.Five business days before sending the confirmation
• b.48 hours before sending the confirmation✓
• c.24 hours before sending the confirmation to the customer
• d.30 calendar days before sending the confirmation

Rule 15c2-8(b) requires a preliminary prospectus to be delivered to anyone expected to receive a confirmation at least 48 hours before the confirmation is sent, when the issuer has not previously been a reporting company. The 24-hour, five-business-day and 30-day periods are not the rule's standard.SEC Rule 15c2-8

For an initial public offering that is immediately listed on an exchange, for how long after the effective date must a dealer deliver a prospectus on transactions in the security?

• a.10 days after the effective date
• b.90 days after the effective date
• c.40 days after the effective date
• d.25 days after the effective date✓

Rule 174 shortens the dealer prospectus delivery period to 25 days for an IPO of a security that is immediately listed on an exchange or quoted on an automated quotation system. Ninety days is the period for a security not listed, and Rule 15c2-8 separately requires responding to requests for the final prospectus during the longer period.SEC Rule 174

How quickly must a FINRA member report an over-the-counter equity trade executed during market hours to a FINRA facility?

• a.As soon as practicable, no later than 10 seconds after execution✓
• b.Within 90 seconds of execution, if the trade is for more than 10,000 shares
• c.By the end of the trade date, together with the day's clearing submissions
• d.Within 15 minutes of execution, for trades between two member firms

Members must report OTC equity trades as soon as practicable and no later than 10 seconds after execution while the facility is open; reports after that are designated late. Longer windows based on size, counterparty or end-of-day clearing do not apply.FINRA Rule 6282

An investor has an open good-til-cancelled buy limit order for XYZ at $30, not marked 'do not reduce.' XYZ goes ex-dividend on a $0.40 cash dividend. The order's price on the ex-date is:

• a.$29.00
• b.$29.60✓
• c.$30.40
• d.$30.00

Open buy limit orders are reduced by the amount of a cash dividend on the ex-date unless marked 'do not reduce,' because the stock's price falls by about the dividend. $30.00 - $0.40 = $29.60. Leaving the price unchanged, adding the dividend or rounding down by a full dollar is incorrect.FINRA Rule 5330

Which pair of open good-til-cancelled orders is reduced on the ex-date of a cash dividend, unless marked 'do not reduce'?

• a.Buy stop orders and buy limit orders
• b.Sell limit orders and buy stop orders
• c.Sell limit orders and sell stop orders
• d.Buy limit orders and sell stop orders✓

Rule 5330 reduces open orders to buy and open stop orders to sell by the dividend, because those are orders that would otherwise sit at prices now too high or low once the stock drops. Open sell limit orders and open buy stop orders are not adjusted.FINRA Rule 5330

How often must a member firm inspect a non-supervisory branch office under FINRA Rule 3110(c)?

• a.At least every two years, alternating with the OSJ inspection
• b.At least every three years, which is less often than an OSJ✓
• c.At least once each calendar year, the same as an OSJ
• d.At least every five years, unless a customer complaint is received

Offices of supervisory jurisdiction and supervisory branch offices must be inspected at least annually, while non-supervisory branch offices are inspected at least every three years. Annual, biennial and five-year intervals do not match the rule for this type of office.FINRA Rule 3110(c)

A customer files an arbitration claim in 2026 over a recommendation made in 2018 and argues the loss was discovered only in 2025. Under the Code of Arbitration Procedure, the claim is:

• a.Eligible, because the six-year period runs from the date the customer discovered the loss
• b.Ineligible for FINRA arbitration, because six years have passed since the event itself✓
• c.Eligible, because the time limit applies only to disputes between two FINRA member firms
• d.Eligible, because the customer's account at the firm remained open all that time

Rule 12206 makes a claim ineligible when six years have elapsed from the occurrence or event giving rise to it. The period runs from the event, not from discovery of the loss, and neither an open account nor the identity of the parties extends it.FINRA Rule 12206

A registered representative wants to borrow $10,000 from a customer who is her sister. Under FINRA Rule 3240, what is required?

• a.Firm written procedures must allow such loans, and may waive notice and approval for immediate family✓
• b.Written pre-approval from the firm in every case, because the rule has no family exception
• c.Nothing, because loans between immediate family members fall outside the rule
• d.Only that the loan be on commercial terms offered to the public; no written procedures are needed

Rule 3240(a)(1) bars borrowing from or lending to a customer unless the firm has written procedures allowing it, and the arrangement must fit a category in (a)(2), one of which is a customer who is an immediate family member, including a sister. For that category, (b)(2) lets the firm's procedures dispense with notice and approval. Arrangements based on a personal or business relationship need notice and written pre-approval. The rule does have a family category, so family loans are not exempt from the rule itself and the written-procedures condition still applies. The commercial-terms condition belongs to loans from financial institutions that lend in the ordinary course of business, and there is no repayment-period or Form U4 requirement.FINRA Rule 3240(a)(2)(A), (b)(2)

A firm emails the same written market commentary to 40 retail investors over a 30-day period. FINRA Rule 2210 classifies this communication as:

• a.Correspondence, because it was sent by email and not mailed
• b.Institutional communication, because it was sent only to existing customers of the firm
• c.Public appearance, because it reached more than 25 recipients
• d.Retail communication, because it went to over 25 retail investors in 30 days✓

Correspondence is written material sent to 25 or fewer retail investors within any 30-calendar-day period; anything sent to more is a retail communication, with its own approval and content standards. Email is a written medium either way, the recipients are retail and not institutional investors, and a public appearance is an interactive event such as a seminar.FINRA Rule 2210

In March a representative gives a client's employee a $200 watch, and in October gives the same person a $125 pen set. Both gifts relate to the firm's business. Under Rule 3220:

• a.The gifts violate the rule, because the two total $325, over the $300 annual limit✓
• b.The gifts violate the rule only if the employee reports them to FINRA or the employer
• c.The gifts comply, because each gift on its own is below the $300 annual limit
• d.The gifts comply, because gifts given in different months are measured separately by the firm

Rule 3220 prohibits giving anything of value over $300 per individual per year in relation to the business of the recipient's employer. The limit applies to the total for one person in the year, so $200 plus $125 is $325 and exceeds it. Splitting the gifts by amount or by month does not avoid the aggregate test, and the rule does not depend on the recipient reporting anything.FINRA Rule 3220

Each calendar quarter, a member must report statistical information about written customer complaints to FINRA. When is it due?

• a.Within 10 days of each individual complaint's receipt
• b.Within 30 days after the end of that calendar quarter
• c.By the 15th day after the end of the quarter✓
• d.By the last business day of the quarter itself

Rule 4530(d) requires quarterly statistical and summary complaint information to be filed by the 15th day of the month following the calendar quarter. The 30-calendar-day period applies to reports of certain specified events under another part of the rule, not to the quarterly statistics, and the filing is not made complaint by complaint.FINRA Rule 4530(d)

A broker-dealer detects facts on March 3 that may require a SAR, and a suspect has been identified. By what date must the SAR be filed?

• a.May 2, which is the 60-day maximum allowed
• b.April 17, a deadline set at 45 calendar days
• c.April 2, which is 30 days after initial detection✓
• d.March 18, a deadline set at 15 calendar days

A SAR must be filed no later than 30 calendar days after the date of initial detection of facts that may constitute a basis for filing. If no suspect has been identified, the deadline may extend to a maximum of 60 days. March 3 plus 30 days is April 2. The other dates reflect periods that are not in the rule or apply only when no suspect is identified.31 CFR 1023.320

A customer delivers $6,500 in currency to a broker-dealer in the morning and $4,500 in currency in the afternoon of the same business day. What must the firm do?

• a.File a CTR within 30 days, after the second delivery is processed and the books close
• b.File a CTR within 15 days, because the two deliveries are aggregated and total over $10,000✓
• c.File only a Suspicious Activity Report, because the customer split the delivery into two parts
• d.File nothing, because neither transaction alone exceeds the $10,000 currency reporting threshold

Currency transactions by or for one person in a single business day are aggregated, and a CTR is required when the total exceeds $10,000. Here it is $11,000, and the report is due within 15 days. Each delivery below the threshold individually does not matter, 30 days is the SAR deadline, and a SAR does not replace a required CTR.31 CFR 1010.311

A broker-dealer that does not conduct transactions for customers or hold customer accounts must have its AML program independently tested at least:

• a.Every month, by the AML compliance officer herself
• b.Every three years, by a qualified independent person
• c.Every two years, by a qualified independent person✓
• d.Every calendar year, by a qualified independent person

Rule 3310(c) requires annual independent testing on a calendar-year basis, but a member that does not execute transactions for customers or otherwise hold customer accounts need only test every two years. Annual testing is the standard, three years is not a period in the rule, and the compliance officer cannot be the independent tester.FINRA Rule 3310

A director buys 2,000 shares of her company's stock on Wednesday. By when must she file Form 4?

• a.By the end of the following Wednesday, within five business days of the trade
• b.By the end of Wednesday, the same day as the transaction
• c.By the end of Friday, the second business day after the transaction✓
• d.Within 10 days after the end of the month in which the trade occurred

Form 4 must be filed before the end of the second business day after the transaction that changes beneficial ownership. A Wednesday purchase makes Friday the deadline. Same-day filing, five business days and a month-end schedule are not the requirement.Exchange Act Section 16(a)

An investor acquires 12% of a company's registered class of equity securities. The investor must file Form 3:

• a.Only if the investor also becomes an officer or director of the company
• b.Within 45 days after the end of the company's next fiscal year
• c.Within 10 days after becoming a more-than-10% beneficial owner✓
• d.Within two business days after the purchase, as with Form 4

A beneficial owner of more than 10% of a registered equity class is a Section 16 insider and must file an initial Form 3 within 10 days after becoming one. Two business days is the Form 4 deadline for later changes, the 45-day year-end filing is Form 5, and officer or director status is not needed for a 10% holder.Exchange Act Section 16(a)

An officer buys 1,000 shares of her company at $20 on January 10 and sells 1,000 shares at $26 on May 15 of the same year. Who is entitled to the profit and how much?

• a.The issuer, which may recover $26,000, the full proceeds of the sale made in May
• b.The issuer, which may recover $6,000 regardless of the officer's intent✓
• c.No one, because the profit was earned on a sale made after more than 90 days
• d.The SEC, which may collect $6,000 as a civil penalty

Section 16(b) lets the issuer recover profit an insider earns from a purchase and sale within less than six months, whether or not the insider used inside information. The profit is 1,000 x ($26 - $20) = $6,000. The remedy belongs to the issuer, not the SEC; the six-month period, not 90 days, is the test; and only the profit is recoverable, not the proceeds.Exchange Act Section 16(b)

A director adopts a Rule 10b5-1 trading plan on February 2. The company files its Form 10-Q for the quarter in which the plan was adopted on Monday, May 11. The earliest permitted trade under the plan is:

• a.Monday, May 11, once the Form 10-Q has been filed
• b.Wednesday, May 13, because that is later than 90 days after adoption✓
• c.Wednesday, March 4, because a 30-day cooling-off period applies after adoption
• d.Sunday, May 3, 90 days after adoption, regardless of the 10-Q

For directors and officers, the cooling-off period ends on the later of 90 days after adoption or two business days after the 10-Q or 10-K for the quarter of adoption, capped at 120 days. Ninety days after February 2 is May 3, and two business days after May 11 is May 13, which is later and within the cap. A 30-day period applies to other persons, not directors.SEC Rule 10b5-1(c)

A senior officer of an issuer unintentionally gives material nonpublic information to a research analyst. What must the issuer do?

• a.Make public disclosure within five business days of a senior officer learning of it
• b.Nothing, because Regulation FD covers only intentional disclosure
• c.Ask the analyst to keep the information confidential and file a Form 8-K next quarter
• d.Disclose publicly within 24 hours or by the next NYSE open, whichever is later✓

When an issuer discloses material nonpublic information unintentionally to covered persons, Regulation FD requires prompt public disclosure: as soon as reasonably practicable and no later than 24 hours after a senior official learns of it, or the start of the next day's NYSE trading, whichever is later. Intent does not remove the duty, five business days is too slow, and an informal confidentiality request does not substitute for public disclosure.Regulation FD

A municipal finance professional at a dealer contributes $400 to the re-election campaign of a mayor, an issuer official for whom he is entitled to vote. What is the consequence for the dealer?

• a.A two-year ban on municipal securities business with that issuer✓
• b.A permanent ban from all municipal securities business, with any issuer
• c.A one-year ban on municipal securities business with that issuer's offerings
• d.No ban, because contributions up to $500 are allowed for officials a person can vote for

Rule G-37 permits de minimis contributions of up to $250 per election to officials for whom the person is entitled to vote. A larger contribution triggers a two-year prohibition on the dealer engaging in municipal securities business with that issuer. The ban is not one year, the threshold is $250 and not $500, and it applies to the issuer in question, not the whole market.MSRB Rule G-37

A dealer sells a new municipal issue to a customer. By when must the dealer deliver the official statement to the customer?

• a.Only if the customer requests it in writing after settlement
• b.By the settlement of the transaction, when an official statement exists✓
• c.At least 48 hours before the trade is executed
• d.Within 30 days after the issue's first interest payment date

Rule G-32 requires a dealer selling a new issue to send the official statement, where one exists, to the customer by the settlement of the transaction. Delivery after the first interest payment is too late, the 48-hour preliminary prospectus requirement belongs to equity IPOs, and delivery cannot depend on a later request.MSRB Rule G-32

A tippee avoids a $40,000 loss by selling stock after receiving material nonpublic information from an insider. What is the maximum civil penalty the SEC can seek in court?

• a.$40,000, equal to the loss avoided, which replaces any disgorgement of the profits
• b.$400,000, ten times the loss avoided, in addition to disgorgement of the $40,000
• c.$80,000, twice the loss avoided, in addition to disgorgement of the $40,000
• d.$120,000, three times the loss avoided, in addition to disgorgement of the full $40,000✓

Courts may impose a civil penalty of up to three times the profit gained or loss avoided in an insider trading case, and the violator may also have to give up the gain. For $40,000 avoided, the cap is $120,000. Penalties of one, two or ten times the amount are not the statutory ceiling.Insider Trading Sanctions Act

A firm terminates a registered representative on June 1. What must the firm do about Form U5?

• a.File it before the termination date and send a copy only to the state
• b.File it within 10 days of termination and keep every copy inside the firm
• c.File it at the next annual renewal and give the representative a copy then
• d.File it within 30 days of termination and give the representative a copy✓

A firm must file Form U5 no later than 30 days after a representative's termination and must provide the individual a copy of the filing. A 10-day deadline, filing before termination and waiting until annual renewal are not what the rules call for, and withholding the copy would also violate them.FINRA By-Laws Article V, Section 3

A representative calls a customer at 7:30 p.m. local time. The customer is on the national do-not-call registry, had a transaction with the firm 14 months ago and never asked to be placed on the firm's internal do-not-call list. Under Rule 3230, the call is:

• a.Prohibited, because the national registry always bars calls to any customer who is listed on it
• b.Prohibited, because calls to customers are only allowed after 9 a.m. and before 5 p.m. local time
• c.Permitted only if the customer first gives written consent to receive the call from the firm
• d.Permitted, because a transaction within 18 months creates an established business relationship✓

Telemarketing calls are allowed between 8 a.m. and 9 p.m. in the recipient's time zone. A customer on the national registry may still be called if an established business relationship exists, which means a transaction within the prior 18 months, unless the customer asked to be put on the firm's own list. Written consent is not needed, and the permitted window is not 9 to 5.FINRA Rule 3230