FINRA Series 7 — All Questions

A stock rallies to $60, falls back to $54, rallies again to $60 on lighter volume, and then falls below $54. What is the usual interpretation?

• a.A double bottom, a bullish reversal confirmed by the break below $54
• b.A rounding bottom, a sign that the earlier decline is ending
• c.A double top, a bearish reversal confirmed by the break below $54✓
• d.An ascending triangle, a continuation pattern pointing to further gains

Two failed attempts at the same high with a pullback between them form a double top. The pattern is confirmed when price falls below the trough, here $54, and it signals a reversal from an uptrend to a downtrend. A double bottom is the mirror image at a low, and an ascending triangle breaks out upward. A rounding bottom appears after a decline, not after repeated failures at a high.Technical analysis: chart patterns (double top)

The Dow Jones Industrial Average keeps making new highs while the advance/decline line trends lower. How do technicians read this?

• a.As a warning that the advance is narrowing and may be fading✓
• b.As a sign that the market is oversold and due for a bounce
• c.As confirmation that the advance is broad and likely to continue
• d.As evidence that short interest in the market is falling off

If the index rises while fewer stocks advance each day, the rally depends on a shrinking group of leaders. That negative divergence is a classic warning that the move may fail. Rising breadth would confirm the advance, an oversold reading would follow a decline, and the advance/decline line says nothing about short interest.Technical analysis: breadth and divergence

Under Dow Theory, the Dow Jones Industrial Average closes at a new high but the Transportation Average does not. How is this interpreted?

• a.As a confirmed primary uptrend led by the industrial average
• b.As a signal that a primary bear market has already begun
• c.As a lack of confirmation that casts doubt on the uptrend✓
• d.As a buy signal because transports lag behind new advances

Dow Theory holds that a primary trend is confirmed only when the Industrial and Transportation averages both reach new highs (or lows). A new high in one without the other is a non-confirmation and a caution that the trend may be weaker than it looks. It does not by itself prove a bear market, and lagging transports are not a buy signal.Technical analysis: Dow Theory

The put/call ratio on a stock index has jumped to an extremely high reading. How would a contrarian technician most likely view this?

• a.As a neutral sign, since put and call activity offset each other
• b.As a bearish sign, since heavy put buying reflects informed selling
• c.As a sign that the market is overbought and ready to reverse
• d.As a bullish sign, since extreme pessimism often comes before a rebound✓

A high put/call ratio means investors are buying many more puts than calls. Contrarians treat widespread, extreme pessimism as a sign that most of the selling is done, so they read it as bullish. The bearish reading is the non-contrarian view. Offsetting activity is not what a high ratio means, and a high ratio points to pessimism, not an overbought market.Market sentiment: put/call ratio

A stock has 3,000,000 shares sold short, a float of 20,000,000 shares, and average daily volume of 500,000 shares. What is its short interest ratio (days to cover)?

• a.15 days
• b.0.17 days
• c.6 days✓
• d.30 days

The short interest ratio is shares sold short divided by average daily volume: 3,000,000 / 500,000 = 6 days. The 0.17 figure inverts the division. The 15 figure confuses the 15% of float that is sold short with days. The 30 figure moves the decimal point in the volume. A high ratio means shorts would need many days of volume to cover, which contrarians treat as potential buying demand.Market sentiment: short interest ratio

According to the odd-lot theory, how should a technician react when odd-lot investors are heavy net buyers?

• a.Lean toward selling, since small investors are assumed to be wrong at turning points✓
• b.Lean toward buying, since small investors are assumed to lead the market
• c.Take no action, since odd lots are too small to move the market at all
• d.Lean toward buying, since odd-lot demand shows the market is undervalued

The odd-lot theory is a contrarian sentiment tool. It assumes the small investors who trade in odd lots (under 100 shares) tend to buy near tops and sell near bottoms, so heavy odd-lot buying is read as a sign to sell or be cautious. The options that treat their buying as informed or as a sign of value take the opposite, non-contrarian view.Market sentiment: odd-lot theory

A parent gives a child 100 shares when the shares have a cost basis of $20 per share and a market value of $50 per share. The child later sells them for $60 per share. What is the child's taxable gain?

• a.$6,000
• b.$4,000✓
• c.$3,000
• d.$1,000

For a gain, the donee takes over the donor's basis (carryover basis) of $20 per share. The gain is ($60 - $20) x 100 = $4,000. The $1,000 figure measures from the value at the date of the gift, $50. The $3,000 figure is the gain the parent had at the time of the gift. The $6,000 figure is the total sale proceeds, not the gain.Gift tax: donee's basis for gifts (gain)

A parent gives a child 200 shares with a cost basis of $50 per share when the market value is $35 per share. The child later sells them for $42 per share. What is the result of the sale?

• a.A loss of $3,000 is recognized
• b.No gain or loss is recognized✓
• c.A gain of $1,400 is recognized
• d.A loss of $1,600 is recognized

When the value at the date of the gift is below the donor's basis, the donee has a dual basis. The donor's $50 is used to figure a gain and the $35 value is used to figure a loss. A sale at $42 falls between the two, so there is neither gain nor loss. The $1,600 loss uses $50 and the $1,400 gain uses $35. The $3,000 loss is the drop in value at the time of the gift.Gift tax: donee's basis for gifts (dual basis)

In 2026 a married donor gives $30,000 cash to a friend, and her spouse consents to treat the gift as made half by each of them. The annual exclusion is $19,000. How much of the gift is taxable?

• a.$11,000, the amount over a single $19,000 exclusion
• b.$15,000, the amount treated as given by each spouse
• c.$30,000, the full gift, since it is more than $19,000
• d.None, since each spouse is treated as giving only $15,000✓

With gift splitting, each spouse is treated as giving $15,000. Each amount is under the $19,000 annual exclusion, so nothing is taxable and no lifetime exclusion is used. The $11,000 figure ignores the split and applies only one exclusion. The $15,000 figure forgets that each spouse has an exclusion. The $30,000 figure ignores the annual exclusion altogether.Gift tax: gift splitting

In 2026 a parent gives $25,000 in cash to each of her three children, with no gift splitting. The annual exclusion is $19,000 per recipient. How much of these gifts reduces her lifetime basic exclusion amount?

• a.$57,000
• b.$18,000✓
• c.$6,000
• d.$75,000

Each gift exceeds the annual exclusion by $25,000 - $19,000 = $6,000, and three children make 3 x $6,000 = $18,000. That amount uses up part of her lifetime exclusion, and no tax is due while the total stays below it. The $6,000 figure counts only one child. The $57,000 figure is the total of the exclusions. The $75,000 figure is the entire amount given.Gift and estate tax: annual and lifetime exclusions

A market-capitalization-weighted index holds only stock A ($75 billion in market value) and stock B ($25 billion). Stock A falls 10% and stock B rises 5%. What is the change in the index?

• a.A gain of 1.25%
• b.A decline of 6.25%✓
• c.A decline of 7.5%
• d.A decline of 2.5%

Weights follow market value: A is 75% and B is 25%. The change is 0.75 x (-10%) + 0.25 x (+5%) = -7.5% + 1.25% = -6.25%. The -2.5% figure averages the two moves as if they were weighted equally. The -7.5% figure counts only stock A. The +1.25% figure reverses the weights.Market indexes: market-capitalization weighting

What does the Cboe Volatility Index (VIX) measure?

• a.The ratio of put volume to call volume on S&P 500 options over 30 days
• b.The realized volatility of the S&P 500 over the prior 30 trading days
• c.The expected 30-day volatility of the S&P 500 implied by index option prices✓
• d.The dispersion of returns across individual S&P 500 stocks over 30 days

The VIX is a forward-looking measure. It is derived from the prices of S&P 500 index options and expresses the volatility the market expects over the next 30 days, which is why it is called the fear gauge. Realized volatility looks backward, the put/call ratio is a separate sentiment measure, and dispersion across stocks is not what the index calculates.Market indexes: volatility index

A manager runs a portfolio of small-capitalization U.S. stocks. Which index is the most appropriate benchmark?

• a.The S&P 500 Large Cap Index
• b.The Russell 2000 Index✓
• c.The Dow Jones Industrial Average
• d.The Russell 1000 Index

The Russell 2000 tracks smaller U.S. companies and is the standard small-cap benchmark. The Dow Jones Industrial Average holds 30 large companies, the Russell 1000 covers the large-cap segment, and the S&P 500 is a large-cap index.Market indexes: small-cap benchmark

A Texas company plans an intrastate offering under Rule 147A and wants to advertise it on a public website. Which statement is correct?

• a.Sales to out-of-state buyers are allowed if they are accredited
• b.General advertising is barred, since the offering is limited to one state
• c.General advertising is allowed, but all sales must be to residents✓
• d.The company qualifies if its principal office is in Texas, wherever it operates

Rule 147A allows general solicitation and general advertising, which is what distinguishes it from Rule 147. All sales must still be made only to residents of the state, or to persons the issuer reasonably believes are residents. The issuer must also be doing business in the state under at least one test, such as deriving at least 80% of its consolidated gross revenues there, so an office alone is not enough. Buyer accreditation does not replace the residency requirement.17 CFR 230.147A(b), (c) and (d)

An investor buys shares in a Rule 147A offering. During the six months after the issuer sold the shares to her, to whom may she resell them?

• a.Only to residents of the state of the issuer✓
• b.Only to qualified institutional buyers (QIBs)
• c.Only to accredited investors wherever they live
• d.To any buyer, since the original sale was exempt

Rule 147A limits resales for six months from the date of the issuer's sale to the purchaser: they may be made only to persons resident within the issuer's state. The shares are not freely resalable in that period even though the original offering was exempt. Accredited-investor status and QIB status do not change the in-state requirement.17 CFR 230.147A(e)

A non-reporting issuer has filed a registration statement that includes a price range and wants to send investors a free writing prospectus during the waiting period. Which requirement applies?

• a.It replaces the prospectus, so none need be delivered to investors
• b.It must be accompanied or preceded by the latest statutory prospectus✓
• c.It may not be used until SEC staff has reviewed and approved the document
• d.It may be used only after the registration statement has become effective

A non-reporting or unseasoned issuer may use a free writing prospectus only after a registration statement containing a price range has been filed, and the free writing prospectus must be accompanied or preceded by the most recent statutory prospectus, which may be furnished by hyperlink. The issuer must file an issuer free writing prospectus by the time it is first used, but the SEC does not approve it first. It does not replace the prospectus, and it may be used in the waiting period, before effectiveness.17 CFR 230.433

A U.S. company that is not an Exchange Act reporting issuer sells its common stock to non-U.S. persons in an offshore transaction under Regulation S, with no directed selling efforts in the United States. What distribution compliance period applies?

• a.40 days
• b.Six months
• c.One year✓
• d.Two years

Equity securities of a non-reporting domestic issuer fall in Category 3 of Regulation S, which carries a one-year distribution compliance period; it is six months if the issuer is a reporting issuer. The 40-day period applies to debt securities and to Category 2 securities. Two years was the old Rule 144 holding period for restricted stock and is not a Regulation S period.17 CFR 230.903

A registration statement is declared effective without the offering price. The issuer then files a prospectus with the pricing information. By when must it be filed to avoid a post-effective amendment?

• a.Within 30 calendar days after the offering is priced
• b.Within 45 calendar days after the registration statement is declared effective
• c.Within 5 business days after the price is set
• d.Within 15 business days after the effective date✓

Rule 430A allows price-related information to be left out of the registration statement at effectiveness. The prospectus supplying it must be filed within 15 business days after the effective date; otherwise a post-effective amendment is required. A shorter period such as 5 business days from pricing, and longer calendar-day periods such as 30 or 45 days, are not the Rule 430A deadline.17 CFR 230.430A

A registered representative emails a market commentary recommending a stock to 20 retail customers during a 30-day period. How is the message classified and supervised?

• a.As a retail communication that the firm must file with FINRA before it is first used
• b.As a retail communication that a principal must approve before use
• c.As an institutional communication, sent only to customers
• d.As correspondence, supervised under Rule 3110(b) without pre-approval✓

Under Rule 2210 a retail communication is a written communication distributed to more than 25 retail investors within 30 calendar days. A message to 20 retail customers is correspondence, which is supervised under Rule 3110(b) but does not require prior principal approval or a FINRA filing. The message is not institutional, because retail customers received it, even if they are existing customers.FINRA Rule 2210(a)(2) and (b)(1)(D)

A member that has been in business for years creates a brochure that promotes a specific family of registered mutual funds to retail investors. When must it be filed with FINRA?

• a.It need not be filed; the sponsor files it
• b.Within 30 calendar days after first use
• c.At least 10 business days before first use
• d.Within 10 business days after first use✓

Retail communications that promote a specific registered investment company or family of funds must be filed within 10 business days of first use. A pre-use filing is required of new members in their first year and for certain rankings and comparisons and security futures. The member that uses the piece is responsible for the filing, and the 30-day period is not in the rule.FINRA Rule 2210(c)(3)

A retail communication states, 'Invest $10,000 in the XYZ Growth Fund today, and we project you will have $50,000 in ten years.' May the firm use it?

• a.Yes, if it is clearly labeled as a hypothetical estimate and not a promise
• b.No, because the rule bars predicting or projecting investment performance✓
• c.Yes, if a principal approves the piece in writing before it is first used
• d.Yes, if the assumed return is set below the fund's long-term average return

Rule 2210(d)(1)(F) bars communications that predict or project performance. The exceptions cover a hypothetical illustration of mathematical principles that does not predict the performance of a specific investment, certain planning tools and research price targets. A projection for a named fund is outside them, and neither a label, a conservative assumption nor principal approval cures it.FINRA Rule 2210(d)(1)(F)

A fund advertisement carries the headline 'Best Growth Fund in America.' The fund ranked third among 120 funds in its category in a ranking from a recognized ranking entity. Is the headline permitted?

• a.Yes, if the ranking entity, period and criteria are disclosed in the ad
• b.Yes, if the fund also ranks near the top in its category in later periods
• c.No, since 'best' may be claimed only by a fund that ranked first✓
• d.Yes, since a top-three rank in a recognized ranking supports the claim

Under Rule 2212, an investment company ranking may not suggest that a fund is the best unless it actually ranked first in its category. Disclosing the entity, category, period and criteria is required for any ranking but does not make an untrue headline acceptable, and a high rank or later strong periods do not change the first-place requirement.FINRA Rule 2212

A retail communication about a collateralized mortgage obligation says its yield compares favorably with that of a bank certificate of deposit of similar maturity. What is wrong with it?

• a.The comparison would be allowed only if the CD rate is current
• b.Only the yield may be compared, since maturity differs between them
• c.Communications about CMOs may not compare them with any other investment✓
• d.Comparisons are allowed once the CMO is shown to carry government backing

Rule 2216 prohibits communications about collateralized mortgage obligations from comparing a CMO to any other investment vehicle, including a CD, because the cash flows, prepayment risk and average life are not comparable. A current CD rate, a yield-only comparison or a government backing does not lift the prohibition.FINRA Rule 2216

A firm's brochure describes a variable annuity as a liquid, short-term holding that works like a mutual fund. Which statement about the brochure is correct?

• a.It is proper, since annuities invest in mutual fund sub-accounts
• b.It is improper only if the brochure leaves out the surrender charge schedule
• c.It is proper, as long as the brochure also names the issuing insurance company
• d.It is improper, since it may not imply a mutual fund or a liquid holding✓

Rule 2211 governs communications about variable life insurance and variable annuities. They must identify the product accurately, and may not suggest it is a mutual fund or that it is a short-term, liquid investment. That the underlying sub-accounts resemble funds does not make the contract a fund, and naming the insurer does not cure a misleading description.FINRA Rule 2211

A member was co-manager of a secondary offering of ABC Corp. common stock. The issuer is not an emerging growth company. What is the minimum quiet period before the member's analysts may publish research on ABC?

• a.3 days after the offering✓
• b.10 days after the offering
• c.25 days after the offering
• d.15 days after the offering

Rule 2241 sets a quiet period of at least 3 days after a secondary offering for a member that acted as manager or co-manager. The longer period of at least 10 days applies after an initial public offering when the member was an underwriter or dealer. The 15-day and 25-day periods belong to earlier rules and do not apply.FINRA Rule 2241(b)(2)(I)

A registered representative joins a public chat thread on a social media site and recommends a stock in real-time replies. What does Rule 2210 require?

• a.A copy of each post must be filed with FINRA within 10 business days
• b.A principal must approve each post before it is made on the platform
• c.Nothing is required, because social media falls outside supervision duties
• d.No principal pre-approval, but the posts must be supervised as correspondence✓

Retail communications on an online interactive electronic forum are exempt from the principal pre-approval requirement, but the firm must supervise them in the way it supervises correspondence under Rule 3110(b). Static content, such as a profile or a posted article, is not interactive and does need approval. Social media is not outside supervision, and the posts are not subject to a filing requirement.FINRA Rule 2210(b)(1)(D)

A broker-dealer shares customers' nonpublic personal information with nonaffiliated parties only under the processing and servicing exceptions, and has not changed its privacy policies. Must it send annual privacy notices?

• a.Yes, but only to customers who have opted out of information sharing
• b.No, because the notice is required only when the customer relationship begins
• c.No, since it shares only under the exceptions and its policies are unchanged✓
• d.Yes, once in any 12 consecutive months for as long as the customer has an account

Regulation S-P requires an initial notice no later than when the customer relationship is established and an annual notice at least once in any 12 consecutive months. The annual notice is not required if the firm shares nonpublic personal information with nonaffiliated parties only under the exceptions in the rule and its policies have not changed since the last notice. The reason is the exception, not that notice is limited to the start of the relationship.17 CFR 248.5 and 248.14

A service provider to a broker-dealer discovers unauthorized access to customer information. Under Regulation S-P, which statement about the notification deadlines is correct?

• a.The provider notifies the firm within 30 days, and the firm notifies customers within 72 hours
• b.The provider tells the firm within 72 hours; the firm tells customers within 30 days✓
• c.The provider tells the firm within 10 days; the firm tells customers within 60 days
• d.The provider notifies the firm at once, and the firm notifies customers at its next annual review

Regulation S-P requires a service provider to notify the covered firm as soon as possible and no later than 72 hours after becoming aware of a breach. The firm remains responsible for notifying affected customers as soon as practicable, but not later than 30 days after becoming aware of the unauthorized access. The other pairs misstate those periods or defer notice to a later review.17 CFR 248.30

A broker-dealer closed a customer's account. For how long must it keep the identifying information it collected for that customer under its customer identification program?

• a.Five years after it was first collected
• b.Five years after the account is closed✓
• c.Three years after the account is closed
• d.Six years after the account was opened

Under the customer identification program rule, the identifying information the firm obtained (name, date of birth, address and identification number) must be kept for five years after the account is closed. Records of the documents relied on, the methods used and how discrepancies were resolved are kept for five years after the record is made. Three years and six years are not the periods in this rule.31 CFR 1023.220(a)(3)

A customer who signed no predispute arbitration agreement files a written request to arbitrate a dispute with her broker-dealer over its securities business. Must the firm arbitrate?

• a.Yes, but only if the customer has first completed mediation with the firm
• b.No, arbitration requires the member's consent once the dispute has arisen
• c.No, a member is bound only by a signed predispute arbitration agreement
• d.Yes, because the customer's request obligates the member under the Code✓

FINRA Rule 12200 requires a member or associated person to arbitrate a dispute with a customer if the customer requests it, or if a written agreement requires it, as long as the dispute arises in connection with the member's business. The customer's election alone is enough, with no agreement and no consent by the firm, and there is no dollar threshold.FINRA Rule 12200

A member firm learns that one of its registered representatives has been convicted of a felony, which makes him statutorily disqualified. Within what period must the firm amend his Form U4?

• a.At the time of the next annual review
• b.Within 60 days of learning all the facts
• c.Within 10 days of learning the facts✓
• d.Within 30 days of learning the facts

A Form U4 must be kept current through amendments, generally filed within 30 days of learning the facts. When the amendment involves a statutory disqualification, the deadline shortens to 10 days. Sixty days is not a deadline in the rule, and an amendment cannot wait for an annual review.FINRA By-Laws, Art. V, Sec. 2(c)

After receiving a customer's order to buy 500 shares of Delmar Tech, a firm that is not a market maker in the stock buys 500 shares at $20.30 from another dealer and sells them to the customer at $20.40 as principal. Besides the usual items, what must the confirmation show?

• a.The best bid and offer quoted on the primary market at the moment the customer's order was received
• b.The $0.10 per share difference between the customer's price and the firm's contemporaneous purchase price✓
• c.A statement of principal capacity alone, since price differences are disclosed only on bond confirmations
• d.The firm's full inventory cost for all Delmar shares it held in inventory before the customer's order arrived

Rule 10b-10 requires a firm that is not a market maker, and that buys to offset a contemporaneous customer sale, to disclose the difference between its purchase price and the customer's price. Here that is $20.40 less $20.30, or $0.10 a share. The firm's older inventory cost is not part of this disclosure because the trade was offset by a purchase made after the order. Prevailing quotes are not a required item on an equity confirmation. Capacity alone is not enough, because the equity rule itself calls for the price difference, so the claim that only bond confirmations show one is wrong.SEA Rule 10b-10(a)(2)(ii)(A)

On a Tuesday, a customer asks in writing for the information that would have appeared on the confirmation of a trade executed 45 days earlier. Within how many business days must the firm give or send it?

• a.20 business days
• b.10 business days
• c.15 business days✓
• d.5 business days

Rule 10b-10(c) gives the firm 5 business days to respond to a request for confirmation information, but extends that to 15 business days when the transaction took place more than 30 days before the request. At 45 days the longer period applies. Five days is the period for a recent trade. Ten and twenty business days do not appear in the rule.SEA Rule 10b-10(c)

A customer buys a corporate bond, callable before maturity, at a dollar price of 101. In addition to the price and yield to maturity, which statement must the confirmation include?

• a.The yield to call calculated from the dollar price, which replaces the yield to maturity on the confirmation
• b.That the bond may be redeemed early, that redemption could change the yield, and that details are on request✓
• c.The complete call schedule, with every call date and call price printed in full on the confirmation
• d.The next call date and call price, shown only when the bond is bought at a premium to its par value

For a debt security subject to redemption before maturity, Rule 10b-10(a)(4) requires a statement that the security may be redeemed, that redemption could affect the yield represented, and that additional information is available on request. The full call schedule is not required on the confirmation. For a dollar-price trade the rule calls for the yield to maturity, so yield to call does not replace it. Call date and price are required when the trade is done on a yield-to-call basis, not merely because the price is above par.SEA Rule 10b-10(a)(4)

A firm sells 50 corporate bonds of $1,000 par to a retail customer at 99.00. That morning the firm bought 100 of the same bonds at 97.50, which is the prevailing market price. What markup must the confirmation show?

• a.$750 in total, and about 1.54% of the market price✓
• b.$1,500 in total, found by applying the 1.5-point markup to the 100 bonds bought that morning
• c.$750 total, 1.52% of the 99.00 customer price
• d.$750 in total, expressed as 1.50% against the $1,000 par value of each bond

The markup is 99.00 less 97.50, or 1.5 points, which is $15 per $1,000 bond. On the 50 bonds sold, that is $750. Rule 2232(c) requires the dollar amount and a percentage of the prevailing market price, so the percentage is 1.5 divided by 97.5, about 1.54%. Applying the markup to the 100 bonds in the offsetting purchase gives $1,500 but ignores that only 50 were sold. Dividing by the customer's price gives 1.52%, and measuring against par gives 1.50%; both use the wrong base.FINRA Rule 2232(c)

A firm acquires newly issued corporate bonds in a fixed-price offering and sells them to retail customers at the offering price on the day it acquired them. What does Rule 2232 require on those confirmations?

• a.Markup disclosure is excused only if the firm also discloses its underwriting spread on the confirmation
• b.Markup disclosure, the TRACE reference and the execution time are all excused because the offering price was fixed
• c.Markup disclosure is excused, but the TRACE web page reference and the execution time to the second are still required✓
• d.Markup disclosure is required, because a same-day sale to a retail customer is never excused from it

Rule 2232(d)(2) excuses the markup disclosure when the member acquired the security in a fixed-price offering and sold it to non-institutional customers at the offering price on the acquisition day. The exception reaches only paragraph (c). Paragraph (e) still applies to all such debt transactions with non-institutional customers, so the confirmation needs the TRACE reference and the execution time expressed to the second. Treating the exception as covering the whole confirmation is wrong, as is ignoring the exception, and no rule ties it to spread disclosure.FINRA Rule 2232(d)(2) and (e)

A customer buys and redeems shares of a no-load money market fund that holds a stable net asset value, and has agreed in writing to receive periodic statements instead of confirmations. How often must the statements go out?

• a.Within five business days after the end of each quarter, listing every purchase, redemption and dividend
• b.Within five business days after the end of each month, listing every purchase, redemption and dividend✓
• c.Within five business days after the end of each year, listing the net change in the account
• d.Within thirty calendar days after each purchase or redemption, listing that transaction alone

Rule 10b-10(b) allows a no-load, stable-value money market fund to be handled with periodic statements, sent within five business days after the end of each monthly period, once the customer has been told in writing. The quarterly schedule applies to investment company and periodic plan transactions, not to this case. A per-trade deadline of thirty days and an annual summary are not part of the rule.SEA Rule 10b-10(b)

A firm routes a customer's market order for an NMS stock to a wholesale market maker and receives payment for that order flow. What does the agency confirmation have to say about it?

• a.The exact rebate per share the firm received on the order, printed on the face of the confirmation
• b.Nothing, because payment for order flow is disclosed only in the firm's annual Form CRS filing
• c.Whether it receives payment for order flow, and that the source and nature are available on written request✓
• d.The name of the market maker that took the order, but only if it exceeded 10,000 shares

For an agency trade in an NMS stock, Rule 10b-10(a)(2)(i)(C) requires the confirmation to state whether the firm receives payment for order flow and that the source and nature of the compensation will be furnished on the customer's written request. The exact rebate need not be printed. Form CRS is a separate relationship summary and does not replace the confirmation statement. The rule has no 10,000-share threshold.SEA Rule 10b-10(a)(2)(i)(C)

A firm sells 200 shares of Orlin Corp to a customer out of its own inventory, and it makes a market in Orlin. What capacity information must the confirmation give?

• a.That the firm acted as principal, with market maker status shown only in the firm's quote records
• b.That the firm acted as dual agent, because it also holds a position in the security
• c.That the firm acted as agent, since the customer placed an order and the firm earned a fee
• d.That the firm acted as principal and that it is a market maker in the security✓

Rule 10b-10(a)(2) requires the confirmation to say whether the firm acted as agent or principal and, when principal, whether it is a market maker in the security. Selling from its own inventory is principal activity. Calling it agency would misstate the capacity, and dual agency means acting for both buyer and seller, which does not describe a sale from inventory. Market maker status belongs on the confirmation itself, not only in internal records.SEA Rule 10b-10(a)(2)

A customer's margin account holds 200 shares of a utility stock and nothing else. There were no trades, dividends or other entries during the quarter. Must the general securities member send a statement for that quarter?

• a.No, because statements are required only for accounts that carry a money balance at quarter end
• b.No, because statements are required only for accounts that had activity during the period
• c.Yes, but only if the market value of the position changed during the quarter just ended
• d.Yes, because the account had a security position during the period since the last statement✓

Rule 2231(a) requires a statement at least once every calendar quarter for each customer whose account had a security position, money balance or account activity since the last statement. A position alone qualifies, so the quiet account still gets one. Requiring activity, or a money balance, reads the three triggers as if each were mandatory. The rule does not tie the statement to a change in market value.FINRA Rule 2231(a)

A customer's account is serviced by an introducing firm and a carrying firm. The account statement must advise the customer to report any inaccuracy or discrepancy to which firm or firms?

• a.The carrying firm, which holds the assets and prepares the statement
• b.Both the introducing firm and the carrying firm that service the account✓
• c.SIPC, which would restore any assets found to be missing from the account
• d.The introducing firm, which handles the relationship with the customer

Rule 2231(a) requires the statement to advise the customer to report any inaccuracy or discrepancy promptly to the brokerage firm and, when two firms service the account, to make the report to both. Naming only the carrying firm or only the introducing firm leaves one firm without notice of the problem. SIPC is not where discrepancies are reported, and it protects against firm failure rather than correcting statements.FINRA Rule 2231(a)

An institutional customer's account is used only for delivery-versus-payment trades under Rule 11860 and shows no positions at quarter end. The firm wants to stop sending quarterly statements. What else must be in place?

• a.The customer's agreement to take monthly trade confirmations that replace the quarterly statement
• b.Proof that the customer is an institutional account with total assets above $50 million
• c.FINRA's written approval of the suspension under the Rule 9600 Series, given for each such account
• d.The customer's written consent, and the firm's promise to supply statements and restart delivery on request✓

Rule 2231(b) lets a firm suspend quarterly statements for a DVP/RVP-only account with no quarter-end positions when the customer consents in writing and the firm undertakes to provide any statement promptly on request and to reinstate delivery promptly on request. FINRA approval is not a condition, since the rule itself grants the relief. Confirmations are a separate obligation and do not substitute for the consent. A $50 million asset test belongs to the institutional account definition, not to this exception.FINRA Rule 2231(b)

An unlisted REIT sold shares at $25.00. Its prospectus shows 86% of proceeds available for investment, and escrow was broken 14 months ago. What per share estimated value may a member show using the net investment method?

• a.$3.50
• b.$21.50✓
• c.$29.07
• d.$25.00

The net investment method applies the amount-available-for-investment percentage to the offering price: $25.00 times 86% is $21.50. It may be used until 150 days after the second anniversary of breaking escrow, and 14 months is within that window. The $25.00 figure ignores the deductions for commissions and offering costs. The $3.50 figure is the deduction itself, 14% of the price. The $29.07 figure divides by 86% instead of multiplying.FINRA Rule 2231(c)(1)(A)

A widowed customer, still competent, gives the firm written instructions to send her account statements to her adult son as well. What must the firm do?

• a.Send statements to the son as instructed and keep sending them directly to the customer✓
• b.Send statements to the son in place of the customer, since her written instruction is enough
• c.Send statements to the son only after he provides a court appointment over her account
• d.Decline the request, because statements may go only to the registered owner of the account

Supplementary Material .02 to Rule 2231 permits statements to go to another person on the customer's written instructions, but the firm must continue sending them to the customer. Stopping delivery to the customer requires a court-appointed fiduciary who provides an official copy of the appointment, which the son does not hold. Refusing outright is wrong because the rule expressly allows third-party delivery with written instructions.FINRA Rule 2231, Supplementary Material .02

A customer asks the firm to list a $60,000 certificate of deposit held at her bank on her brokerage statement. The firm does not carry the CD. What must the statement say about it?

• a.That it is shown as a courtesy, that its value comes from an outside source, and that SIPC may not cover it✓
• b.That it is shown as a courtesy, with the firm responsible for confirming its value every month
• c.That it is held in the customer's name at the carrying firm and is part of her net equity
• d.That the firm guarantees the CD's value and that SIPC protection applies up to the statutory limit

Supplementary Material .06 requires externally held assets to be clearly separated and to carry three disclosures: they are included solely as a courtesy, their information and valuation come from the customer or another outside source for which the member is not responsible, and they may not be covered by SIPC. Guaranteeing value or claiming SIPC coverage is the opposite of those disclosures. A monthly valuation duty is not imposed. The firm does not carry the asset, so it is not part of net equity.FINRA Rule 2231, Supplementary Material .06

A carrying firm's statement for an account introduced by another firm lists both firms, the contact numbers and the opening and closing balances on the front. Which item is still missing from the front under Rule 2231?

• a.A year-to-date total of the commissions the customer has paid
• b.A statement that the carrying firm is a member of SIPC✓
• c.The carrying firm's most recent net capital figure
• d.A summary of the customer's stated investment objectives

Supplementary Material .05 requires the front of the statement to show the identity and customer service contacts of the introducing and carrying firms, that the carrying firm is a SIPC member, and the account's opening and closing balances. The statement already has all but the SIPC membership notice. Investment objectives sit in the account record, net capital is a firm financial matter, and a commission total is not among the required front-of-statement items.FINRA Rule 2231, Supplementary Material .05

A carrying firm validates a customer's ACATS transfer instruction on Tuesday, December 8, 2026. By what date must the carrying firm complete the transfer?

• a.Thursday, December 10, 2026
• b.Friday, December 11, 2026✓
• c.Wednesday, December 9, 2026
• d.Monday, December 14, 2026

Rule 11870(e) requires the carrying member to complete the transfer within three business days after validation. Counting Wednesday, Thursday and Friday gives Friday, December 11. December 9 is only one business day after validation. December 10 is two. December 14 counts four business days, which exceeds the limit.FINRA Rule 11870(e)

A customer says her account holds 300 more shares of Brightline Corp than the carrying firm's records show. She has just submitted an ACATS transfer of the whole account. How should the carrying firm respond to the instruction?

• a.Delay validation by three business days to reconcile the records before transferring
• b.Take exception to the instruction until the share discrepancy is resolved with the customer
• c.Validate it only for the positions both the customer and the firm agree on
• d.Validate it and transfer the positions its books show, handling the discrepancy separately✓

A carrying member may not take exception to a transfer because of a dispute over securities positions or money balances. It must transfer what its books and records show, and the discrepancy is worked out separately. Taking exception, validating only the agreed positions, or adding days to reconcile all hold the account hostage to the dispute, which the rule prohibits.FINRA Rule 11870(d)(2)

An ACATS transfer of a whole account has been validated. The account has an open good-till-cancelled order to buy 100 shares of a stock and an open order on calls that expire in five business days. What happens to the orders?

• a.Both open orders are cancelled and no new orders are taken because the freeze covers all open orders
• b.The stock order stays in place and only the order on the expiring calls is cancelled
• c.The stock order is cancelled and no new orders are taken, but the order on the calls may stay✓
• d.Both open orders stay in place until the transfer is complete, but no new orders are taken

On validation of a whole-account transfer, the carrying member must freeze the account: open orders are cancelled, with an exception for option positions that expire within seven business days, and no new orders may be taken. Calls expiring in five business days fall within the exception, so that order may remain, while the stock order is cancelled. Cancelling both ignores the option exception. Leaving both orders in place ignores the freeze. Cancelling only the option order reverses the rule.FINRA Rule 11870(d)(1)

A customer is moving her whole account by ACATS. It includes shares of a mutual fund proprietary to the carrying firm, and the receiving firm has not agreed to accept that fund. What must the carrying firm do?

• a.Take exception to the instruction and hold it until the receiving firm agrees to accept the fund
• b.Liquidate the fund on validation and send her the proceeds, since her consent is not needed for that
• c.Transfer the fund anyway, because a whole-account transfer has to carry all positions to the new firm
• d.Send her a written list and ask whether to liquidate it, keep it at the carrying firm, or transfer it in her name✓

A proprietary product of the carrying member is treated as nontransferable unless the receiving member agrees to accept it. For a whole-account transfer, Rule 11870(c)(3) requires the carrying firm to give the customer a list and ask in writing, before or at validation, whether to liquidate (with the fee indication), retain it, or transfer it physically in her name. Forcing a transfer ignores the nontransferable status. Selling without instructions skips the customer's choice. Taking exception delays the transfer for a reason the rule does not allow.FINRA Rule 11870(c)(3)