FINRA Series 7 — All Questions

Under Regulation NMS Rule 611, what must a trading center have in place?

• a.A requirement that all customer orders be executed within one second
• b.Written policies and procedures reasonably designed to prevent trade-throughs of protected quotations in NMS stocks✓
• c.A requirement that every order be routed to the exchange with the lowest access fee
• d.A complete ban on every execution at a price other than the midpoint of the national best bid and the national best offer

The order protection rule requires trading centers to establish, maintain and enforce written policies and procedures reasonably designed to prevent trade-throughs of protected quotations, subject to listed exceptions such as a system malfunction at the displaying center, non-regular-way contracts and single-priced opening or closing transactions. It is not a speed rule or a midpoint-pricing rule, and routing is not decided by fees alone.17 CFR 242.611(a)

Which of the following transactions is excepted from the trade-through prohibition of Rule 611?

• a.A transaction executed after 3:00 p.m. Eastern time
• b.A transaction executed by a retail customer for less than 100 shares
• c.A transaction in a stock priced above $50 per share
• d.A transaction that was not a regular way contract✓

Rule 611(b) lists exceptions that include a system failure at the displaying center, a non-regular-way contract, and single-priced opening, reopening or closing transactions. Order size, share price and time of day are not exceptions.17 CFR 242.611(b)(2)

An issuer repurchases its own common stock under the Rule 10b-18 safe harbor. Daily volume limits for the issuer's purchases generally may not exceed what share of the security's four-week average daily trading volume, unless a block exception applies?

• a.25 percent✓
• b.10 percent
• c.50 percent
• d.100 percent

The Rule 10b-18 volume condition generally limits an issuer's purchases on any single day to 25 percent of the security's four-week average daily trading volume, with a block purchase allowance in the rule. The safe harbor protects the issuer from manipulation liability when its conditions are met; it is not a requirement.17 CFR 240.10b-18(b)(4)

An issuer's stock has a four-week average daily trading volume of 800,000 shares. Ignoring the block exception and any alternative cap, what is the most the issuer may buy on one day under the Rule 10b-18 volume condition?

• a.200,000 shares✓
• b.120,000 shares
• c.80,000 shares
• d.400,000 shares

The limit is 25 percent of four-week ADTV, so 800,000 x 0.25 = 200,000 shares. Using 10 or 50 percent, or some other fraction, applies a figure that is not in the rule.17 CFR 240.10b-18

A broker-dealer using the basic method of Rule 15c3-1 has net capital of $200,000 and has been in business for several years. What is the most aggregate indebtedness it may carry?

• a.$2,000,000
• b.$3,000,000✓
• c.$4,000,000
• d.$1,600,000

Under the aggregate indebtedness standard a firm may not permit aggregate indebtedness to exceed 1500 percent of net capital, a 15-to-1 ratio. $200,000 x 15 = $3,000,000. The 800 percent ratio applies only during the first twelve months of business, so using it would understate the limit.17 CFR 240.15c3-1(a)(1)(i)

A newly registered broker-dealer using the aggregate indebtedness standard has been in business for four months. What ratio of aggregate indebtedness to net capital applies?

• a.No more than 1500 percent of net capital, a 15-to-1 ratio
• b.No more than 800 percent of net capital, an 8-to-1 ratio✓
• c.No more than 2000 percent of net capital, a 20-to-1 ratio
• d.No ratio applies until the firm has been registered for one full year

For the first twelve months after commencing business, the aggregate indebtedness limit is 800 percent of net capital. After that it is 1500 percent. There is no grace period without a ratio, and 2000 percent does not appear in the rule.17 CFR 240.15c3-1(a)(1)(i)

What minimum net capital must a broker-dealer maintain if it carries customer accounts and holds customer funds or securities, assuming it does not qualify for the lower tiers?

• a.$250,000✓
• b.$100,000
• c.$5,000
• d.$1,000,000

A firm that carries customer accounts and receives or holds funds or securities for those persons must keep at least $250,000 of net capital. The $100,000 figure is the dealer minimum, which also applies to firms writing options off an exchange, and $5,000 is the minimum for firms that only do limited kinds of business.17 CFR 240.15c3-1(a)(2)

What is the minimum net capital for a firm that is a dealer under Rule 15c3-1, such as one that writes options off an exchange?

• a.$5,000
• b.$250,000
• c.$100,000✓
• d.$25,000

A dealer must maintain net capital of at least $100,000, and the term includes any broker-dealer that endorses or writes options otherwise than on a national securities exchange. The $250,000 figure applies to firms carrying customer accounts, and $5,000 applies to firms with limited activity.17 CFR 240.15c3-1(a)(2)(iii)

An investor who is not an affiliate acquired restricted stock in a private placement from an issuer that has been an Exchange Act reporting company for several years. How long is the minimum holding period before resale under Rule 144?

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

For restricted securities of a reporting issuer, a minimum of six months must elapse after acquisition from the issuer or an affiliate before resale in reliance on Rule 144. A one-year period applies if the issuer is not a reporting company. The three-month figure is the look-back for the volume limit and the affiliate test, not the holding period.17 CFR 230.144(d)(1)

An investor who is not an affiliate buys restricted stock of a company that has never been subject to Exchange Act reporting. What is the minimum holding period for resale under Rule 144?

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

When the issuer is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the minimum holding period is one year. The six-month period applies only to reporting issuers, and ninety days is the period used in the reporting-history test, not the holding period.17 CFR 230.144(d)(1)

An affiliate wants to sell restricted stock under Rule 144. The issuer has 5,000,000 shares outstanding and the average weekly trading volume for the past four weeks was 62,000 shares. The affiliate sold 10,000 shares in reliance on the rule within the past three months. Ignoring the reported-volume alternatives not described here, what is the most the affiliate may sell now?

• a.62,000 shares
• b.50,000 shares
• c.72,000 shares
• d.52,000 shares✓

The three-month limit is the greater of 1 percent of shares outstanding (50,000) or the four-week average weekly volume (62,000), so the limit is 62,000. Subtracting the 10,000 shares already sold in the period leaves 52,000. Using the 1 percent figure alone ignores the greater-of test, and adding the prior sales instead of subtracting them gives another wrong amount.17 CFR 230.144(e)(1)

An affiliate of a reporting issuer plans a Rule 144 sale. Shares outstanding are 12,000,000, four-week average weekly volume is 95,000 shares, and the affiliate has sold 30,000 shares under the rule in the last three months. What is the maximum additional amount that may be sold?

• a.65,000 shares
• b.95,000 shares
• c.90,000 shares✓
• d.120,000 shares

The limit is the greater of 1 percent of outstanding shares (120,000) or average weekly volume (95,000), which is 120,000. After 30,000 shares already sold in the three-month period, 90,000 remain. Using only the volume test, or ignoring the prior sales, misses part of the calculation.17 CFR 230.144(e)(1)

When must an affiliate file a Form 144 notice for a Rule 144 sale?

• a.For every sale, however small
• b.Only when the sale is made to another affiliate
• c.When the amount sold in any three-month period exceeds 5,000 shares or has an aggregate sale price above $50,000✓
• d.Only when the sale is made through a market maker

Form 144 is required for sales in a three-month period that exceed 5,000 shares or units or an aggregate sale price of more than $50,000. Smaller sales need no filing, and the form does not depend on who the buyer is or on whether a market maker is used.17 CFR 230.144(h)

Which institution is a qualified institutional buyer under Rule 144A, assuming it is not a dealer or bank with different rules?

• a.An entity that owns and invests at least $10 million in securities of unaffiliated issuers, regardless of whether it is a dealer, an insurance company or an investment company
• b.An entity that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers✓
• c.Any registered representative with a Series 7 license
• d.Any individual with a net worth of $1 million

Rule 144A generally defines a qualified institutional buyer as an entity that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers, with a lower $10 million threshold for registered dealers acting for their own accounts. Individuals and licensed representatives do not qualify on net worth or license alone.17 CFR 230.144A

Under Regulation D, a natural person's net worth is measured to decide accredited investor status. What is the net worth test, and how is the primary residence handled?

• a.Individual or joint net worth over $1,000,000, excluding the value of the primary residence✓
• b.Net worth over $1,000,000, including the full value of the investor's primary residence as an asset
• c.Net worth over $250,000, excluding the primary residence
• d.Net worth over $5,000,000, excluding the primary residence

A natural person qualifies on net worth, alone or jointly with a spouse or spousal equivalent, exceeding $1,000,000, and the primary residence is not counted as an asset. The $5,000,000 figure is the total-assets test for certain trusts and entities, and including the residence would overstate the measure.17 CFR 230.501(a)(5)

Which income test makes an individual an accredited investor under Rule 501 of Regulation D?

• a.Income above $500,000 in any one of the last five years
• b.Income above $200,000 in each of the two most recent years, or joint income above $300,000, with a reasonable expectation of the same in the current year✓
• c.Income above $100,000 in the most recent year
• d.Joint income above $200,000 in the most recent year only

The income test requires individual income over $200,000, or joint income with a spouse or spousal equivalent over $300,000, in each of the two most recent years, plus a reasonable expectation of reaching the same level in the current year. A single high year, or a lower threshold, does not meet the test.17 CFR 230.501(a)(6)

In a Rule 506(b) private offering, what limit applies to purchasers who are not accredited investors?

• a.Up to 100 non-accredited purchasers, with no sophistication requirement
• b.No more than 35 non-accredited purchasers in any 90-calendar-day period, each of whom must be sophisticated alone or with a purchaser representative✓
• c.No non-accredited purchasers at all
• d.No more than 35 non-accredited purchasers per year, if each invests under $10,000

Rule 506(b) allows up to 35 non-accredited purchasers in any 90-calendar-day period, and each must have, alone or with a purchaser representative, enough knowledge and experience to evaluate the investment. General solicitation is not allowed under this option. The all-accredited condition describes Rule 506(c), which instead permits general solicitation but requires the issuer to verify status.17 CFR 230.506(b)(2)(i)

An issuer conducts a Rule 506(c) offering and uses general solicitation. What must it do about the purchasers?

• a.Limit sales to no more than 35 purchasers
• b.Register the offering with the SEC within 15 days after the first sale
• c.Accept each purchaser's self-certification box checked on the subscription form as sufficient proof
• d.Take reasonable steps to verify that every purchaser is an accredited investor✓

Rule 506(c) permits general solicitation only if all purchasers are accredited and the issuer takes reasonable steps to verify that status, which can include reviewing tax returns or relying on a written confirmation from a registered broker-dealer, registered investment adviser or licensed attorney. A simple self-certification, by itself, is not a verification step, and the 35-purchaser cap belongs to Rule 506(b).17 CFR 230.506(c)(2)(ii)

Within a 12-month period, what is the maximum aggregate offering price under the Rule 504 exemption from registration?

• a.$5,000,000 for each offering
• b.$10,000,000, reduced by securities sold in the preceding 12 months under the rule's conditions✓
• c.$50,000,000 in total
• d.$1,000,000, with no reduction for earlier sales

Rule 504 limits the aggregate offering price to $10,000,000, less the aggregate offering price of all securities sold within the 12 months before the start of and during the offering. The cap is not $1,000,000 and 504 does not set a per-offering allowance independent of prior sales.17 CFR 230.504(b)(2)

An issuer sells securities under the intrastate offering exemption of Rule 147. For how long after the sale are resales limited to residents of the issuer's state?

• a.Thirty days from the date of the sale by the issuer to the first buyer
• b.Nine months from the date of the sale by the issuer
• c.Six months from the date of the sale by the issuer✓
• d.Five years from the sale

Under Rule 147(e), for six months from the date of the issuer's sale, any resale may be made only to persons resident in the state or territory where the issuer was resident. Shorter and longer periods are not in the rule.17 CFR 230.147(d)

An investor sells stock at a loss on March 10 and buys substantially identical stock in the same account on March 28. What is the tax result of the loss?

• a.The loss is converted into a long-term gain on the new shares when they are later sold
• b.The loss is deductible, but only up to $3,000
• c.The loss is disallowed for now and added to the cost basis of the new shares✓
• d.The loss is fully deductible in the year of the sale

A wash sale occurs when a loss sale is followed, within 30 days before or after, by an acquisition of substantially identical stock. The disallowed loss is added to the cost of the new shares, which postpones the deduction until those shares are sold, and the holding period of the old shares carries over. The $3,000 cap is a separate limit on net capital losses.IRS Pub. 550, Wash Sales

An investor sells 100 shares at a $600 loss. Thirty-five days later she buys 100 shares of the same company. Does the wash sale rule disallow the loss?

• a.Yes, because the same issuer's stock was bought within 60 days
• b.Yes, because any repurchase within one year triggers the rule
• c.No, because the purchase was outside the period running 30 days before and 30 days after the sale✓
• d.No, but only if the new shares are held more than one year

The wash sale window runs 30 days before through 30 days after the sale date, which is a 61-day window. A purchase 35 days after is outside it, so the loss is allowed. The new shares' holding period does not matter to whether the rule applies.IRS Pub. 550, Wash Sales

An investor sells stock at a loss of $250 and, within the wash sale window, buys substantially identical stock for $800. What is the basis of the new shares?

• a.$250
• b.$800
• c.$1,050✓
• d.$550

The disallowed $250 loss is added to the $800 cost of the new stock, giving a basis of $1,050. This postpones the deduction until the new shares are sold. Using the cost alone ignores the adjustment, and subtracting the loss moves it in the wrong direction.IRS Pub. 550, Wash Sales

In a year, an unmarried investor has $9,000 of capital losses and $2,500 of capital gains and no other capital items. What is the maximum capital loss deduction against ordinary income for that year?

• a.$6,500
• b.$3,000✓
• c.$9,000
• d.$1,500

Losses first offset gains, leaving a net loss of $6,500. The deduction against ordinary income is the lesser of $3,000 ($1,500 if married filing separately) or the net loss, so $3,000 is allowed and the rest carries forward. The $1,500 limit applies only to married persons filing separately.IRS Pub. 550, Capital Losses

A married couple filing jointly has a net capital loss of $2,000 for the year. What capital loss deduction may they claim?

• a.$2,000✓
• b.$1,500
• c.$3,000, the annual limit, even though the couple's actual net loss is smaller
• d.$0, because losses cannot be deducted against wages

The deduction is the lesser of $3,000 ($1,500 if married and filing separately) or the total net loss. Here the net loss of $2,000 is less than $3,000, so the full $2,000 is deductible. They can claim the loss against ordinary income, up to the limit.IRS Pub. 550, Capital Losses

An investor sells stock at a gain after owning it for exactly one year, with the sale on the first anniversary of the purchase date. How is the gain classified?

• a.Long-term, because a full year has passed
• b.Long-term, because the sale was after six months
• c.Neither, because the classification is decided only at the end of the calendar year of sale
• d.Short-term, because the stock was not held more than one year✓

A gain or loss on investment property held more than one year is long-term. Holding it for exactly one year does not satisfy the test, so the gain is short-term, and the holding period begins the day after acquisition. The six-month figure is not a general holding period rule.IRS Pub. 550, Holding Period

An investor holds a municipal bond whose interest is tax-exempt and sells it for more than the purchase price. How is the profit on the sale taxed?

• a.It is exempt from federal tax like the interest
• b.It is exempt if the bond is held more than five years
• c.As a capital gain, since the exemption applies to the interest and not to appreciation✓
• d.It is taxed as ordinary interest income

The federal exclusion covers interest on qualifying state and local government bonds. A gain from selling the bond above its adjusted basis is a capital gain, short- or long-term depending on the holding period. Holding for five years does not exempt it.IRS Pub. 550, Capital Gains and Losses

Which type of municipal bond generally pays interest that is taxable for federal income tax purposes?

• a.A private activity bond that does not meet qualified bond requirements✓
• b.A general obligation bond of a state
• c.A revenue bond financing a public toll road owned and operated by a state or local government
• d.A school district bond

Interest on private activity bonds is taxable unless the bonds are qualified bonds, and interest on qualifying state and local government bonds used for public purposes is generally exempt. General obligation bonds of states, school districts and government-run toll road projects serve government functions.IRS Pub. 550, State and Local Government Obligations

An investor borrows money to buy tax-exempt municipal bonds. How is the interest on the loan treated?

• a.It is fully deductible against the tax-exempt bond interest in the same tax year
• b.It is deductible up to the amount of the tax-exempt interest earned in the year
• c.It is deductible only if the bonds are general obligation bonds
• d.It cannot be deducted, because it is incurred to produce tax-exempt income✓

Interest expense on money borrowed to buy or carry tax-exempt securities cannot be deducted. The same applies to shares in funds that distribute only exempt-interest dividends. The type of municipal bond does not change the result.IRS Pub. 550, Interest Expenses

For 2025, what is the IRA contribution limit for an individual age 50 or older who has enough taxable compensation?

• a.$23,500
• b.$7,000
• c.$9,000
• d.$8,000✓

For 2025 the IRA contribution limit is $7,000, or $8,000 for individuals age 50 or older, subject to the compensation requirement. The $7,000 figure is the base limit without the catch-up, and the larger amounts belong to employer plans, not IRAs.IRS Pub. 590-A (2025), Contributions to IRAs

Which of the following is a requirement for making a traditional IRA contribution for a given year?

• a.The individual must be under age 59½
• b.The individual or the spouse must have taxable compensation for the year✓
• c.The individual must be covered by a retirement plan offered by the individual's employer
• d.The individual must have no other retirement account

A traditional IRA contribution requires the individual (or, on a joint return, the spouse) to have received taxable compensation during the year. Employer plan coverage may limit the deduction but not the contribution, and there is no age limit of 59½ or limit on other accounts.IRS Pub. 590-A (2025), Contributions to IRAs

An investor contributes more than the limit to an IRA for 2025 and does not withdraw the excess by the deadline. What tax applies to the excess?

• a.No tax, if the excess is under $1,000
• b.A 10 percent early distribution tax on the excess contribution, in addition to ordinary income tax
• c.A 25 percent excise tax on the excess
• d.A 6 percent excise tax on the excess contribution✓

An excess contribution is subject to a 6 percent excise tax, which is avoided if the excess is withdrawn by the due date of the return including extensions. The 10 percent additional tax applies to early distributions and the 25 percent tax to missed required distributions.IRS Pub. 590-A (2025), Contributions to IRAs

An investor receives a distribution from a traditional IRA and wants to roll it over to another IRA tax free. Within how many days of receiving it must it be rolled over, absent a waiver?

• a.90 days
• b.60 days✓
• c.30 days
• d.One year

An amount distributed from an IRA is tax free if it is put back in an eligible plan within 60 days of receipt. The one-year period in the rollover rules governs how often a rollover may be done, not how long one has to complete it.IRS Pub. 590-A (2025), Contributions to IRAs

An investor takes a distribution from one traditional IRA and rolls it over to another IRA within 60 days. Within the following 12 months, may the investor make a second tax-free rollover from the same IRA?

• a.Yes, but only if the amount is under $10,000
• b.Yes, if the rollover goes to a Roth IRA
• c.No, because only one tax-free rollover of a distribution from the same IRA is allowed within a 1-year period✓
• d.Yes, unlimited rollovers are allowed each year

If an individual makes a tax-free rollover of part of a traditional IRA distribution, no later distribution from that IRA can be rolled over tax free within a 1-year period, which begins on the date the distribution was received. The dollar amount does not change the limit.IRS Pub. 590-A (2025), Contributions to IRAs

Absent an exception, what additional tax applies to a taxable withdrawal from a traditional IRA made before the owner reaches age 59½?

• a.A 10 percent additional tax on the early distribution✓
• b.A 6 percent excise tax
• c.A 25 percent additional tax in all cases
• d.No additional tax, since only ordinary income tax applies

A 10 percent additional tax generally applies to withdrawals of IRA assets before age 59½ unless an exception applies. The 6 percent tax is for excess contributions, and the 25 percent figure applies to a missed required minimum distribution, or to certain SIMPLE IRA distributions in the first two years of participation.IRS Pub. 590-B (2025), Distributions from IRAs

An IRA owner fails to take the required minimum distribution. What is the general excise tax on the amount not distributed?

• a.25 percent, which can be reduced to 10 percent if corrected in the correction window✓
• b.50 percent, which cannot be reduced
• c.10 percent, with no way to reduce it
• d.6 percent per year until corrected

A 25 percent excise tax applies to the amount not distributed as required, and a reduced 10 percent rate can apply if the shortfall is corrected during the correction window. The 6 percent figure is the excise tax on excess contributions.IRS Pub. 590-B (2025), Distributions from IRAs

An investor opened and first funded a Roth IRA four years ago and is now age 61. What makes a withdrawal of earnings a qualified distribution?

• a.It is taxable only if the investor is under age 65
• b.It is not qualified, because the 5-year period has not yet been met✓
• c.It is qualified, because the investor has held the account more than one year
• d.It is qualified, because the investor is over 59½

A qualified Roth distribution must be made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for the owner, and also meet a second condition such as being on or after age 59½. Four years of ownership does not satisfy the 5-year period, so being over 59½ is not enough.IRS Pub. 590-B (2025), Distributions from IRAs

A Roth IRA owner rolls an amount from one Roth IRA to another Roth IRA. How does this affect the 5-year period for determining qualified distributions?

• a.The 5-year period does not change✓
• b.The 5-year period restarts with the rollover
• c.The 5-year period ends immediately
• d.The 5-year period is shortened to two years

A rollover from one Roth IRA to another does not change the 5-year period, which begins with the first tax year for which a contribution was made to the initial Roth IRA. The period restarting would penalize routine account moves, which the rule does not do.IRS Pub. 590-B (2025), Distributions from IRAs

A SIMPLE IRA participant takes an early distribution within two years of first participating. What additional tax rate applies instead of the usual 10 percent?

• a.15 percent
• b.6 percent
• c.25 percent✓
• d.50 percent

Distributions from a SIMPLE IRA made within 2 years of beginning participation are subject to a 25 percent early distributions tax rather than 10 percent. The 6 percent figure is the excise tax on excess IRA contributions.IRS Pub. 590-A (2025), SIMPLE IRAs

Regulation Best Interest requires a broker-dealer to satisfy four component obligations when it makes a recommendation to a retail customer. Which list names them?

• a.Care, Loyalty, Prudence and Compliance, in that order
• b.Disclosure, Know Your Customer, Care and Fiduciary
• c.Disclosure, Care, Conflict of Interest and Compliance✓
• d.Disclosure, Suitability, Supervision and Recordkeeping

Rule 15l-1(a)(2) is satisfied only if the broker-dealer meets the disclosure obligation, the care obligation, the conflict of interest obligation and the compliance obligation. Suitability, supervision and recordkeeping are separate regimes, and Regulation Best Interest does not impose a fiduciary duty or a loyalty-and-prudence test.17 CFR 240.15l-1(a)(2)

A representative recommends a series of trades in a retail customer's account. Each trade looks reasonable in isolation. Under the care obligation of Regulation Best Interest, what else must the firm and representative have a reasonable basis to believe?

• a.That the customer approves a commission schedule in writing before each trade
• b.That the series produces a profit for the customer within one year
• c.That the series of recommended transactions, taken together, is not excessive and is in the customer's best interest✓
• d.That each transaction in the series is a different security

The care obligation covers a series of recommendations: even if each is in the customer's best interest alone, the reasonable basis must extend to the series being not excessive and in the customer's best interest taken together, in light of the investment profile. Reg BI does not require diversification of each trade, and profit is not the test.17 CFR 240.15l-1(a)(2)(ii)(C)

Under the conflict of interest obligation of Regulation Best Interest, what must a broker-dealer do about sales contests?

• a.Identify and eliminate sales contests, sales quotas, bonuses and non-cash compensation based on sales of specific securities or types of securities within a limited period of time✓
• b.Eliminate them only if they are tied to proprietary products
• c.Permit them if awarded only to supervisors
• d.Disclose each contest to the customer and keep it

The conflict of interest obligation requires written policies and procedures reasonably designed to identify and eliminate sales contests, quotas, bonuses and non-cash compensation that are based on sales of specific securities or specific types of securities within a limited period of time. Disclosure alone does not satisfy the requirement, and the prohibition is not limited to proprietary products.17 CFR 240.15l-1(a)(2)(iii)(D)

Regulation Best Interest protects a retail customer. Who is a retail customer under the rule?

• a.Only a natural person who has less than $1 million in assets
• b.Only a natural person who has held an account for at least a year
• c.Any entity that opens an account with a broker-dealer
• d.A natural person who receives a recommendation of a securities transaction or strategy and uses it primarily for personal, family or household purposes✓

Rule 15l-1(b)(1) defines a retail customer as a natural person, or that person's legal representative, who receives a recommendation and uses it primarily for personal, family or household purposes. Entities and asset or tenure tests are not part of the definition.17 CFR 240.15l-1(b)(1)

When must a broker-dealer give a retail customer the written disclosure of material facts about the relationship and conflicts of interest required by the disclosure obligation of Regulation Best Interest?

• a.Within 10 business days after the account is opened
• b.Only after the customer asks for the recommendation in writing
• c.Prior to or at the time of the recommendation✓
• d.Within 30 days after the recommendation

The disclosure obligation requires the broker-dealer, prior to or at the time of the recommendation, to provide the retail customer, in writing, full and fair disclosure of the material facts about the scope and terms of the relationship and the conflicts of interest associated with the recommendation. Disclosure after the fact or on request does not satisfy the timing.17 CFR 240.15l-1(a)(2)(i)

For how long must a broker-dealer generally preserve the records listed in Rule 17a-4(a), such as blotters and general ledgers, and how are they to be kept?

• a.At least three years, the first year in an easily accessible place
• b.At least ten years, the first five years in an easily accessible place
• c.At least six years, the first two years in an easily accessible place✓
• d.At least six years, all of them in an easily accessible place on the premises

Rule 17a-4(a) requires records made under the listed paragraphs of Rule 17a-3 to be kept for not less than six years, the first two in an easily accessible place. The three-year period applies to other records listed in paragraph (b).17 CFR 240.17a-4(a)

For how long must a broker-dealer keep records covered by Rule 17a-4(b), such as originals of communications relating to its business as such, and how are they to be kept?

• a.At least one year, all in an easily accessible place
• b.At least six years, the first two years in an easily accessible place, as with the records in paragraph (a)
• c.At least three years, the first two years in an easily accessible place✓
• d.At least three years, all in an easily accessible place

Rule 17a-4(b) sets a retention period of not less than three years, the first two years in an easily accessible place. The six-year period belongs to the records in paragraph (a).17 CFR 240.17a-4(b)

A broker-dealer wants to sell a penny stock to a new customer. What waiting period applies after the broker-dealer sends the customer the required suitability statement and agreement?

• a.The purchase may be effected on the same day
• b.The broker-dealer must wait until the next account statement date
• c.The broker-dealer may not effect the purchase less than two business days after sending the agreement✓
• d.The broker-dealer must wait 30 days

Rule 15g-9 bars effecting a penny stock purchase for a customer less than two business days after the broker-dealer sends the required written statement and agreement, and it requires a written agreement to the transaction from the customer and a determination that penny stocks are suitable for the person. Same-day and month-long waits are not part of the rule.17 CFR 240.15g-9(a)

Before approving a new customer's account for penny stock transactions, what must the broker-dealer obtain and do under Rule 15g-9?

• a.Obtain only the customer's signature on a margin agreement
• b.Only send the customer a copy of the company's annual report
• c.Obtain a minimum deposit of $10,000 and no other information
• d.Obtain the customer's financial situation, investment experience and objectives and reasonably determine that penny stock transactions are suitable for the customer✓

To approve an account for penny stock transactions, the broker-dealer must obtain information about the customer's financial situation, investment experience and investment objectives, and reasonably determine that penny stock transactions are suitable and that the customer can evaluate the risks. There is no minimum-deposit or annual-report test.17 CFR 240.15g-9(b)

When must a broker-dealer give or send a customer the written confirmation of a securities transaction?

• a.Only if the customer requests it in writing
• b.Within 30 days after settlement
• c.At or before completion of the transaction✓
• d.At the end of the quarter in which the trade occurred

Rule 10b-10 requires a broker-dealer to give or send written notification of the transaction at or before its completion. The notification must identify the security and state whether the firm acted as agent or principal. A quarterly or on-request approach does not meet the timing.17 CFR 240.10b-10(a)

Which fact about its role must a broker-dealer disclose on a customer confirmation?

• a.Only whether the trade was a purchase or sale
• b.Whether the customer's account is subject to margin maintenance calls
• c.Whether it acted as agent for the customer, as agent for another person, as agent for both, or as principal for its own account✓
• d.Whether the firm's capital exceeds $250,000

The confirmation must disclose whether the firm acted as agent for the customer, agent for some other person, agent for both, or as principal, and a principal-capacity trade must also state whether the firm is a market maker in the security. Net capital and margin status are not confirmation items.17 CFR 240.10b-10(a)(2)